In Paul C. Golini v. The Queen (2013 TCC 293) the Tax Court of Canada agreed to strike out portions of a taxpayer’s pleading suggesting that a protective reassessment issued by the Canada Revenue Agency (“CRA”) was invalid.
In June 2012, the CRA informed the taxpayer that his 2008 income tax return had been selected for an audit. In the following months, both parties continued to correspond and exchange information. In August 2012, the CRA asked the taxpayer to provide a waiver extending the limitation period to reassess the 2008 taxation year. The taxpayer declined to do so.
In September 2012, the Minister reassessed the taxpayer and informed him that the reassessment was a “protective reassessment;” supporting documentation would be provided upon completion of the audit.
The Crown brought a motion to strike out the allegation that the reassessment was invalid. The taxpayer contended that a “protective reassessment” was inconsistent with the assessing provisions of the Income Tax Act as it was issued solely to allow the Minister additional time to complete an audit.
The Tax Court judge looked to Karda v. HMQ (2006 FCA 238) for guidance on the issue. In that case, the Federal Court of Appeal held that the Minister may issue a protective reassessment where a taxpayer declines to provide a waiver so long as the CRA has completed “some review” and has requested further information. The Tax Court judge held that:
There is no law . . . to the effect that a protective assessment is invalid if issued for the sole purpose of leaving the door open to conduct or continue an audit.
He went on to note that:
. . . the law, I find, is clear that some review by the CRA followed by inquiries for more information and a request for a waiver, subsequently refused, is sufficient for a protective assessment to be a valid assessment. And that is exactly what we have here.
Whenever a taxpayer declines to grant the CRA a waiver, the CRA almost invariably reassesses before the “normal reassessment period” expires. There is nothing surprising about that. What is noteworthy here, though, is the willingness of the Tax Court to entertain the Crown’s request to strike out, before trial, an argument put forward by a taxpayer. As we noted in our blog post on the Federal Court of Appeal’s decision in Canadian Imperial Bank of Commerce v. The Queen:
Parties are generally given the opportunity to make whatever arguments they consider necessary to their case with the ultimate determination being made by the trial judge who is in the best position to decide questions of relevance and weight in light of all the evidence. It is rather unusual for a legal theory, novel though it is, to be taken off the table at such an early stage. At the same time, courts are increasingly concerned about “proportionality” and are reluctant to allow scarce judicial resources to be spent on matters that are unlikely to have any effect on the outcome of the hearing.
This decision is, therefore, consistent with recent jurisprudence from the Federal Court of Appeal and should reduce the number of issues to be decided at trial.