Budget Dampens Ficek Relief for Tax Shelter Investors
The decision in Ficek v. Canada (Attorney General) (2013 FC
502) sets aside the CRA's policy, announced on October 30, 2012, that it
would delay the assessment of a taxpayer who participated in a donation
tax shelter until the tax shelter itself was audited. However, some of
the benefits that taxpayers might otherwise receive from this decision
are to be eliminated by proposals in the 2013 federal budget.
The issue in Ficek was the interpretation of the minister's
duty to assess tax returns "with all due dispatch" (subsection 152(1)).
Relying on previous decisions in Jolicoeur v. MNR (60 DTC 1254 (Ex. Ct.)) and J. Stoller Construction Ltd. v. MNR
(89 DTC 134 (TCC)), the court noted that the phrase "with all due
dispatch" is the equivalent of "with all due diligence" or "within a
reasonable time" and that there is no fixed period for the performance
of the duty to assess. Instead, the purpose of the language is to
provide the minister with reasonable discretion in the timing of the
assessment. However, that discretion is not unfettered; it must be
reasonable and for a proper purpose of ascertaining and fixing the
taxpayer's liability. In Ficek, the court ruled that the true
purpose of the new policy was to discourage participation in tax
shelters, and thus no delay in the issuing of an assessment could be
One benefit that taxpayers might have received from the Ficek
decision is a reduction in the time that the CRA has in which to
reassess the taxpayer regarding a tax shelter. Taxpayers could not be
reassessed until the tax shelter was audited and, with the early issuing
of the notice of assessment, there might be only a relatively short
time between the completion of the audit and the expiry of the normal
reassessment period (for individuals, three years from the date of
mailing of the notice of assessment). However, the budget proposed the
extension of the normal reassessment period for up to three years after
the filing of certain information returns by the promoter of the tax
shelter, if the returns are not filed on time (paragraph 152(4)(b.1)).
Any such reassessment would be limited to the tax shelter (subparagraph 152(4.01)(b)(vii)).
A second benefit that taxpayers might have received from Ficek
is the earlier payment of refunds (with the notice of assessment).
However, another measure (enacted on June 26, 2013) permits the CRA to
effectively take back part of those refunds. Specifically, the CRA is
allowed to collect 50 percent of the disputed tax, interest, or
penalties in respect of the disallowance of a deduction or tax credit
for a tax shelter that involves a charitable donation
These two budget measures would apply to reassessments in respect of taxation years ending on or after March 21, 2013.
The implications of Ficek extend beyond the tax shelter issue
and beyond the assessment of returns. Other notable examples of the use
of the phrase "with all due dispatch" include the issuance of refunds
(subsection 164(1)), reconsideration of an assessment upon receipt of a
notice of objection (subsection 165(3)), and consideration of an
application for an extension of time in which to object (subsection
166.1(5)). In this regard, the Ficek case serves as a source of welcome guidance on when the CRA can and cannot justify a delay in carrying out its duties.
Deloitte LLP, Ottawa