Nil Assessments Versus Ordinary Assessments
Tax advisers understand the general principle that one cannot object to a
notice that no tax is payable—commonly called a "nil assessment." This
is because a nil assessment is not technically an assessment, and an
assessment is what triggers the right to file an objection (Interior Savings Credit Union
, 2007 FCA 151
at paragraph 17; sections 165 and 169). But what are the implications
for tax practice of the inability to object to a nil assessment?
Normal Assessment Period
A common error is to think that the objection issue noted above is
linked to the definition of the normal assessment period; thus, this
period is thought not to start with the issuance of a nil assessment.
This belief causes practitioners to report a small amount of income to
be sure that the clock starts ticking on the CRA's ability to reassess.
However, this strategy serves no purpose: the normal reassessment period
starts regardless of the amount of tax liability assessed. Subsection
152(3.1) specifically states that the normal reassessment period begins
to run after "the day of sending of an original notification that no tax
is payable by the taxpayer for the year."
Challenging a Nil Assessment
To challenge the CRA's determination of losses, the taxpayer will have
to request a determination of losses under subsection 152(1.1). However,
a taxpayer can make such a request only where the CRA determines that a
taxpayer's loss is different from what was reported in a return.
Therefore, if the CRA issues a "nil assessment" that is fully in
accordance with a taxpayer's filings, it will not be able to issue a
determination of losses under subsection 152(1.1) (see Inco Limited
, 2004 TCC 373
, 2013 TCC 240
Furthermore, if the taxpayer requests a change on a return as a result
of amended or new information, and the minister ascertains a loss that
fully reflects that change, the CRA's view is that subsection 152(1.1)
does not apply, and it will not issue a notice of determination
(paragraph 4 of IT-512, "Determination and Redetermination of Losses"
Gergely Hegedus and Keith Hennel
Dentons Canada LLP, Edmonton