Two associated corporations (Ainc. and Binc.) shared the business limit in filing their returns for their 2000 taxation year. At their request, both were then reassessed within the normal reassessment period (“NRP”) to carry back losses from their 2002 taxation years, as a result of which each had an unutilized portion of the business limit for 2000. However, following an audit of the 2002 taxation year (and following the expiry of the NRP for the 2000 taxation year), CRA determined that the 2002 loss, which Ainc. had carried back, must be reduced.
Can the tax payable by Ainc. now be reassessed pursuant to s. 152(4)(b)(i) to reduce the loss carry-back and to allow it the amount of the unused business limit of Binc? The Directorate indicated it could under s. 152(4)(b)(i) reassess the tax payable by Ainc. for its 2000 taxation year within the extended reassessment period (“ERP”) provided under s. 152(4)(b), but then indicated:
However, a reassessment under subparagraph 152(4)(b)(i) could technically only reflect the revised loss carrybacks; and thus, any changes to the allocation of the business limit between Ainc. and Binc. could not be taken into account.
In this regard, the Directorate noted the statement in Agazarian that:
[T]he power to reassess following a request for a reassessment to claim a loss carry-back, is limited to the loss carry-back itself. It does not open up the taxation year for reassessment on any other ground.
However, the Directorate went on to indicate that its administrative practice, in such circumstances, could apply to allow and implement a revised allocation if the corporations filed a revised T2 SCH 23. Furthermore, in recomputing the tax payable by Ainc., it was to receive the benefit of an increased abatement under s. 124(1) and increased M&P credit under s. 125.1(1), as such adjustments were of a mechanical nature.