The limits on the Crown’s ability to raise a new basis or argument in support of an assessment continue to be subject to judicial scrutiny. Subsection 152(9) of the Income Tax Act (Canada) (the “Act”) permits the Minister of National Revenue (the “Minister”) to advance an alternative basis or argument in support of an assessment at any time after the expiry of the normal reassessment period, subject to certain conditions. In 2016, subsection 152(9) was amended to broaden the Minister’s already expansive power by allowing the Minister to increase an assessed amount in respect of a particular source of income, provided that the total amount assessed does not increase. The scope of amended subsection 152(9) was recently considered by the Tax Court of Canada (the “Tax Court”) in Oldcastle Building Products Canada Inc. v. The King (2025 TCC 107) (“Oldcastle”). The Tax Court held that, subject to certain conditions, the Minister has the widest possible latitude to rely on alternative approaches to support an assessment and is now permitted to rely on a different transaction than the transaction that was originally reassessed. In reaching this conclusion, the Tax Court’s interpretation of subsection 152(9) overrides an important and long-standing restriction on the Minister’s power to raise new arguments after the normal reassessment period.
The Tax Court’s Decision
The Minister applied the general anti-avoidance rule (the “GAAR”) to a series of transactions that was undertaken by the appellant in 2011 and 2012. The Minister assessed the appellant for Part XIII withholding tax and issued a determination under the GAAR relating to the paid-up capital of the appellant’s common shares. The Minister also disallowed interest deductions that were claimed in connection with the series of transactions on the basis that the borrowed money was not used for the purpose of earning income from a business or property for the purposes of paragraph 20(1)(c).
After the parties had completed examinations for discovery, the Crown brought a motion for an order allowing it to raise the thin capitalization rules in subsections 18(4) and (5) as an alternative basis or argument for disallowing the interest deductions. The Crown argued that subsection 152(9) permitted it to raise the new basis or argument and that an amendment to its pleading would (a) assist the trier of fact in determining the real questions in controversy; (b) not result in injustice to the appellant not compensable in costs; and (c) serve the interests of justice. The appellant opposed the order, arguing that the Minister was attempting to reassess a different transaction than the one originally reassessed and that the appellant would suffer prejudice that would not be compensable by costs.
The Tax Court granted the Crown’s motion. In reaching its decision, the Tax Court noted that subsection 152(9) was amended in 2016 to address the Federal Court of Appeal’s decision in Canada v. Last, (2014 FCA 129, leave to appeal denied 2014 CanLII 67426 (SCC)) (“Last”). In Last, the taxpayer argued that capital gains that the Minister had assessed in respect of certain share trading transactions should instead be business income and that certain payments the appellant had made to or on behalf of the corporation were deductible in computing its income. The Tax Court agreed that the gain was business income, but found that the payments were loans and were, therefore, not deductible. The Tax Court refused to order the Minister to reassess to change the character of the gains from capital to income because, in the Tax Court’s view, former subsection 152(9) did not permit the Minister to reassess an amount from a different source after the normal reassessment period had expired. The Tax Court held that the principle that the amount of an assessment cannot be increased after the normal reassessment period must be applied on a source-by-source basis. The decision in Last was upheld by the Federal Court of Appeal.
In Oldcastle, the Tax Court held that the 2016 amendment to subsection 152(9) was explicitly intended to overrule the source-by-source approach in Last, but maintain the principle that the total amount assessed cannot increase after the normal reassessment period. The Tax Court observed that the 2016 amendment changed the wording of subsection 152(9) from “alternative argument” to “alternative basis or argument”. The Tax Court assumed that this change was made because the government was concerned that subsection 152(9) would not allow new assessing positions to be raised based on a different set of facts than was originally relied on for the assessment. The Tax Court also speculated that the new wording “in support of all or any portion of the total amount determined on an assessment…” was meant to underscore that the Minister’s power under subsection 152(9) is in relation to an assessed amount, rather than a particular transaction. Based on this, the Tax Court concluded that, subject to the conditions in paragraphs 152(9)(a) and (b), amended subsection 152(9) allows the Minister “to support a reassessment using the broadest range of possible alternative approaches” (para. 29), provided the total assessed amount does not increase.
Significantly, the Tax Court rejected the appellant’s argument that the Crown’s alternative argument relied on a different transaction from the one originally reassessed and that this was not permitted under amended subsection 152(9). The Tax Court stated (at para. 39) that “the 2016 amendments were effective to override any prior limitation that had developed in the case law about alternative arguments being limited to the same transaction.” The Tax Court reasoned that since amended subsection 152(9) expressly states that the Minister may raise an alternative argument that a reassessed amount is from a different source, it is not possible to interpret the provision as requiring the Minister to base the alternative argument on the same transaction that the Minister originally reassessed. The Tax Court stated that, in any event, it had no difficulty concluding that the thin capitalization argument relied on the same transaction that was originally reassessed (i.e., it was based on the same borrowing that gave rise to the interest deductions). In addition, the Tax Court found that the appellant had not shown that it would suffer any prejudice from allowing the amendment to the Crown’s pleading that was not compensable by costs. As a result, the Tax Court held that there was no basis for denying the Crown’s motion.
Comments
The Tax Court’s analysis is notable because it did not conduct a textual, contextual and purposive analysis in interpreting amended subsection 152(9), as the Supreme Court of Canada has repeatedly instructed (Piekut v. Canada (National Revenue), 2025 SCC 13, at para. 43). Instead, it relied on the reason for the 2016 amendment and the addition of the word “basis” in “alternative basis or argument” as signaling Parliament’s intention to allow the Minister to support a reassessment using a different transaction than the one originally reassessed. When carefully examined, these factors do not appear to support the Tax Court’s conclusion.
As noted by the Tax Court in Oldcastle, the Technical Notes for amended subsection 152(9) indicate that the government’s intention was to overrule Last. In Last, whether the gains in question were on income or capital account, they arose from the same transactions, i.e., the same share dispositions. However, the Minister was not permitted to reassess to include the gains in income because to do so would have changed the source of the income. In contrast, if amended subsection 152(9) had applied in Last, the Minister would have been allowed to reassess on this basis because the amended provision explicitly allows the Minister to advance an alternative basis or argument that “all or any portion of the income to which an amount relates was from a different source”. It does not necessarily follow, however, that the Minister is permitted to take into account a different transaction than the one that formed the basis for the original reassessment as this would extend the scope of the amendment beyond overruling the decision in Last.
In addition, interpreting amended subsection 152(9) to allow the Minister to rely on new transactions would be inconsistent with subsection 152(5). Subsection 152(5) provides that, for the purpose of a reassessment made after a taxpayer’s normal reassessment period, the Minister cannot include any amount that was not included in computing the taxpayer’s income for the purpose of a reassessment made before the end of the period. In Foster v. R., 2015 TCC 334, the Tax Court held that the word “amount” in subsection 152(5) refers not just to a dollar amount, but to an amount relating to a particular transaction (at para. 36). Based on this, the Tax Court concluded that subsection 152(5) prevents the Minister from reassessing after the normal reassessment period to include amounts that are based on different transactions than the transactions that were originally reassessed, even if doing so would not result in any change to the dollar amount of the reassessment. Given that subsection 152(9) is subject to subsection 152(5) (i.e., it does not state that it applies notwithstanding subsections 152(4) and (5), as do other provisions of the Act such as subsection 152(4.01)), it is reasonable to conclude that the Minister’s power under amended subsection 152(9) is constrained by subsection 152(5).
With respect to the addition of the word “basis” to amended subsection 152(9), the Federal Court of Appeal has previously held that there is no meaningful difference between a new basis and a new argument in support of an assessment (Canada v. Anchor Pointe Energy Ltd., 2003 FCA 294, at para. 38). As a result, it is likely that the word “basis” was added to subsection 152(9) for greater certainty and not to bring about a substantive change. The Tax Court acknowledged that this aspect of the amended provision is not referred to in the Technical Notes. It is reasonable to expect that the Department of Finance would have referred to this change in the Technical Notes and explained the reason for it if it had been intended to effect such a significant change.
The decision in Oldcastle has been appealed to the Federal Court of Appeal. It is hoped that the Federal Court of Appeal will clarify the limits on the Minister’s power under amended subsection 152(9) to raise a new basis or argument in support of an assessment after the normal reassessment period.
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