In my last article, I discussed the different types of financial losses your business-owner clients may have experienced as a result of Covid-19. In this article, I’ll provide a refresher on the Canadian Income Tax Act so you can help clients who are disputing a loss determination.
The scope of this article is limited to discussing how to dispute non-capital, net capital and allowable business investment losses reported on a Canadian tax return. However, this largely applies to restricted farm losses, farm losses and limited partnership losses under the Canadian Income Tax Act.
The nil assessment rule
A notice from the Canada Revenue Agency indicating that a business has no tax payable is commonly called a nil assessment. The CRA will issue these notices under the heading “assessment” or “reassessment.”
Your business-owner clients or your clients’ businesses may receive a nil assessment for a tax year, disallowing any losses that were claimed in the year or used to offset income. Case law has established that nil assessments cannot be appealed internally at the CRA appeals division or to the Tax Court of Canada because they assess no tax.
If your business-owner client receives a nil assessment for a tax year disallowing any losses claimed during the year or losses used to offset income, they should not appeal the nil assessment by filing a notice of objection.
Disputing a denial of losses
To formally dispute a nil assessment or a notice that no tax is payable, your client must file a loss determination with the CRA. Once they file a loss determination, the CRA will determine the amount of the loss and confirm in writing by issuing Form T67AM, Notice of Determination/Redetermination of a Loss.
Once your client has received a Form T67AM, they can then file a notice of objection with the CRA within 90 days. Notably, the taxpayer is objecting to the Form T67AM — not to the nil assessment. Your client can then dispute the nil assessment’s tax results at the CRA’s appeal division or at the Tax Court of Canada.
Supporting a loss filing position
Disputing a Notice of Determination/Redetermination of a Loss that your business-owner client or your client’s business claimed in a tax year primarily focuses on gathering information and presenting it to the relevant authority. The data supporting the loss filing position should include the source of the loss, the expenditures incurred and supporting documentation unique to the taxpayer’s loss.
- If your business-owner client or your client’s business receives a nil assessment for a tax year, you can recommend filing a loss determination with the CRA so your client can dispute the nil assessment’s tax results.
- If your business-owner client or your client’s business is subject to an audit by the CRA, consider consulting a tax lawyer or a tax professional to mitigate their audit risk.
- If your business-owner client or your client’s business receives a nil assessment for a tax year involving tax losses, consider consulting a tax lawyer to navigate the procedural and substantive pitfalls involved with objecting to a nil assessment.
Marco Iampieri is a tax lawyer with Iampieri Law Professional Corporation in Innisfil, Ontario, practising tax litigation and tax planning.