http://decisions.fca-caf.gc.ca/fca-caf/decisions/en/item/71643/index.do 
Her Majesty the Queen v. Geoffrey Last (May 15, 2014 – 2014 FCA 129) was an appeal by the Crown from a decision of the Tax Court which dealt primarily with whether the court could re-characterize receipts from capital gains to ordinary income outside the normal reassessment period. It was undisputed that Mr. Last earned $ 601,135.38 in 2002 from sales of the shares of InternetStudios.com,Inc. (ISTO shares). Mr. Last did not originally report these receipts (FCA):
[45] Before leaving this issue, it is important to note that at all times the taxpayer knew the proceeds of disposition from the sale of the ISTO shares were in issue. He failed to file a tax return for the 2002 year. On the basis of a review of brokerage statements the Canada Revenue Agency assessed the taxpayer for capital gains earned on the disposition of the shares. The parties agreed upon the amount received by the taxpayer on account of that disposition. After the assessment, the taxpayer filed an income tax return reporting the sale of shares on capital account. He maintained this position in his notice of objection and in his original notice of appeal. This transaction was always in play and no injustice flows to the taxpayer from including the proceeds of disposition, treated as a capital gain, in his taxable income.
It appears however that he amended his notice of appeal in the Tax Court to claim that such receipts were on income account and should be reduced by related trading expenses of $483,721 (FCA):
[9] The taxpayer acknowledged that he realized gains in the amount assessed by the Minister. However, as set out above, he took the position that the gains were business income. This, in his submission, allowed him to deduct expenses in the amount of $483,721 from the sale proceeds. The taxpayer asserted in the alternative that if the proceeds were found to be on account of capital, the expenses should be added to the adjusted cost base of the ISTO shares.
The Tax Court held that the alleged trading expenses were not deductible since the evidence disclosed that they were simply loans to ISTO. Nevertheless it concluded that it had no jurisdiction to order the receipts assessed as ordinary income (TCC):
[48] The appellant submits that the ISTO trading gains are business income. This position appears to be amply supported by the evidence. However, I do not think that the Court should order a reassessment on this basis since it would be statute barred. During argument, I asked the parties to address whether it would be appropriate for the Court to order the Minister to reassess on this basis and written submissions were subsequently received.
…
[50] The appellant submits that the Crown should not be ordered to reassess income more than $266,276.34, which was the taxable capital gain that was assessed. (My understanding is that this figure includes trading activity from other shares as well as ISTO shares.)
[51] In my view, it is not appropriate for the Court to require a reassessment that changes the character of the gains from capital to income, because the effect of this would be for the Minister to reassess beyond the limitation period set out in s. 152(4) and (4.01) of the ITA.
…
[54] The question, then, is whether a reassessment that changes the ISTO gains from capital to income would be statute barred. In my view it would be. The limitation period will have expired unless the appellant has made a careless or negligent misrepresentation in the income tax return. It would be difficult for the Crown to suggest that he has when the Crown’s primary argument in this appeal is that the gains are on capital account.
[55] I would conclude that it is not appropriate to require the ISTO gains to be reassessed as ordinary income.
http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/30980/index.do 
The Crown appealed this issue to the Federal Court of Appeal which upheld the Tax Court’s conclusion:
[31] In my view,
Petro-Canada is dispositive of the Crown’s appeal in this case. The Minister originally assessed the taxpayer’s proceeds from the sale of the ISTO shares as a capital gain. By characterizing the proceeds as a capital gain, the Minister set the taxpayer’s liability from the source of income that was the ISTO shares. The Tax Court’s conclusion that the proceeds of disposition were on account of income, not property, could not result in an increase of the taxpayer’s liability from that source because the Minister cannot appeal from her own assessment.
[32] Put another way, the proceeds of disposition on the sale of the ISTO shares were $601,135. Treating the transaction as being on account of business income would increase the taxpayer’s taxable income by approximately $300,565. Had the Tax Court simply dismissed the taxpayer’s appeal, the taxpayer would have been deprived of additional, unrelated deductions of $265,070. The effect would be to increase the taxpayer’s income by the difference between $300,565 and $265,070. This is inconsistent with the principle that the Minister cannot appeal from her own assessment.
…
[37] Finally, the Crown argues that it can advance a new basis or argument in support of the assessed quantum of tax liability. I agree that this is specifically permitted by subsection 152(9) of the Act. However, subsection 152(9) is subject to important limitations. The Minister cannot use subsection 152(9) to reassess outside the time limitations contained in subsection 152(4) of the Act. As well, the Minister cannot tax an amount exceeding the amount in the assessment under appeal (
Walsh v. Canada, 2007 FCA 222, 367 N.R. 127, at paragraph 18). It follows that subsection 152(9) of the Act is of no assistance to the Minister in circumstances where the new or additional argument would have the result of increasing the amount of the assessment relating to the ISTO shares.
Mr. Last cross-appealed and argued that once the Tax Court judge concluded that the receipts were not capital gains she should have reduced that taxable capital gain included in his income to Nil.
The Federal Court of Appeal rejected his argument as well:
[43] For the purpose of this argument, the relevant income source is the ISTO shares which were either capital property or inventory. In her assessment, the Minister took the position that the shares were capital property so their sale gave rise to a capital gain. The Judge concluded that the shares were inventory so the sale proceeds were business income.
[44] The consequence of this finding cannot erase the taxpayer’s tax liability as a result of the sale of the shares. So long as the taxpayer’s tax liability in respect of the sale proceeds does not exceed the amount assessed by the Minister as a capital gain, the tax liability from the source constituted by the shares does not increase. As the taxpayer’s tax liability from that source does not increase, the Judge did not err.
The final issue in this appeal was an appeal by Mr. Last from the Tax Court finding that he was taxable on certain amounts of rental income in 2000 and 2001. He did not dispute the quantum of the rental income but argued that since the Crown had not alleged negligence or misrepresentation the Tax Court Judge erred in not finding those years statute-barred. The Federal Court of Appeal was not receptive to this line of argument:
[50] Dealing first with the applicability of subsection 152(5), it is important to situate this issue in its factual matrix. As the Judge noted at paragraph 112 of her reasons, the taxpayer admitted realizing net rental income in 2000 and 2001. Further, at trial the parties agreed that specified amounts should be added to the taxpayer’s income for the 2000 and 2001 taxation years on account of this rental income.
[51] I accept the submission of the Crown that implicit in the taxpayer’s admission that the amount should be included in income is an admission of the factual element of misrepresentation attributable to carelessness, negligence or wilful default. Without such admission, the rental receipts could not be included in income.
[52] Moreover, had the Minister known that the taxpayer would, on appeal, resile from his admission, the Minister could have reassessed the rental income under subsection 152(4) of the Act and issued a new notice of assessment to that effect. In these circumstances the taxpayer should not be allowed to resile from his admission.
In the result both the appeal and cross-appeal were dismissed. The court reserved its decision on costs pending receipt of submissions from the parties.
Comment: This decision is a complex amalgam of facts. On the one hand we have Mr. Last arguing that the ISTO share receipts were on income account, as long as he could deduct expenses of $483,721 from the sale proceeds. Once he lost those deductions (a point which he did not appeal) the original characterization as capital gains was preferable for him. The Crown on the other hand had admitted additional deductions in 2000-2002 in the amount of $265,070. This reduced the overall incidence of taxation unless the ISTO share receipts were assessed as being on income account. That seems to be the underlying basis for the Crown’s appeal to the Federal Court of Appeal.
In a nutshell this case seems to stand for the proposition that neither the taxpayer nor the Crown can ask the Tax Court to vary an assessment in a manner which increases the taxpayer’s original assessed liability in the absence of misrepresentation by the taxpayer which would permit the opening of a statute-barred year.
Part of the complexity of this decision stems from paragraph [32] and the suggestion that dismissing the taxpayer’s appeal would have deprived him of the benefit of “unrelated deductions of $265,070”. The amount of $265,070 does not appear in the decision of the Tax Court although various deductions are set out in the appendix to that decision which is titled: List of Respondent’s Concessions:
A. (g) $5,737.26
B. (g) $10,132.49
C. ? (c) $9,391.46
C. ? (d) $234,287.00
C. ? (g) $10,167.76
Total: $269,715.97
It is unclear why those deductions would have been lost if the Tax Court dismissed Mr. Last’s appeal on the ISTO shares. Perhaps it is best to regard that paragraph as obiter that does not go to the core of the decision.
One intriguing aspect of this decision is that it appears to suggest that the Harris principal should be applied on a source by source basis, i.e., that the Minister cannot take a position that increases the income from a specific source beyond the income assessed to that source in the assessment under appeal. That would lead to the conclusion that even where the overall tax liability as a result of the appeal would otherwise remain the same (or, indeed, would be decreased) the Harris principal would prohibit the Minister from arguing an increase in income from any specific source. The point does not appear to be relevant to the Last decision since treating the gain on income account would have increased the tax payable since the deductions allowed were less than the “non-taxable” portion of the gain that would have been added to Mr. Last’s income. It will be interesting to see what will happen in a case where there is no overall increase in tax payable but the Minister argues to tax additional unassessed income from a specific source.