Is the MNR Permitted to Adjust Balances for Statute-barred Years?
Desgagné v The Queen, 2012 TCC 63
There were a number of issue in this appeal, including:
- whether the MNR could adjust balances for statute-barred years so as to affect the tax liability/assessment for non-statute barred years.
-
what the proper class for purposes of CCA of a lawyer’s gown and bands is.
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The Court concluded that an assessment involves the determination of tax payable for a year and does not encompass the underlying facts for coming years such that the MNR may correct mistakes in past years, including statute barred years, so as to determine tax liability in non-barred years. The court also concluded that gown and bands fall under the definition of “uniform” in Class 12.
FACTS
The taxpayer is a lawyer who, among other things, challenged the Minister’s readjustment of her Class 8 opening balance for the beginning of a statute barred year.
The Taxpayer included the cost of gowns, dark suits, and bands in Class 8 and took CCA on the balance.
ANALYSIS
The Court referred to the decision in Coastal Construction and Excavating Ltd. v. Canada, [1996] T.C.J. No. 1102 (QL), where Bowman J stated:
. . . The Minister is obliged to assess in accordance with the law. If he assesses a prior year incorrectly and that year becomes statute-barred this will prevent his reassessing tax for that year, but it does not prevent his correcting the error in a year that is not statute-barred, even though it involves adjusting carry-forward balances from previous years, whether they be loss carry-forwards or balances of investment tax credits. New St. James Limited v. M.N.R., 66 DTC 5241; Allcann Wood Suppliers Inc. v. The Queen, 94 DTC 1475. No question of estoppel arises: Goldstein v. The Queen, 74 DTC 1029. [emphasis added]
The court concluded that the Minister did have the power to make the adjustment to the opening class balance.
In turning to the question of the appropriate class for Lawyers’ gowns and bands, the court reviewed the definition of Class 12 of Schedule II of the Income Tax Regulations which includes in paragraph (i) “a uniform”. THe court refereed to the definition of uniform which includes “specific suits or clothing required to be worn by a group (professionals, etc), before concluding that the bands and gowns fall under that definition of Uniform with a higher CCA rate.
The Taxpayer included her dark suits as capital costs relying on Charron v. Canada [1997] T.C.J. No. 1181 (QL), a decision of the TCC regarding a lawyer who claimed clothing costs. The Court, however, stated that dark suits, even if bought only for work and worn only to work, do not fall into a category that puts them into a class of “specialized clothing” but is clothing that could be worn for every day life (thus was a personal expense).
Sas Ansari, BSc BEd PC JD LLM PhD (exp) CPA In-Depth Tax 1, 2 &3
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