Principal Issues: [TaxInterpretations translation] Issuance of an assessment following a bankruptcy. 1) Following the Girard decision, do the tax authorities consider that they must, in all cases, apply to the court, in accordance with section 69.4 of the BIA, to issue a notice of assessment following a bankruptcy or the filing of a proposal? 2. Are the tax authorities of the opinion that notices of assessment issued despite the suspension of collection procedures provided for in section 69.3 of the BIA (without having obtained the authorization provided for in section 69.4 of the BIA) are legally valid?
Position: 1. No 2. Yes
Reasons: See analysis.
FEDERAL TAX ROUNDTABLE, NOVEMBER 2, 2023
APFF CONFERENCE 2023
13. Issuance of an assessment following a bankruptcy
In Trustee of Girard, 2014 (footnote 1), the Court of Appeal came to the following conclusion in connection with the Bankruptcy and Insolvency Act (footnote 2) and the notices of assessment issued by the CRA:
[68] In conclusion, if the CRA files a claim with the trustee, it may follow it up with a notice of assessment. However, since this notice of assessment constitutes a procedure for the collection of a provable claim, it will not have the legal effects conferred on it by the ITA, unless the CRA obtains the authorization of the court. In other words, if the CRA wishes the ITA's procedure for contesting a notice of assessment to apply, particularly as regards the time limit for contesting it, it must apply to the court and obtain the court's consent, in accordance with section 69.4 of the BIA.
Questions to the CRA
The following questions are posed to the CRA in connection with the issuance of notices of reassessment in the context of a bankruptcy or proposal under the B.I.A.:
(a) Following the Girard decision, do the tax authorities consider that they must, in all cases, apply to the court, in accordance with section 69.4 of the B.I.A., in order to issue a notice of reassessment following a bankruptcy or the filing of a proposal?
(b) Are the tax authorities of the view that notices of assessment issued despite the suspension of collection proceedings provided for in section 69.3 B.I.A. (without having obtained the authorization provided for in section 69.4 B.I.A.) are legally valid?
CRA Response to question 13(a)
The CRA does not consider that it must apply to the court in all cases where it issues a notice of assessment following a bankruptcy or the filing of a proposal for a tax debt relating to a taxation year ending on a day preceding the date of the bankruptcy or proposal, in order to ensure sound administration and reasonable use of judicial resources.
For example, the CRA will not seek court authorization where the trustee does not contest its proof of claim. Similarly, the CRA will not seek leave where the debtor (in a proposal) or the trustee (in a bankruptcy) does not intend to object to the assessment.
Where the particular context of a case so requires, in applying Girard, the CRA will seek leave of the court under section 69.4 B.I.A. to lift the stay of proceedings.
CRA Response to question 13(b)
The CRA considers such notices of assessment to be legally valid. As the Court of Appeal ruled in Girard, the CRA is entitled to follow up its proof of claim with a notice of assessment.
In Girard, the presumption of validity of notices of assessment under subsection 152(8) I.T.A. was not at issue. Rather, the debate concerned the implications of sections 69.3 and 69.4 B.I.A. with respect to the procedure for contesting a notice of assessment and the time limits applicable for doing so under the Income Tax Act when the CRA's proof of claim is contested by a trustee.
As stated in the previous question, if a trustee does not contest the CRA's proof of claim, there are no issues related to sections 69.3 and 69.4 of the B.I.A. Consequently, the notice of assessment continues to have full legal effect.
In the event that a trustee contests the CRA's proof of claim, the legal effects of the notice of assessment, including the procedure for contesting the assessment and the time limits associated with it, are suspended until the CRA obtains the lifting of the suspension of proceedings under section 69.4 B.I.A., pursuant to the Girard decision.
Yara Barrak
November 2, 2023
2023-098294
Response prepared in collaboration with:
Judith Lemieux, Lawyer
Legal Services Branch - Canada Revenue Agency
FOOTNOTES
Due to the requirements of our systems, the footnotes contained in the original document are reproduced below:
1 2014 QCCA 1922 ("Girard").
2 R.S.C. 1985, c. B-3 ("B.I.A.").