Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: 1. What are the general requirements to obtain a refund of Part XIII tax under subsection 227(6)?
2. What is the recourse available to a non-resident of Canada (resident of Barbados) when the period to apply to request a refund of Part XIII tax under subsection 227(6) has ended?
Position: 1. Generally, a request for a refund of overpaid Part XIII tax is made by sending a completed Form NR7-R, Application for Refund of Part XIII Tax Withheld, to the CRA. Regardless of the form of the written request, subsection 227(6) specifies that the application for a refund must be made by the taxpayer “no later than 2 years after the end of the calendar year in which the amount was paid…”
2. In our view, there is no relief available to the non-resident in the proposed situation.
Reasons: An assessment under subsection 227(7) cannot be made when the two-year limitation period in subsection 227(6) has not been met. An assessment under subsection 227(10.1) is not required because there is no balance owing, or collectible amount outstanding, with respect to the non-resident’s Part XIII tax liability.
In addition, there is no relief available to a taxpayer under the Canada-Barbados Tax Convention to override the two-year limitation period required by subsection 227(6).
Re-appropriation under section 221.2 is not available to the non-resident, mainly because this would override Parliament's intention to limit the access to the excess amount of Part XIII tax to two years.
In addition, as the tax was paid by the payor on behalf of the non-resident, only the non-resident has the right to receive the excess amount of remitted Part XIII tax. The fact that the non-resident did not file a refund request in a timely manner does not provide the payor with the right to any excessive Part XIII remittance.
XXXXXXXXXX 2021-091154
Julia Clarkson
October 6, 2022
Dear XXXXXXXXXX:
Re: Refund of excess Part XIII tax
All statutory references in this document are to the Income Tax Act, R.S.C. 1985, (5th Suppl.) c.1, as amended (the “Act”), unless stated otherwise.
We are writing in reply to your request for our views on the procedure to obtain a refund of Part XIII tax under subsection 227(6), and the recourse available to a non-resident of Canada (resident of Barbados) when the period to apply to request a refund of Part XIII tax under subsection 227(6) has ended.
More specifically, this request has arisen because of a possible refund of Part XIII tax becoming available to a non-resident as a result of the following circumstances:
- A Canadian resident personal discretionary trust (“Trust”) has Canadian resident beneficiaries and one beneficiary who is a non-resident of Canada and resident but not domiciled in Barbados (“NR Beneficiary”).
- Trust is governed by the XXXXXXXXXX.
- In 2013 and 2015, Trust deducted income that it had designated to NR Beneficiary under subsection 104(6) (“Trust Income”) that it considered to be taxable dividend income to NR Beneficiary under subsections 104(13) and (19).
- Part XIII tax was withheld from these payments and remitted to the CRA. (endnote 1)
- As a result of an audit of Trust, the CRA proposed a reassessment that denied the Trust Income deduction taken by Trust, and caused the CRA to consider the Trust Income inclusion to NR Beneficiary to be governed by subsection 105(1) rather than subsection 104(13). Subsection 105(1) is not specifically mentioned in paragraph 212(1)(c).
- We understand that in 2017 a written application was submitted to request a refund of Part XIII tax withheld on the Trust Income.
This document does not consider whether the refund is in fact owing to the taxpayer, or whether it is taxable to NR Beneficiary under subsection 104(13) or 105(1).
It has been assumed that the CRA has received Part XIII tax in excess of the amount that the non-resident was liable to pay.
Generally, a non-resident’s request for a refund of overpaid Part XIII tax is made by sending a completed Form NR7-R, Application for Refund of Part XIII Tax Withheld, to the CRA. Regardless of the form of the written request, subsection 227(6) specifies that the application for a refund must be made by the non-resident “no later than 2 years after the end of the calendar year in which the amount was paid…”
Subsection 220(2.1) provides that where any provision of the Act or a regulation requires a person to file a prescribed form, receipt or other document, or to provide prescribed information, the Minister may waive the requirement, but the person shall provide the document or information at the Minister's request.
However, where the specific conditions of subsection 227(6) have not been met, the implied exception rule (endnote 2) prevents relief from being available under the more general provision of subsection 220(2.1). Such relief would not be harmonious with the scheme of the Act or the intention of Parliament to limit Part XIII refund applications to two years after the end of the calendar year in which the amount was paid to the non-resident.
We have analyzed whether a non-resident whose Part XIII tax was withheld and remitted to the CRA might be able to receive a refund of any overpaid Part XIII tax if such an overpayment is assessed under the Act.
Subsection 227(7) generally requires the Minister to assess any amount payable by a non-resident who applies under subsection 227(6) for a refund of Part XIII tax where the Minister is not satisfied that the person was not liable to pay all or part of the tax. In our view, an assessment under subsection 227(7) can only be made when the two-year limitation period in subsection 227(6) has been met and the Minister is not satisfied that the person was not liable to pay all or part of the tax. (endnote 3)
Subsection 227(10.1) provides the Minister with the discretion to “at any time assess” any amount payable under Part XIII by a non-resident. In general terms, it authorizes the Minister to assess when Part XIII has not been properly withheld and remitted. In that regard, an assessment under subsection 227(10.1) is not authorized if there is no Part XIII amount payable to assess, as would be the case if the payments made to the non-resident were not subject to section 212. Where there is no Part XIII tax liability, it is our view that there is no authority to assess under subsection 227(10.1) and no ability to assess any related Part XIII penalties for failure to remit or deduct such tax.
Furthermore, in our view, an assessment made under subsection 227(10.1) where the two-year limitation requirement of subsection 227(6) has not been met would allow the non-resident to circumvent the two-year limitation requirement, similar to issuing an assessment under subsection 227(7) under the same circumstances (as noted above). This appears to be contrary to the intention of the subsection 227(6).
It should be noted that we do not consider a re-appropriation of the amount of excess Part XIII tax under section 221.2 to be available to the non-resident in this situation. Unless NR Beneficiary will have a tax liability from an amount payable arising from a (different) source described in section 221.2, NR Beneficiary will not have a debt that “is or may become payable” for the purposes of that provision due to the timing of Trust’s withholding requirement under section 215. More importantly, a re-appropriation of the excess Part XIII tax requested in subsection 227(6) to a debt of the non-resident beneficiary that is described in section 221.2, if one existed, would be contrary to the restrictions imposed by subsection 227(6) and therefore cannot be allowed.
Part XIII tax is withheld and remitted by a payor on behalf of a non-resident. The non-resident may not request a refund of an excessive remittance of Part XIII tax from the payor due to subsection 227(1). However, the non-resident, and only the non-resident, has the right to request a refund of any excess amount of Part XIII remitted on its behalf from the Minister under subsection 227(6). The non-resident’s failure to make such a request in a timely manner does not provide the payor with the right to recover the excess amount of Part XIII tax, through a re-appropriation or otherwise. (endnote 4)
Finally, there is no relief available to a taxpayer under the Canada-Barbados Tax Convention to override the two-year limitation period required by subsection 227(6).
We trust these comments will be of assistance.
Yours truly,
Chantal Pelletier
Division Director
Specialty Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
ENDNOTES
1 Under Canadian domestic law, the dividends were subject to Part XIII withholding tax at a rate of 25% under paragraph 212(1)(c). The withholding tax rate could be reduced to 15% as specified in Article XXIII(3) of the Canada-Barbados Tax Convention (Treaty) for any portion of the Trust Income, under Article XXX(5) of the Treaty, that NR Beneficiary could establish was taxed in Barbados in conformity with its laws (such as section 17 of the Barbados Income Tax Act). If the reduced rate of withholding tax is denied by the CRA, and NR Beneficiary considered that denial to be contrary to the Treaty, he could submit a written request for assistance to the Competent Authority of Barbados presenting the grounds for a revision of the matter in accordance with the Mutual Agreement Procedure stated in Article XXVII of the Treaty. For more details, see internal interpretation XXXXXXXXXX.
2 This rule is addressed in Ruth Sullivan, Statutory Interpretation in a New Nutshell, the Canadian Bar Review (2003) at p. 75: “the specialibus rule: when two provisions conflict, the more specific one impliedly creates an exception to the more general one.”
3 See paragraph 63 of CGI Holdings LLC v MNR (2016 FC 1086) ), which states: “Subsection 227(7) of the ITA requires the Minister to issue a Notice of Assessment when it rejects a subsection 227(6) application. However, subsection 227(6) applies only where the taxpayer applies within two years after the end of the calendar year in which the tax was paid. It therefore does not apply to the facts of this case since CGI's refund request was well past two years. Parliament has imposed a two-year time limit for applications under subsection 227(6). To grant the requested relief under subsection 227(7) would allow CGI to circumvent the intention of Parliament.”
4 These comments are supported in the decisions for (ONCA) Sentinel Hill No. 29 Limited Partnership et al v AGC ([2008] 3 CTC 425; 2008 ONCA 132) (at paragraph 10), The Canam Manac Group Inc v MNR ([1986] 2 CTC 2067), and FMC Technologies Company v MNR (2008 FC 871) (at paragraph 71). In addition, the fact that there is no exception to section 67 of the Financial Administration Act (R.S.C., 1985, c. F-11) for an individual or a trust as there is for a corporation under subsection 220(6) of the Act supports the view that the assignment of a non-resident individual’s refund to another party is not authorized.
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