2014-0550381C6 2014 TEI Liaison Meeting, Q.E2

Principal Issues: Whether the guidelines in IC 84-1 are still valid.

Position: Yes.

Reasons: IC 84-1 operates within the context and legislative framework of the Income Tax Act.

Author: Godson, Gillian
Section: -

2014 TEI-CRA Liaison Meeting
November 18, 2014

Question E2 - Capital Cost Allowance (CCA) Claimed under Paragraph 20(1)(a)

Under paragraph 20(1)(a) of the Act, a taxpayer has a statutory right to a deduction in respect of the capital cost of depreciable property.  The taxpayer may also claim less than the maximum allowable and recover greater amounts of undepreciated capital costs in future years.  Information Circular 84-1 (July 9, 1984) describes the facts and circumstances under which a taxpayer’s written request to revise the capital cost allowance (CCA) for previous taxation years will be granted. Generally, revisions to previously claimed CCA amounts can be made as long as there is no change to the tax assessed or payable for the year of the revised claim or for any other year for which a return has already been filed.  In addition, requests for revisions of CCA in a year that was assessable to tax are allowed as long as the time for filing a notice of objection in respect of that year has not expired.  There are some exceptions to this timeline, which include property that was subject to “certification” for inclusion in another class providing for a faster write-off (the taxpayer may then make revised claims for additional CCA for all prior taxation years affected that are not statute barred to reassessment).  Requests for revisions of CCA in a year where no tax was payable are allowed except where the Minister has issued a loss determination (unless the taxpayer makes the request within 90 days from the day of the mailing of the notice of determination for that year).

Some taxpayers have reported being denied requests for revisions of previous CCA claims on the basis of attempting to engage in “retroactive tax planning.”

a.    Are the guidelines outlined in IC 84-1 still valid or has the CRA changed its practices?

b.    Would the CRA’s practice differ from the practices outlined in the IC if a request for revision of CCA were made subsequent to an acquisition of control of the taxpayer and the adjustment related to the time before the acquisition of control?   

Response:

a.    The CRA recently responded to a similar question at the 2013 Canadian Tax Foundation Roundtable. IC 84-1 is currently under review. Our position on the application of IC 84-1 however, has not changed. As stated in 2013:

IC 84-1 provides the CRA’s administrative policy with respect to taxpayer requests to revise permissive deductions in previous taxation years, including years that may be statute-barred. Because IC 84-1 is an administrative policy, the CRA has the authority to exercise some discretion in determining whether a taxpayer’s request will be allowed (Minister’s discretion).

IC 84-1 operates within the context and legislative framework of the Income Tax Act. As such, when considering an IC 84-1 request, it is necessary to look at other relevant provisions of the ITA (such as section 111) and whether acceding to that request would lead to an inappropriate result.  Each decision is based on the specific facts of each case.

While to a certain extent IC 84-1 outlines situations where the CRA will consider adjusting returns in circumstances that would constitute retroactive tax planning, we have, in recent years, noted more situations that, in our view, lead to inappropriate results. As such, we are taking a closer look at IC 84-1 requests on a case-by-case basis to ensure that it is being used by taxpayers in the manner in which it was intended and that it is being consistently applied by the CRA.

b.    As we just stated, the CRA is taking a closer look at IC 84-1 requests on a case-by-case basis. Although we cannot provide a definitive answer to your question without a specific fact situation, we can say that a request for adjustments to a period prior to an acquisition of control could raise some concerns for us.

Gillian Godson
2014-055038

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