Taxpayer Requested Adjustments

Information Circular IC75-7R4 Taxpayer Requested Adjustments cancels and replaces Information Circular IC75-7R3 Reassessment of a Return of Income dated July 9, 1984 and Information Circular IC84-1 Revision of CCA Claims and Other Permissive Deductions dated July 9, 1984.

All references in this circular are to the Income Tax Act (ITA). 

Table of contents

• Introduction
• Related information circulars
• Normal reassessment period
• Reassessment of a return of income
  • Adjusting previously filed returns due to a change in position
• TPRs for loss years and loss application years
  • Loss years
    • Notice of determination or redetermination
    • Correction of an error in the calculation of a non-capital loss
  • Loss application years
    • Non-capital loss carry-forward request
    • Non-capital loss carry-back request
    • Internally generated adjustments by the CRA
• TPRs to revise permissive deductions
  • When will a TPR to revise a permissive deduction be considered
    • Adjustments resulting from a CRA audit or review
    • Transferred and Misclassified Property
    • Property subject to “Certification”
    • Revisions requested to permissive deductions in taxable years
    • Adjustments offset by revisions to CCA
    • Revisions requested in non-taxable years (other than loss years)
    • Revisions requested in loss years
  • Requests to revise a permissive deduction not permitted
  • Possible impact on subsequent taxable events
• Partnerships
• Scientific research & experimental development (SR&ED)
• How to make a TPR
  • TPR – T1 income tax return
  • TPR – T2 corporate income tax return
  • TPR – T3 trust income tax and information return
  • TPR – T5013 Partnership information return
• Documentation required
• Right of redress for the taxpayer
• Judicial review

Introduction

1. When a taxpayer files an income tax return for a year, the Minister of National Revenue (Minister) is required to examine the return with all due dispatch and to issue an assessment notice for the amount of tax, interest and penalties assessed, if any, or to notify the taxpayer that no tax is payable (commonly referred to as a "nil assessment"). Because there is no tax, interest or penalties involved in the latter, it is not an assessment in law, but a notification.

2. An original assessment of tax and original notification that no tax is payable are similar in that their date of issuance is the basis for determining the "normal reassessment period" as defined in subsection 152(3.1) (see section "Normal Reassessment Period"). Generally, subject to certain exceptions, assessments and reassessments are statute-barred following the expiry of the normal reassessment period. The Minister does not have the authority to assess, reassess, or issue an additional assessment beyond the "normal reassessment period" except in very limited circumstances. As a notification of no tax payable is not an assessment in law because no amount of tax is being assessed, the limitation provided by subsection 152(4) of the ITA with respect to an "assessment, reassessment, or additional assessment of tax for a tax year, interest, or penalties" does not apply. For clarity, where a notification of no tax payable continues to result, there is no restriction to prevent the Minister from making an adjustment.

3. When a taxpayer requests a change to a previously filed return, the request is referred to as a Taxpayer Requested Adjustment (TPR). A taxpayer may submit a TPR to the Canada Revenue Agency (CRA) for any number of reasons. A TPR, if accepted, may or may not result in a reassessment. However, a return that has already been filed with the CRA may be adjusted only in specific circumstances and within limited time periods. Additionally, a TPR does not constitute a Notice of Objection.

4. This information circular (IC) discusses the authority the Minister has under the ITA to consider TPRs. Subsection 152(4) generally provides that the Minister may at any time issue an assessment, reassessment or an additional assessment of taxes, interest and penalties, subject to certain conditions. The Minister has the authority to exercise discretion in determining under what circumstances a taxpayer's request will be allowed. Given the Minister's discretion in subsection 152(4), the purpose of this IC is to provide direction on how the CRA would apply discretion in various scenarios in order to promote consistency and fairness to all taxpayers. The scenarios provided are not all inclusive, however they provide examples to assist taxpayers in understanding the parameters considered by the Minister when determining whether to accede to a request. Each decision is made based on the specific facts of that case, considering whether acceding to that request would lead to an inappropriate result.

5. In deciding whether to apply discretion, the Minister will consider the overall context and legislative framework of the Income Tax Act (ITA) when considering the appropriateness of acceding to a request. The Minister cannot accept requests where the result is inconsistent with the text, context and purpose of the provisions of the ITA.

6. A TPR will generally not be considered if it is submitted after the limitation periods of subsection 152(4) have ended. For more information on these limitation periods, see paragraphs 15 to 17 (normal reassessment period), paragraph 18 (extended reassessment period), and Information Circular IC 07-1R1 – Taxpayer Relief Provisions.

7. This IC explains how a taxpayer can make a TPR, including the proper information and documentation needed to support such a request, and outlines the administrative guidelines the CRA will follow in making a decision on whether to accept or deny a request.

8. The information provided in this IC are guidelines only. They are not meant to be exhaustive and are not meant to restrict the spirit or intent of the legislation or unduly limit the Minister's discretion.

9. The guidelines contained in this IC apply to TPRs received with respect to a T1 Income Tax Return (sole proprietor), T2 Corporation Income Tax Return, T3 Trust Income Tax and Information Return and, in certain circumstances, a T5013 Partnership Information Return.

Related information circulars

10. Information circular IC71-17R6, Competent Authority Assistance under Canada's Tax Conventions provides guidance on obtaining assistance from the Canadian competent authority to persons that fall within the scope of a tax convention that Canada has concluded with another country. This assistance is provided to taxpayers in order to try to resolve situations where taxpayers are subject to taxation not in accordance with the provisions of the relevant tax convention, including situations of TPRs involving downward transfer pricing adjustments. TPM-03R, Downward Transfer Pricing Adjustments provides further guidance on the Canadian competent authority's requirements for TPRs involving downward transfer pricing adjustments, as well as how they should be directed.

11. Information Circular IC 07-1R1 – Taxpayer Relief Provisions provides guidelines for allowing refunds or a reduction in amounts payable beyond the normal reassessment period. In this regard, subsection 152(4.2) gives the Minister the authority to make a reassessment for a statute-barred tax year, when requested by an individual (other than a trust) or a graduated-rate estate, in order to determine a refund or a reduction of tax, interest or penalties payable. The request must be made within 10 years from the end of the applicable calendar year to which the request applies. See IC 07-1R1 for more detailed information.

12. Information Circular IC 00-1R7, Voluntary Disclosures Program provides guidelines on what constitutes a voluntary disclosure and the principles of the Voluntary Disclosure Program (VDP). Through the VDP, taxpayers can make an application to correct inaccurate or incomplete information, or to disclose information not previously reported. For example, taxpayers may not have met their tax obligations if they claimed ineligible expenses or underreported their income. If a VDP application is accepted by the CRA, taxpayers will have to pay the taxes owing, plus interest in part or in full. However, taxpayers would be eligible for relief from prosecution and, from some penalties and interest that they would otherwise be subject to under the legislation. See IC 00-1R7 for more detailed information.

Normal reassessment period

13. When a taxpayer files an income tax return for a tax year, the CRA is required to issue either a Notice of Assessment (NOA) for the amount of tax, interest and penalties assessed, if any, or to notify the taxpayer that no tax is payable. An original assessment of tax and an original notification that no tax is payable are similar in that the date of issuance is the basis for determining the "normal reassessment period" as defined in subsection 152(3.1).

14. In accordance with subsection 152(3.1), if at the end of the year the taxpayer is a mutual fund trust or a corporation other than a Canadian-controlled private corporation (CCPC), the normal reassessment period is the period that ends four years after the earlier of:

1. the day of sending of a notice of an original assessment for the year, and
2. the day of sending of an original notification that no tax is payable for the year.

In any other case, (individuals, trusts other than mutual fund trusts, or CCPCs) the normal reassessment period is the period that ends three years after the earlier of the two dates described in paragraphs a and b above.

15. Subsection 152(4) provides the general rule and time limitations within which assessments, reassessments or additional assessments may be made. In general, subsection 152(4) provides that, for a particular tax year, the Minister may, at any time, issue an assessment, reassessment or additional assessment of tax or notify a taxpayer that no tax is payable, except that, an assessment, reassessment or additional assessment of tax, interest or penalties cannot be issued by the Minister beyond the normal reassessment period in respect of the year unless one of the circumstances in paragraph 152(4)(a) to (d) apply (or where the taxpayer makes a request as described in paragraph 11).

16. Pursuant to paragraph 152(4)(a), the Minister has the authority to reassess a taxpayer after the normal reassessment period where the taxpayer

• has made a misrepresentation attributable to neglect, carelessness or wilful default or has committed any fraud in the filing of the return or in supplying any information under the ITA [(152(4)(a)(i)]^{Footnote 1} ; or
• has filed a waiver for the year within the normal reassessment period [152(4)(a)(ii)].

17. Subparagraph 152(4)(a)(ii) provides for the filing, for a given year, of a "waiver" specifying matters on which a reassessment may be issued after the normal reassessment period. By filing a waiver, the taxpayer is authorizing the CRA to issue an assessment or reassessment at any time beyond the normal reassessment period, but only with respect to the matters specified in the waiver. To be valid, the waiver must be filed in prescribed form (Form T2029) within the normal reassessment period. The normal reassessment period is typically three or four years after the earlier of the day of sending of a notice of an original assessment for the year and the day of sending of an original notification that no tax is payable for the year. Therefore, a waiver included in an income tax return when it is filed is not a valid waiver.

18. Generally, paragraph 152(4)(b) extends the period within which the Minister may issue a notice of reassessment to the day that is three years after the normal reassessment period if the reassessment relates to one of the specific items listed in subsection 152(6). This is referred to as the "extended reassessment period". Similar to paragraph 17, a waiver of the extended reassessment period may also be filed pursuant to paragraph 152(4)(c) or (c.1) before the end of the extended reassessment period. Subsection 152(6) provides, among other things, that where a taxpayer wishes to claim a deduction in respect of a subsequent year's loss or investment tax credit, the Minister is required to reassess the prior year return to take into consideration the carryback of the loss or investment tax credit, provided the taxpayer has filed the request in prescribed form and certain filing requirements are met.

19. Subparagraphs 152(4)(b)(iii) – (viii), and paragraphs 152(4)(b.1) – (b.95), (c), (c.1) and (d) contain further extensions, however these provisions are beyond the scope of this IC.

Reassessment of a return of income

20. A notice of any amount of tax, interest or penalties owing, even if they remain the same, is an assessment/reassessment. While not specifically defined in the ITA, a "reassessment" is the fixing or determining of the amount of tax, interest or penalties by the Minister, if any. A "reassessment" does not include a change to a notice that no taxes are payable.

21. A reassessment to create a refund or reduce the amount of tax payable will be considered upon receipt of a TPR provided:

• the taxpayer has filed their return and made the refund request within the time limitations specified in subsection 164(1). In this regard, subsection 164(1) authorizes the Minister, on or after sending the notice of assessment for a tax year, to refund any overpayment of tax provided:
  1. the taxpayer has filed a tax return for the tax year no later than three years after the end of that year; and
  2. the application for the refund is made within the reassessment period provided for in subsection 152(4) if that subsection were read without reference to paragraph 152(4)(a).
• the purpose of the request is to correct an error in a previously filed return^{Footnote 2} ; and
• the requested adjustment is correct in law based on the legislation and relevant CRA interpretations and positions of the CRA in effect for the tax year for which the change is being requested.

22. A TPR to create a refund or reduce the amount of tax payable will not be considered where the TPR is to request an adjustment to a prior year return as a result of a successful appeal to the Courts by another taxpayer, for which the period of objection has passed. See section "Adjusting Previously Filed Returns Due to a Change In Position" below.

Adjusting Previously Filed Returns due to a Change in Position

23. Where there is a change in a previous interpretation or position, including a change resulting from a court decision, and the change is beneficial to taxpayers, it is the CRA's position that the change is usually effective for all future assessments and reassessments having the same fact situation. The only prior years that can be reassessed, as the result of the change in position, are those years for which a valid notice of objection had been filed and is still outstanding, and those years for which a notice of objection can still be filed.

24. Where a taxpayer requests an adjustment to a prior year return that was originally filed before the change in position, and the request is based solely upon the successful appeal to the Courts by another taxpayer, the TPR will not be considered unless a valid Notice of Objection has been filed within the time period for objecting under the ITA specifying the issue, the relief sought, and providing the facts and reasons to support the objection.

25. In some situations, the CRA may enter into a written agreement with a particular taxpayer that they will be assessed or reassessed in accordance with the outcome of a lead case based on similar facts and issues of law. In such a situation, the taxpayer would normally file a waiver in prescribed form for each relevant year specifying the matter(s) being addressed in the lead cases to ensure that the Minister is not precluded from assessing or reassessing because of the normal reassessment period for the relevant year(s). In these circumstances, the Minister would be required to assess or reassess by reason of the written agreement, and not by reason of the waiver filed with the Minister. If there is no such written agreement, the Minister may refuse to exercise discretionary authority under subsection 152(4).

26. Where a taxpayer requests an adjustment to a prior year return that was originally filed after the change in position, the request may be acceded to if the change represents an error in filing and does not involve retroactive tax planning. If a reassessment is required, the request must be made within the normal reassessment period, or covered by a waiver.

27. Requests made to reassess a statute-barred return based on the result of an appeal or judicial decision by another taxpayer will not be granted under subsection 152(4.2). For more information, see paragraphs 87 to 88.2 of IC 07-1R1, Taxpayer Relief Provisions.

TPRs for loss years and loss application years

Loss years

28. The calculation of a taxpayer's "non-capital loss" (NCL) for a particular tax year is a composite of several elements and is calculated pursuant to the formula provided for in the definition of that term in subsection 111(8). When a taxpayer reports an NCL in a particular tax year, the CRA issues a notification that no tax is payable. The normal reassessment period begins the earlier of the day of sending of a notice of an original assessment for the year, or of an original notification that no tax is payable for that year.

29. Once an NCL is calculated under subsection 111(8), paragraph 111(1)(a) establishes the time limitations within which an NCL can be carried forward or back to reduce taxable income in other tax years. Paragraph 111(1)(a) has been amended a number of times to increase the carry-forward period from seven to ten and now to twenty years. Specifically:

• NCLs that arose in tax years ending prior to March 23, 2004 could be carried back three years and forward seven years.
• NCLs that arose after March 22, 2004, but before 2006, could be carried back three years and forward ten years.
• NCLs that arose in the 2006 and subsequent years may be carried back three years and forward 20 years.

Where NCLs have not been applied to reduce taxable income within the time limitations imposed by paragraph 111(1)(a), they "expire" and are not available for application. A TPR to adjust the amount of a loss as filed in a loss year that has already expired at the time of the request will not be permitted, including adjustments to permissive deductions as discussed below.

Notice of Determination or Redetermination

30. A taxpayer is unable to object to a nil assessment, since it is not an assessment of tax. However, subsections 152(1.1) and (1.2) provide taxpayers with a mechanism to object to an adjustment made to a loss by requesting a determination of losses for that year. Subsection 152(1.1) provides that where the Minister ascertains the amount of a taxpayer's loss for a tax year to be different from the loss reported by the taxpayer, the Minister shall, at the request of the taxpayer, determine the amount of the loss in question and send a Notice of Determination (NOD)^{Footnote 3} . The taxpayer is then able to object to that NOD in the same way as it would object to an assessment.

31. A written request should be made either electronically or to the Tax Centre where the taxpayer normally files its return. There is no time limit for making such a request. The taxpayer generally has 90 days from the date that an NOD has been sent to file a Notice of Objection.

32. There are three conditions that must be satisfied for the Minister to issue an NOD:

1. the Minister ascertained the amount of a taxpayer's loss for a tax year
2. the ascertained loss amount differs from the one reported in the taxpayer's income tax return; and
3. the taxpayer requested that the Minister determine the amount of the loss.

33. When a taxpayer initially files its return of income and the Minister accepts the return as filed, the taxpayer's loss as "ascertained" by the Minister does not differ from the one reported in their income tax return. Therefore, the second condition has not been met and the Minister cannot issue an NOD if one is requested by the taxpayer.

34. Where a TPR that changes a loss balance is accepted or rejected by the CRA in its entirety, advising the taxpayer of the updated amount of such a loss would not constitute grounds for the CRA to issue an NOD if requested by the taxpayer. Where the taxpayer does not agree with the CRA's exercise of discretion, they may apply for judicial review as set out in paragraphs 91 – 92 below. However, if a TPR that changes a loss balance is only partially accepted by the CRA, then an NOD can be issued if the taxpayer requests one as the Minister would have ascertained the amount of the taxpayer's loss to be an amount that differs from the amount reported by the taxpayer.

35. While the initial loss determination under subsection 152(1.1) may be made only at the request of the taxpayer, the Minister may make a redetermination of a loss within the reassessment periods allowed by subsection 152(4) read with reference to the date on which an original NOD was issued. Any adjustment to a previously determined loss would generally require the issuance of a Notice of Redetermination.

Correction of an Error in the Calculation of a Non-Capital Loss

36. Where a TPR is accepted to correct an error in the calculation of an NCL, the CRA can recalculate the amount of an unapplied NCL in a particular tax year, despite the fact that the loss year itself may be beyond the normal reassessment period. Therefore, if there is a change in the calculation of a taxpayer's NCL for a particular year, the Minister may re-compute the NCL available to be carried forward and, in so doing, correct the error, provided all of the following conditions are met:

• The loss has not expired within the time limitations provided for in section 111.
• The loss has not been applied to another tax year for which the normal reassessment period has expired.
• Where an NOD has been previously issued in respect of the loss, the normal redetermination period for that loss has not expired.

Loss application years

37. Once an NCL is calculated under subsection 111(8), subsection 111(1) of the ITA permits a taxpayer to utilize an NCL of one tax year (the "loss year") in computing taxable income in another tax year (the "loss application year") within the time limits noted in paragraph 111(1)(a).

Non-Capital Loss Carry-Forward Request

38. A TPR to apply a valid unapplied NCL to a subsequent tax year must be requested within the normal reassessment period of the loss application year. The CRA's policy is to consider a request to apply a loss carry forward provided the tax year to which the loss is being applied is not statute-barred and the time period for carrying forward the loss has not expired.

39. Once a taxpayer applies an NCL to reduce taxable income in a particular tax year, it becomes a constituent element of the assessment (including a "nil assessment" if applicable) for the year of loss application. As such, a TPR to change the amount of an NCL that has been carried forward and applied to a subsequent tax year will only be considered where the request has been made within the time limits relevant to the year of application as specified under subsection 152(4).

Non-Capital Loss Carry-Back Request

40. A TPR to carry back a valid unapplied NCL to a particular tax year pursuant to subsection 152(6) must be made in prescribed form in accordance with the time limitation set out in paragraph 152(4)(b). That is, the request must be made before the day that is three years after the end of the normal reassessment period or within the "extended reassessment period" for the loss application year. The CRA will consider a request to carry back an NCL and reassess to recognize any allowable portion provided the tax year to which the loss is being applied is not statute-barred for purposes of paragraph 152(4)(b) and subsection 152(6).

41. Where a reassessment is allowed pursuant to subparagraph 152(4)(b)(i) in respect of a loss carry back, subsection 152(4.01) limits the matters in respect of which the Minister can reassess. Subsection 152(4.01) provides that where a reassessment of a loss application year is made under subparagraph 152(4)(b)(i) of the ITA in respect of a loss carryback after the normal reassessment period, the reassessment can only consider the loss carry-back request. Therefore, where a TPR to carry back an NCL is made within the extended reassessment period, but after the expiration of the normal reassessment period, the Minister has no authority to reassess concurrent changes to income, expenses, inclusions or other deductions in the loss application year.

42. A TPR to request a loss carryback under subsection 152(6) is required to be made on a prescribed form amending the return for the loss application year. This form must be filed no later than the day on which the taxpayer's return for the relevant year is or would be required to be filed under section 150 if the taxpayer had Part I tax payable for that loss year. The prescribed form for requesting a loss carryback by an individual is Form T1A Request for Loss Carryback, for a corporation it is Form T2SCH4 Corporation Loss Continuity and Application and, for a Trust it is Form T3A Request for Loss Carryback by a Trust.

43. Once a taxpayer applies an NCL to reduce taxable income in a particular tax year, it becomes a constituent element of the assessment (including a "nil assessment" if applicable) for the loss application year. As such, a TPR to change the amount of an NCL that has been carried back and applied to a prior tax year will only be considered where the request has been made within the normal reassessment period or the extended reassessment period under paragraph 152(4)(b): that is, within the extended reassessment period.

44. A TPR to revise the amount of a loss application reported for a tax year cannot be accepted where it would result in an ordering of applied losses that contravenes the rules provided for in paragraph 111(3)(b).

45. Paragraph 111(3)(b) provides that losses or balances of each type must be utilized in the order in which they were incurred. Thus, for example, a 2012 NCL must be fully applied before a 2013 NCL can be applied.

Internally Generated Adjustments by the CRA

46. Where an adjustment by the CRA results in an increase to income for a tax year, and a loss of another year has been applied to that year, the taxpayer will be given the opportunity to amend the loss application.

47. Where an adjustment by the CRA results in a decrease to a loss incurred for a tax year and such a loss was applied to more than one other tax year, the taxpayer will be asked which loss application is to be changed while respecting the rules provided for in section 111.

TPRs to revise permissive deductions

48. A "permissive deduction" refers to deductions that are permissible in the computation of net income for tax purposes where the amount of the deduction claimed is at the discretion of the taxpayer, but subject to a maximum amount determined by a specific provision of the ITA or Income Tax Regulations (ITR). A taxpayer is entitled to claim any amount in a particular year up to the maximum permissible. Any unclaimed amount may be carried forward indefinitely to be deducted in the calculation of net income for tax purposes in a subsequent tax year.

49. The amount of a permissive deduction claimed in a particular tax year represents a choice made by the taxpayer at the time of filing their return. Where a taxpayer subsequently requests a change to the amount of a permissive deduction that was correct in law at the time it was claimed, the Minister has the authority to exercise some discretion in determining under what circumstances such a request will be permitted. In exercising that discretion, some factors that will be considered are outlined in the following paragraphs.

50. Examples of permissive deductions would include:

• capital cost allowance (CCA) as permitted under paragraph 20(1)(a)
• a deduction from the pool of deductible scientific research and experimental development (SR&ED) expenditures as permitted under subsection 37(1)
• a deduction in respect of Canadian exploration expenses (CEE) as permitted under subsection 66.1(2) or 66.1(3)
• a deduction in respect of Canadian development expenses (CDE) as permitted under subsection 66.2(2)
• a deduction in respect of Canadian oil and gas property expenses (COGPE) as permitted under subsection 66.4(2)

A TPR to revise the amount of resource expenditure claims previously deducted is limited where the "successor rules" apply. See paragraph 73(b) of this IC.

51. Examples of deductions that are not considered to be "permissive deductions" include, but are not limited to:

• Loss applications - charitable donations, or other amounts that reduce taxable income rather than net income. There are specific legislative provisions that address these types of claims and the time limitations within which a TPR may be made.
• Tax credits - the ITA makes provision for many types of tax credits in the calculation of a taxpayer's tax payable for a particular tax year. The amount that may be claimed and the time limitations within which a tax credit may be carried forward or back to another tax year is dictated by the wording of the specific provision in the ITA. A TPR to revise a tax credit claimed in prior tax years is dependent on the wording of the specific provision.
• Reserves - the ITA makes provision for many types of reserves in the calculation of a taxpayer's income or loss for a particular tax year. In general, the amount of a reserve claimed in a particular tax year must be included in income in the following year. The amount of a reserve that may be claimed is determined by the wording of the specific provision in the ITA. In many cases, a reserve is based, in whole or in part, on what a taxpayer considers to be a "reasonable amount" after taking into consideration the particular facts at a specific point in time [for example, doubtful or impaired debts under paragraph 20(1)(l); reserve in respect of goods and services under paragraph 20(1)(m); a reserve for unpaid amounts under paragraph 20(1)(n); and a taxable capital gain reserve calculated under subparagraph 40(1)(a)(iii)]. A TPR to revise the amount of a reserve claimed in a particular tax year will not be permitted where the reserve was based, in whole or in part, on what was considered to be a "reasonable amount" at the time it was claimed.

When will a TPR to revise a permissive deduction be considered

Adjustments Resulting from a CRA Audit or Review

52. Where a taxpayer has expensed the cost of property which should have been capitalized, that expense will be disallowed to the taxpayer by virtue of paragraph 18(1)(b) if the year is still open to reassessment. In such cases, the taxpayer will be allowed, if so desired, to make a revised CCA claim for the year and subsequent years in order to claim CCA on the cost of the property that should have been capitalized, provided the tax year is still open to reassessment.

53. Where an adjustment by the CRA results in an upward reassessment of tax, and a taxpayer has not claimed maximum CCA in all classes in that year, the taxpayer will be advised of the circumstances and allowed, if so desired, to make a revised claim for that year.

54. It may be necessary to revise the capital cost of a depreciable property acquired during a tax year that is now statute-barred. This might occur, for example, because of a reallocation of the total purchase price of a piece of real estate between land and buildings or where an error was made by claiming CCA on a property that is not considered depreciable property. In such cases, the capital cost and the amount of CCA actually deducted in respect of the depreciable property in any statute-barred year will not be adjusted unless one of the conditions described in paragraph 152(4)(a) applies. Instead, the CRA will recalculate the undepreciated capital cost (UCC) as of the beginning of the first non-statute-barred year by using the revised capital cost of the property (rather than the original capital cost) for purposes of variable A of the definition of UCC. The actual CCA deducted in each statute-barred year will still be used for purposes of variable E of the definition of UCC. Where there is a downward revision to the capital cost of a property by the CRA, this recalculation will result in a reduced UCC as of the beginning of the first non-statute-barred year. In this event, the CRA will make the necessary downward revisions to the CCA claimed in the first non-statute-barred year and all subsequent non-statute-barred years.

55. Where there is an upward revision to the capital cost of a property by the CRA, this will result in an increased UCC as of the beginning of the first non-statute-barred year. In such circumstances, the taxpayer may make a written request to increase the amount of CCA claimed for any affected non-statute-barred year. The CRA will consider the taxpayer's request, subject to the limitations set out in this IC.

Transferred and Misclassified Property

56. It sometimes happens that a taxpayer has claimed CCA as a result of depreciable property being placed in an incorrect class. This can arise where:

• the taxpayer has misclassified depreciable property.
• the taxpayer should have reclassified property pursuant to a change in the ITA or the ITR.
• there is a change in a property's use in the income-earning process.

57. Where there is a misclassification of depreciable property and subsection 152(4) does not prevent reassessment of any years involved, the CRA may reassess those years to correct the misclassification and the CCA claimed, beginning with the first year in which the misclassified property was acquired or became misclassified.

58. Where a correction has not been made, the Minister may make a direction under subsection 13(6) in respect of a tax year to deem a property to be of the incorrect class for the years prior to the year for which direction is made and to be transferred to the correct class beginning in the year for which the direction is made. Only property that was still on hand at the beginning of the year in respect of which a direction is made is transferred.

59. Subsection 13(5) contains the rules for computing the UCC of property of a prescribed class that has been transferred from one class to another. Generally, the rules in subsection 13(5) apply where:

• a transfer between two classes is necessary because of an amendment to the ITA or ITR;
• misclassified property is transferred to its proper class pursuant to subsection 13(6);
• a taxpayer makes an election under section 1103 of the ITR to transfer certain depreciable property between classes; or
• property is transferred to another class because of a change of its use.

For more details on "Misclassified Property" and the mechanics of subsection 13(5), see Income Tax Folio S3-F4-C1 General Discussion of CCA.

Property Subject to "Certification"

60. A taxpayer may acquire depreciable property in one class which after "certification" or "acceptance" by a designated Minister or other body then qualifies for inclusion in another class providing for a faster write-off. For example, a motion picture film otherwise property of class 10(q) becomes property of class 12(n) after certification as a certified feature film. Where this is the case and the taxpayer's year-end falls between the date of acquisition of the property and the date of "certification" or "acceptance" in respect of that property is given, it is the CRA's policy to allow the taxpayer, after the date of certification or acceptance, to treat the property as property of the class providing for the faster write-off, effective from the date of acquisition. The taxpayer may then make revised claims for additional CCA for all prior tax years affected that are not statute-barred.

Revisions Requested to Permissive Deductions in Taxable Years

61. Where a taxpayer requests a revision to a permissive deduction claimed in a taxable year, such a request will generally be acceded to if the time has not expired for the filing of a Notice of Objection in respect of that year.

NOTE: Where the taxpayer is an individual (other than a trust) or a graduated rate estate, a Notice of Objection must be filed on or before the later of:

1. the day that is one year after the taxpayer's filing due date for the year, and
2. the day that is 90 days after the day of sending the Notice of Assessment.

In any other case, a Notice of Objection must be filed on or before the day that is 90 days after the CRA sends the Notice of Assessment.

62. Where a taxpayer requests a revision to a permissive deduction claimed in a taxable year after the time for filing a Notice of Objection period has passed, such a request will only be considered if:

1. it was made within the normal or extended (as applicable) reassessment period; and
2. it is accompanied by a request for an offsetting change in some other permissive deduction such that no change occurs in the assessed tax for that year or any other year for which the time limit for filing a Notice of Objection has expired. Paragraphs 70 - 73 of this IC indicate some of the factors that will be considered in determining whether a TPR will affect tax payable in another tax year.

Adjustments Off-Set by Revisions to CCA

63. If a TPR is filed after the expiration of the period for which a notice of objection may be filed, and includes adjustments to both permissive deductions such as CCA, and to amounts unrelated to CCA and/or other "permissive deductions", the CRA will first review the unrelated adjustments based on their own merit, independent of the adjustments to CCA and/or other "permissive deductions" in the TPR. All CRA policies and procedures that apply to general TPRs will be followed with respect to the unrelated adjustments in order to determine whether the adjustments are allowable.

64. If the unrelated adjustments considered on their own, would have been allowed and would have resulted in a Notice of (Re)assessment (NOA) being issued, the CRA will then consider whether the changes requested to CCA and/or other "permissive deductions" would have been allowable on their own, after the NOA for the unrelated adjustments would have been issued.

65. In most cases, if an NOA would have been issued for the unrelated adjustments on their own merit, the CRA will administratively accept allowable offsetting "permissive deductions" at the same time.

66. The change to CCA and/or other "permissive deductions" will only be permitted where it does not result in a tax change or impact reported transactions in other tax years on file with the CRA. Paragraphs 70 - 73 of this IC indicate some of the factors that will be considered in determining whether a TPR will affect tax payable in another tax year.

Revisions Requested in Non-Taxable Years (other than loss years)

67. Where a taxpayer requests a revision to a permissive deduction claimed in a year for which a notification that no tax payable has been issued (because, for example, of the application of an NCL of another year, charitable donations or tax credits), such a request will be considered only if it was accompanied by a request for an offsetting change in some other permissive deduction such that there is no resulting tax, interest or penalties for that year or any other tax year on file with the CRA. Paragraphs 70 - 73 of this IC indicate some of the factors that will be considered in determining whether a TPR will affect tax payable in another tax year.

Revisions Requested in Loss Years

68. Where a taxpayer requests a revision to a permissive deduction claimed in a year for which a notification that no tax payable has been issued because it is a loss year, such a request will only be considered where all of the following conditions have been met at the time of the request:

1. The loss has not expired in accordance with the time limitations in paragraph 111(1)(a).
2. A TPR to reduce a permissive deduction will be considered only to the extent of the unapplied portion of the loss.
3. The TPR does not impact tax payable in any other tax year on file with the CRA. Paragraphs 70 - 73 of this IC indicate some of the factors that will be considered in determining whether a TPR will affect tax payable in another year.
4. A Notice of Determination has not been issued in respect of the loss pursuant to subsection 152(1.1), unless the TPR is filed within 90 days of mailing such a notice. Such a request would be subject to the conditions listed in paragraphs a to c above.

Requests to revise a permissive deduction not permitted

69. A TPR to revise a permissive deduction in a prior tax year will not be permitted in circumstances that include:

1. the TPR is made after the limitation periods of subsection 152(4) have ended
2. the request is with respect to an NCL that had already expired at the time of the request in accordance with the time limitations in section 111
3. the relevant assets are no longer owned at the time of the request
4. the purpose of the request is to take advantage of changes to the law enacted after the original return was filed [e.g. to increase a loss carryforward from 7 to 10 or 20 years].
5. acceptance of the request would contravene a specific provision of the ITA or the scheme of the ITA as a whole
6. acceptance of the request would have an impact on amounts/transactions that have already occurred in subsequent tax years. See paragraphs 70 - 73 of this IC with respect to "Possible Impact on Subsequent Taxable Events"

Possible impact on subsequent taxable events

70. The "undepreciated capital cost" of depreciable property of a prescribed class at any time is defined in subsection 13(21) and is determined by the formula included in the definition of that term. The UCC is equal to the amount, if any, by which the total of the increases to the UCC of the class (variables A to D.1) exceeds the total of the decreases to the UCC of the class (variables E to K).

71. When calculating the UCC of a taxpayer at a particular point in time, variable E of the formula requires that there be deducted "the total depreciation allowed to the taxpayer for property of the class before that time". The term "total depreciation" allowed to a taxpayer before any time is defined in subsection 13(21) to generally mean the total of all amounts each of which is an amount deducted by the taxpayer under paragraph 20(1)(a) [CCA] in respect of property of that class or an amount deducted under subsection 20(16) [terminal loss].

72. Considering the foregoing, a TPR to amend CCA claimed in a prior tax year will impact the calculation of the UCC under subsection 13(21) on a go forward basis by virtue of variable "E" in the formula. A change to the UCC could have an impact on certain transactions or taxable events that have already occurred in subsequent tax years. In this regard, a request to revise CCA or other permissive deductions will not be permitted where it will have an impact on a taxable event or transaction reported in a subsequent tax year that is already on file with the CRA.

73. The following are examples of taxpayer requests to revise permissive deductions that impact the attributes of taxable events or transactions and therefore where the tax consequences of the request require consideration in determining the acceptability of the TPR:

1. Recapture and Terminal Loss
   The UCC of depreciable property in a prescribed class or a separate prescribed class is used as the base for claiming a deduction for CCA for that class. The system under which UCC is calculated is also used to determine the amount that is to be included in income under subsection 13(1) as a recapture of CCA or the amount to be deducted from income under subsection 20(16) as a terminal loss. If a TPR to revise CCA in a prior tax year will have an impact on amounts reported or deducted in the calculation of income as a recapture or terminal loss in a subsequent tax year as filed, the request will not be permitted.
2. Successored Resource Pools
   Section 66.7 provides rules, referred to as the "successor rules", which establish the parameters within which unused resource expenses may be deducted by a successor corporation following an acquisition of resource properties in certain circumstances. The successor rules in section 66.7 effectively permit the successor corporation to deduct the taxpayer's cumulative resource expenditures (resource expenditure pools) to the extent that these expenditures were not previously deducted by an "original owner" or by a "predecessor owner". A resource deduction claimed by a successor corporation can only be claimed against income from the particular successor property. Therefore, a TPR made by a successor corporation to reduce the amount of resource expenditures claimed by an "original owner" or by a "predecessor owner" in a prior tax year will not be permitted.
3. Section 80
   The operative rules for section 80 are located in subsections 80(3) to (18) of the ITA. In general, these rules provide that a "forgiven amount" is to be applied to reduce a debtor's tax attributes in a specified order as described in subsections 80(3) to (12). In this regard, the forgiven amount must be applied to reduce the loss balances as indicated in subsections 80(3) and (4). Once the loss balances have been reduced to nil, the debtor can elect to apply the remaining "unapplied portion of the forgiven amount" against the next two tax attributes outlined in subsections 80(5) and (8) with respect to depreciable property and resource expenditures. If any balance of the forgiven amount remains unapplied and the debtor has not fully reduced the tax attributes, one-half of the remaining unapplied portion of the forgiven amount will be included in the debtor's income under subsection 80(13). If a taxpayer requests a revision to a permissive deduction in a prior tax year that would have an impact on amounts already reported or deducted by virtue of section 80, the request will not be permitted.
4. Section 85^{Footnote 4} rollover election
   Subsection 85(1) allows a transfer on a tax-deferred basis of certain properties by a taxpayer to a taxable Canadian corporation in exchange for shares of the corporation. The tax deferral may be achieved if the taxpayer and the corporation file a joint election which will dictate the proceeds of disposition for each type of property. Where the property is depreciable property, the proceeds of disposition will be the agreed amount, which cannot be less than the least of:
   1. the UCC to the taxpayer of all property of that class immediately before the disposition
   2. the cost to the taxpayer of the property
   3. the fair market value of the property at the time of disposition.
   A TPR to revise a permissive deduction will not be permitted where it will have an impact on amounts reported on a previously filed section 85 election.
5. Acquisition of Control
   Where there is an acquisition of control (AOC), some of the tax consequences are:
   • The deemed year end may cause a shorter tax year which may result in the proration of several credits and tax components such as CCA, Small Business Deduction Limit, and the Part VI.1 exemption.
   • Capital losses realized before that date cannot be carried forward to a tax year ending after that date and capital losses realized after that date cannot be carried back to years ending before that date.
   • Restrictions are placed on the carry-over provision of farm and non-capital losses.
   • Restrictions are placed on the carryover of charitable donations made after March 22, 2004.
   • Restrictions are placed on the carryover and carryback of the pool of deductible SR&ED expenditures and investment tax credit balance.
   • Accrued terminal losses must be deducted.
   • Adjustments to the adjusted cost base of non-depreciable capital property.
   • Immediately after the deemed year end, the resource expenditures incurred by the corporation and included on Schedule 12 under "Regular" column must be moved to "Successor" column.
   Given the tax consequences listed above, a TPR to make adjustments to CCA and/or other permissive deductions for tax years prior to an AOC will not be permitted.

Partnerships

74. Unlike a return of income, a partnership information return is not assessed. Pursuant to subsection 152(1.4), the Minister may determine any income or loss of a partnership for the fiscal period within three years after the later of:

• the day on which an information return in respect of the partnership for the fiscal period is required to be filed, and
• the day on which the return is actually filed.

75. Subsection 152(1.2) provides, in part, that the provisions of Divisions I and J, as they relate to assessments or reassessments of tax, apply to determinations and redeterminations, with such modifications as the circumstances require. Therefore, the time limitations in subsections 152(3.1) and (4) apply to partnership returns that are determined rather than assessed. Consequently, once the income or loss of a partnership return is determined, it is considered equivalent to having been assessed for the purposes of subsection 152(4). In general terms, a determination made under subsection 152(1.4) is binding on the Minister and each member of the partnership, subject to the rights of objection and appeal.

76. In situations where a partnership information return has been filed, the Minister has not made a determination, and the three-year limitation period in subsection 152(1.4) has expired, the Minister may only make a determination in respect of the partnership where one of the exceptions in paragraphs 152(4)(a) to (d) applies. As a result, the Minister cannot accept an amended partnership information return after the statute-barred date of the partnership, unless one of the exceptions in subsection 152(4) applies.

77. A TPR at the partnership level will only be considered where all members of the partnership meet the conditions set out in paragraphs 61 – 73 of this IC AND all of the partners tax returns are open to assessment or reassessment, as the circumstances dictate. The TPR must be submitted jointly by all members of the partnership. The partnership and each of its members must provide details of the impact of the TPR for each tax year and supporting documentation including revised Schedules.

Scientific research & experimental development (SR&ED)

78. The CRA will accept a TPR to amend a return and to include the filing of an SR&ED claim (forms T661, Scientific Research and Experimental Development (SR&ED) Expenditures Claim, and T2SCH31, Investment Tax Credit – Corporations, or T2038-IND, Investment Tax Credit (Individuals)), when filed by the SR&ED reporting deadline.

79. The SR&ED reporting deadline is the day that is 12 months after the filing due date of the income tax return for the year. Amounts from the pool of deductible SR&ED expenditures can be deducted against the year's net income for tax purposes. The investment tax credit can be deducted against Part 1 tax payable. Taxpayers are encouraged to file their SR&ED claims with their income tax return for the year by the filing due date.

80. A TPR to revise a previously claimed amount from the pool of deductible SR&ED expenditures, filed after the SR&ED reporting deadline, will be considered subject to the rules in the sections titled "When will a TPR to revise a permissive deduction be considered" and "Requests to revise a permissive deduction not permitted".

How to make a TPR

81. The guidelines contained in this IC apply to TPRs received with respect to a T1 Income Tax Return, T2 Corporation Income Tax Return, a T3 Trust Income Tax and Information Return and in limited circumstances, to a T5013 Partnership Information Return. In this regard, there are different processes and procedures for making a TPR for each type of return.

TPR – T1 Income Tax Return

82. As part of the Service Renewal Initiative, T1 adjustments are now being processed in three Tax Centres only: Winnipeg, Sudbury, and Jonquiere. An adjustment can be made electronically from the CRA's website through "My Account" or in writing by sending both of the following to the applicable tax centre:

• A completed form T1-ADJ, T1 Adjustment Request (or a signed letter that provides the same details), and
• All supporting documentation for the amount changed.

For more detailed information, refer to Changing a tax return - Personal income tax.

TPR – T2 Corporate Income Tax Return

83. Request an amendment to your T2 return and related schedules by following the guidelines found in Requesting a reassessment of your T2 return.

TPR – T3 Trust Income Tax and Information Return

84. As part of the Service Renewal Initiative, as of September 2017, T3 Adjustment requests will be processed in the Winnipeg or Sudbury tax centres based on the Trustee's address. TPRs for T3 accounts must be made in writing by the taxpayer or the taxpayer's representative.

85. Reassessment requests for T3 account should be sent to the T3 Trust Returns Program as follows:

Table 1

Trustee's Address	Send the return to
Manitoba, Saskatchewan, Alberta, British Columbia, Northwest Territories, Yukon, Nunavut, Hamilton (Ontario) and surrounding area, Kitchener-Waterloo (Ontario) and surrounding area, Laval (Quebec) and surrounding area, Montreal (Quebec) and surrounding area, and Sherbrooke (Quebec) and surrounding area.	Winnipeg Tax Centre T3 Trust Returns Program Post Office Box 14003, Station Main Winnipeg, Manitoba R3C 0N8
New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, or the remainder of the provinces of Ontario and Quebec not listed under the Winnipeg Tax Centre.	Sudbury Tax Centre T3 Trust Returns Program 1050 Notre Dame Avenue Sudbury, Ontario, P3A 6C2

Refer to the T4013, T3 Trust Guide for more detailed information.

TPR – T5013 Partnership Information Return

86. To request an amendment of a T5013 Partnership Information Return, make the request in writing to:

Prince Edward Island Tax Centre
275 Pope Rd
Summerside PE C1N 6A2

Refer to the T4068 Guide for the Partnership Information Return (T5013 Forms) for more detailed information.

Documentation required

87. To support a TPR, taxpayers should provide all relevant information including the following, where applicable:

1. the name, address, phone number, social insurance number, account number, trust account number, business number or other tax number assigned by the CRA to the taxpayer.
2. the tax year(s) or fiscal period(s) involved
3. the facts, circumstances and reason(s) for making the TPR
4. any pertinent information concerning the requested revisions along with supporting documentation and revised Schedules, if applicable
5. the impact of the request on reported transactions in subsequent tax years
6. the impact of the request on related taxpayers

88. Where a TPR is submitted to change a prior year return, all relevant circumstances and supporting documentation are subject to review to determine whether it is appropriate to accept the request. In making their decision, the CRA may request more information when considered necessary to support the request.

Right of redress for the taxpayer

89. Where a TPR results in a Notice of (Re)Assessment or (Re)Determination being issued, and the taxpayer is not satisfied with the CRA's conclusion, the taxpayer may file a Notice of Objection with the CRA in accordance with the filing requirements in the ITA (generally within 90 days of the issuance of the Notice of (Re)Assessment).

90. There is no right of objection under the ITA for a taxpayer to dispute a discretionary decision to deny a TPR as there is no Notice of Assessment or Notice of Determination issued. However, if the taxpayer believes that the Minister has not exercised discretion in a fair and reasonable manner, the taxpayer may request in writing that the CRA reconsider the original decision. The taxpayer has the opportunity at that time to make additional representations to the CRA for consideration. The second level decision will be made by a delegated official who was not involved in the previous review.

Judicial review

91. Where a taxpayer believes the Minister has not exercised discretion in a fair and reasonable manner, the taxpayer may make an application to the Federal Court for a judicial review of the Minister's discretionary decision, pursuant to section 18.1 of the Federal Courts Act, within 30 days from the date the notification of the decision was communicated to the taxpayer.

92. To request a judicial review, the taxpayer must send a completed Form 301, Notice of Application, with the appropriate filing fee, to the registrar of the Federal Court. For more information on how to file an application for judicial review or other general enquiries, contact the Courts Administration Service at 1-800-663-2096, or go to their website at www.cas-satj.gc.ca.