Canada v. Loewen (F.C.A.), 2004 FCA 146, [2004] 4 FCR 3
Can the Canada Revenue Agency (“CRA”), after the expiry of the reassessment period, defend an assessment by relying on a new legal argument or additional facts that were not part of the CRA’s original assumptions, without effectively making a new assessment?
Subsection 152(9) of the Income Tax Act, R.S.C., 1985, c. 1 (5th Supp.) permits the CRA to defend an existing tax assessment with new legal arguments and additional facts. In the decision of Canada v. Loewen (F.C.A.), 2004 FCA 146, [2004] 4 FCR 3 [Loewen] the Federal Court of Appeal held that the Crown may defend an assessment using a new argument—that property was not acquired for an income-earning purpose—even though that was not the Minister’s original basis for reassessment, provided the assessment itself is not changed.
According to the decision in Loewen:
[9] It is the obligation of the Crown to ensure that the assumptions paragraph is clear and accurate. For example, the Crown cannot say that the Minister assumed, when making the assessment, that a certain car was green and also that the same car was red, because it is impossible for the Minister to have made both of those assumptions at the same time: Brewster, N C v. The Queen, [1976] CTC 107 (F.C.T.D.).
[10] Nor is it open to the Crown to plead that the Minister made a certain assumption when making the assessment, if in fact that assumption was not made until later, for example, when the Minister confirmed the assessment following a notice of objection. The Crown may, however, plead that the Minister assumed, when confirming an assessment, something that was not assumed when the assessment was first made: Anchor Pointe Energy Ltd. v. Canada, 2003 DTC 5512 (F.C.A.).
[11] The constraints on the Minister that apply to the pleading of assumptions do not preclude the Crown from asserting, elsewhere in the reply, factual allegations and legal arguments that are not consistent with the basis of the assessment. If the Crown alleges a fact that is not among the facts assumed by the Minister, the onus of proof lies with the Crown. This is well explained in Schultz v. Canada, [1996] 1 F.C. 423 (C.A.) leave to appeal to S.C.C. refused, [1996] S.C.C.A. No. 4…
Subsection 152(9) - Alternative Basis for Assessment
Pursuant to subsection 152(9) of the ITA:
(9) At any time after the normal reassessment period, the Minister may advance an alternative basis or argument — including that all or any portion of the income to which an amount relates was from a different source — in support of all or any portion of the total amount determined on assessment to be payable or remittable by a taxpayer under this Act unless, on an appeal under this Act
(a) there is relevant evidence that the taxpayer is no longer able to adduce without the leave of the court; and
(b) it is not appropriate in the circumstances for the court to order that the evidence be adduced.
When a taxpayer successfully disproves the CRA’s original rationale for an assessment, the assessment may still survive if the CRA can establish an alternative legal basis for the same tax liability under subsection 152(9).
The Respondent cannot plead Assumptions in the Alternative
As per the decision in Uppal Estate v. The King, 2025 TCC 34:
[3] As set out by the Federal Court of Appeal in Loewen v. The Queen…the Respondent cannot plead assumptions in the alternative. The Respondent may plead factual and legal arguments that are inconsistent with the basis of the assessment but must do so elsewhere in the Reply…
[9] The Respondent should have pled the assumptions that support the Minister’s primary assessing position in the assumptions of fact portion of the Reply and pled the alternative facts necessary to support the alternative assessing position in a separate part of the Reply.
SpenceDrake Tax Law – Tax Lawyers
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