In 2011 the Minister reassessed the taxpayer's 2007 taxation year (the old reassessment) by denying the deduction of various expenses and capital cost allowance claims. After being requested to carry back subsequent losses to 2007, the Minister reassessed to reduce the tax payable in 2007 to nil. Under the new reassessment, the taxpayer was still required under s. 161(7) to pay the interest that had accrued on the additional income from 2007 before the loss carry-back. The taxpayer appealed on the basis that the old reassessment overstated the 2007 income, so that the resulting interest was too high.
Pizzitelli J found that the Tax Court lacked the jurisdiction to grant the relief the taxpayer sought on the basis that the new reassessment was a nil assessment. The interest owing did not transform the nil assessment into an assessment. Pizzitelli J stated (at para. 19):
A nil assessment does not in my mind describe circumstances where no total taxes, interest and penalties are assessed. It more properly describes the situation where no taxes are claimed.
Although the term "nil assessment" has been used to refer to an assessment that is for a nil amount (and therefore cannot be appealed), more accurately, an "assessment" for a nil amount is not an assessment at all, but rather a notice under s. 152(4) that "no tax is payable" (paras. 19-20, citing Interior Savings Credit Union and Okalta Oils). Moreover, an assessment of interest (or penalties) is distinct from an assessment of tax (paras. 22-23, citing McFadyen).
To vary an interest assessment, a taxpayer must either show that interest was computed incorrectly (which was not in issue), or show that the underlying tax was incorrect (which the taxpayer could not do because there was no assessment in effect for 2007).