23 May 2011 Internal T.I. 2011-0405701I7 - The 3 year limitation period in 129(1)

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: Whether subsection 220(3) applies to permit the Minister to extend the 3 year limitation period in subsection 129(1) so as to permit a dividend refund.

Position: No.

Reasons: Ministerial discretion in subsection 220(3) is only applicable to provisions such as subsection 150(1). Allowing a return of income to be filed past the 3 year limitation period would not alter or affect the fact that the return would not be filed "within 3 years after the end of the year".

		May 23, 2011

	Appeals Branch					HEADQUARTERS
	Tax and Charities Appeals Directorate	Income Tax Rulings
		  							Directorate
	Attention:  Barry Hassar, Manager		Richard Aronoff
	International Tax and Tax Avoidance		(613) 941-7239

								2011-040570

Applicability of Subsection 220(3) to Subsection 129(1)

This is in response to the email from Maggie Martel, wherein she requested an interpretation as to whether the 3 year time period provided in subsection 129(1) can be extended by the exercise of Ministerial discretion pursuant to subsection 220(3).

Subsection 129(1) provides that a private corporation may receive a dividend refund of all or part of the income tax that it paid in respect of certain investment income and capital gains where it has paid taxable dividends to its shareholders. In order to obtain a refund, the opening words of this subsection stipulate that the corporation must have filed its return of income within 3 years after the end of the year in which it paid the dividends.

Corporations are, generally, required to file their returns within six months after their fiscal year end pursuant to paragraph 150(1)(a). Once filed, the Minister is required to assess the return with all due dispatch under subsection 152(1). For a private corporation that would be eligible for a refund of tax under subsection 129(1) the normal reassessment period is, typically, 3 years after the earlier of the day of mailing of the notice of assessment and the day of mailing an original notification that no tax is payable for the year.

Subsection 220(3) gives the Minister the discretion to extend the time for making a return under the Act. Such an extension could enable a person to avoid or reduce an assessment of interest and penalties. It does not, however, alter or affect whether a private corporation has factually filed its return of income "within 3 years after the end of the year". There is no provision within section 129 to permit the Minister to extend this 3 year time period. Consequently, the granting of an extension of time to make a return pursuant subsection 220(3) does not have the effect of extending the 3 year period in subsection 129(1).

The provisions of subsections 221.2(1) and (2) would not apply in this instance. A dividend refund, which is statute barred as a result of the lapse of the three year period prescribed in subsection 129(1) is not an amount that was appropriated to a debt and, therefore, cannot be re-appropriated. The circumstances in the instant case can be distinguished from those in the XXXXXXXXXX file. In the latter case, a payment made by a taxpayer had been appropriated to a debt, and while the refund of that amount was statute barred due to the lapse of the three year period in subsection 164(1), the taxpayer was not precluded from requesting a re-appropriation of that amount to another debt pursuant to subsection 221.2(1).

Should you have any questions or require additional information, please do not hesitate to telephone Richard Aronoff at the number provided above.

B.J. Skulski
Manager
Insolvency and Administrative Law Section
Income Tax Rulings Directorate

cc. Maggie Martel
Senior Appeals Officer