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 justified.

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 (subsection 225.1(7)).

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.

Simon Couvrette
Deloitte LLP, Ottawa

Canadian Tax Focus
Volume 3, Number 3, August 2013
©2013, Canadian Tax Foundation