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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: Would Rulings Directorate confirm the comments drafted by the law firm.
Position: No.
Reasons: General comments provided on the application of 220(6).
XXXXXXXXXX 2000-001694
David Shugar
Attention: XXXXXXXXXX
October 4, 2000
Dear XXXXXXXXXX,
Re: Assignment of Tax Credits under Subsection 220(6) of the Income Tax Act (the "Act")
We are responding to your correspondence of March 27, 2000, wherein you requested our views concerning section 68 of the Financial Administration Act (the "FAA"), and subsection 220(6) of the Act.
We are prepared to provide you with the following general comments regarding the application of subsections 220(6) and 220(7) of the Act.
Subsections 220(6) and 220(7) of the Act state:
220 (6) Notwithstanding section 67 of the Financial Administration Act and any other provision of a law of Canada or a province, a corporation may assign any amount payable to it under this Act.
220 (7) An assignment referred to in subsection (6) is not binding on Her Majesty in right of Canada and, without limiting the generality of the foregoing,
(a) the Minister is not required to pay to the assignee the assigned amount;
(b) the assignment does not create any liability of Her Majesty in right of Canada to the assignee; and
(c) the rights of the assignee are subject to all equitable and statutory rights of set-off in favour of Her Majesty in right of Canada.
Section 67 of the FAA states:
67. Except as provided in this Act or any other Act of Parliament,
(a) a Crown debt is not assignable; and
(b) no transaction purporting to be an assignment of a Crown debt is effective so as to confer on any person any rights or remedies in respect of that debt.
Prior to the introduction of subsections 220(6) and 220(7) of the Act, corporations would assign expected refunds of SR & ED investment tax credits or Film Tax Credits as security for bridge financing for their operations. However, as a result of the Marzetti case in 1994, it was found that, because of the application of section 67 of the FAA, income tax refunds were not generally assignable. To overcome that impediment to financing, subsection 220(6) of the Act was introduced, applicable to assignments made after March 5, 1996, to allow a corporation to assign any amount payable to it under the Act.
Subsection 220(6) of the Act is a statutory exemption from the provisions of the FAA, and any other law of Canada, or a province, that would otherwise prevent a corporation from assigning amounts payable to it under the Act. In particular, subsection 220(6) of the Act provides a statutory exemption from the general prohibition at section 67 of the FAA regarding assignments of Crown debt. The legislative intent of subsections 220(6) and 220(7) of the Act is to permit corporations to legally enter into assignments of amounts payable to them under the Act, while maintaining the rights of the Canada Customs and Revenue Agency (the "CCRA"). The CCRA does not intend to become involved in commercial financial arrangements, and will not get involved in possible disputes which may arise between assignor and assignee. In addition, the CCRA is not prepared to get involved in administering any assignment agreements and no notice of assignment is required to be sent to the CCRA.
Subsections 68(1) and 68(2) of the FAA state:
68 (1) Subject to this section, an assignment may be made of
(a) a Crown debt that is an amount due or becoming due under a contract; and
(b) any other Crown debt of a prescribed class.
68 (2) The assignment referred to in subsection (1) is valid only if
(a) it is absolute, in writing and made under the hand of the assignor;
(b) it does not purport to be by way of charge only; and
(c) notice of the assignment has been given to the Crown as provided in section 69.
Subsections 68(1) to 68(5) of the FAA, along with section 69 of the FAA provide an exception to the general prohibition of assignment in section 67 of the FAA with respect to certain specified Crown debts. We note that paragraph 68(2)(b) and (c) of the FAA specifically provide that the assignments under subsection 68(1) of the FAA are valid only if they are not by way of charge only and a notice of assignment has been given to the Crown. In our view, section 68 of the FAA does not apply to assignments under subsection 220(6) of the Act, as this subsection only relates to section 67 of the FAA. Accordingly, an assignment of an income tax refund made after March 5, 1996 is not subject to sections 68 or 69 of the FAA.
We trust our comments will be of assistance to you.
Yours truly,
Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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