Principal Issues: (1) Would the CRA accept a request from the taxpayer to permit a revision of CCA claimed since 2003 so that the taxpayer can reduce its loss in different years in favour of an increased undepreciated capital cost, assuming that despite the CCA claims, all years since 2003 still result in non-capital loss? Would CRA’s position be different where the non-capital loss carry forwards in respect of certain years are expired ? (2) Would the CRA accept a request from a taxpayer seeking to increase the amount of CCA claimed since 2010 to increase the non-capital loss available for carry forward in 2023?
Position: No position taken, general comments provided.
Reasons: Depends on the specific facts of each case.
FEDERAL TAX ROUNDTABLE, NOVEMBER 2, 2023
APFF CONFERENCE 2023
8. Change in Capital Cost Allowance ("CCA") - Prescribed Year
The decision in St. Benedict Catholic Secondary School Trust vs. Canada (footnote 1) creates uncertainty respecting the comments made by the CRA in Information Circular 84-1 (footnote 2) regarding paragraph 10 "Revisions Requested in Respect of Non-Taxable Years".
We wish to know the CRA's current interpretation of the potential for a taxpayer to request a revision of capital cost allowance ("CCA") for a taxation year for which the CRA has issued a notice stating that no tax is payable (for example, a non-capital loss in that year).
Situation 1
A taxpayer has incurred operating losses since 2003 and has claimed CCA for each of those years. The CRA has issued a notice stating that no tax is payable for each of those years. The expiry date for some of the losses is approaching.
Situation 2
A taxpayer has incurred operating losses since 2010 and has not claimed CCA for each of those years. The CRA has issued a notice stating that no tax is payable for each of these years. The taxpayer will soon begin realizing trading profits.
Questions to the CRA
(a) In Situation 1, would the CRA agree to process a request from the taxpayer to amend the CCA claimed since 2003 so that the taxpayer can reduce its loss in the various years in favour of a higher undepreciated capital cost balance, assuming that despite the CCA deduction, the years since 2003 continue to show a loss? Is the CRA's position different if the period for utilizing certain losses has already expired?
(b) In Situation 2, would the CRA agree to process a request from the taxpayer to increase the amount of CCA claimed since 2010 in order to increase the balance of losses available for use in 2023?
CRA Response
IC84-1 sets out the CRA's administrative position regarding requests for revision of CCA claims and other allowable deductions in respect of prior taxation years, including statute-barred taxation years. More specifically, as noted in the question, paragraph 10 of IC84-1 sets out the CRA's administrative position regarding requests for revision of CCA claims in respect of non-taxable years. Although IC84-1 is currently under revision, our position with respect to its application remains unchanged following the Federal Court of Appeal's decision in St. Benedict Catholic Secondary School Trust.
Since IC84-1 sets out an administrative position, the CRA exercises some discretion in determining whether or not to allow a taxpayer's request. IC84-1 applies within the context and legislative framework of the Income Tax Act. Thus, when considering a request to revise claims for CCA or other allowable deductions, the CRA will consider all of the relevant provisions of the Income Tax Act and whether granting the request would produce an inappropriate result. Also, the decision to grant a request for revision of CCA claims will be based on all the facts and circumstances of the situation. With respect to revisions for loss years, this could include, but is not limited to, whether the loss has expired, whether the loss has been applied to other years, whether the revision would result in a change in the tax assessment for the year or any other year, and whether a Notice of Determination has been issued in respect of the loss. Under no circumstances will the CRA accept a request from a taxpayer if it would result in an inappropriate result, if it is part of a tax avoidance scheme, or if it would result in a change in the tax assessment for the year or any other year, including a statute-barred year, for which the time for filing a notice of objection has expired.
While to some extent IC84-1 sets out situations where the CRA will consider requests for revision in circumstances that could constitute retroactive tax planning, in recent years the CRA has noted more situations that, in its view, lead to an inappropriate result. Thus, the CRA pays particular attention to requests for revision of CCA and other allowable deductions in respect of prior taxation years and evaluates them on a case-by-case basis to ensure that the administrative position contained in IC84-1 is used by taxpayers in a manner consistent with its purpose and the Income Tax Act, and that it is applied consistently by the CRA. Since each decision is based on the facts and circumstances of each case, we are not in a position to confirm whether the requests for revision described in the two scenarios submitted in the question would be accepted by the CRA.
Simon Morin
November 2, 2023
2023-098288
Response prepared in collaboration with:
Kerri Hanley, Manager
Technical and Policy Support Section
Domestic Tax Division
International and Large Business Directorate
FOOTNOTES
Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:
1 2022 DTC 5083 (« St. Benedict Catholic Secondary School Trust »).
2 CANADA REVENUE AGENCY, Information Circular IC-84-1 " Revision of Capital Cost Allowance Claims and Other Permissive Deductions”, July 9, 1984 ("IC84-1").