23 October 2001 External T.I. 2001-0104625 - refund interest

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: Calculation of interest paid on refunds.

Position: General comments provided.

Reasons: General comments provided.

			2001-010462
XXXXXXXXXX 	Karen Power, C.A.
(613) 957-8953
October 23, 2001

Dear XXXXXXXXXX:

Re: Refund Interest

This is in reply to your recent letter, wherein you requested clarification on the application of subsections 164(3) and 164(3.2) of the Income Tax Act (the "Act").

As a general rule, the Canada Customs and Revenue Agency (the "CCRA") is authorized to reassess within three years from the date of the original assessment, by virtue of subsection 152(4) of the Act. However, pursuant to subsection 152(4.2) the CCRA may reassess and issue refunds beyond this three year period, for taxation years dating back to 1985, as outlined in Information Circular IC 92-3, "Guidelines for refunds beyond the normal three year period."

As discussed in previous correspondence to you from Mr. Marwan Pharaon in the TPR-Office Examination of the Surrey Tax Centre, subsection 164(3) of the Act deals with situations where interest is paid on refunds or repayments of taxes. This subsection provides that interest will be paid at the prescribed rate on the day that is the latest of 45 days after an individuals balance due date or 45 days after the day on which the individuals income tax return was filed under section 150.

In contrast, subsection 164(3.2) of the Act provides that interest will be paid on an overpayment of tax determined by reason of subsection 152(4.2) from the day that the Minister of National Revenue receives an acceptable request for an adjustment to the day the amount is refunded. The Technical Notes, issued by the Department of Finance, with respect to subsection 164(3.2), explain that this subsection overrides the rule in subsection 164(3) of the Act concerning the computation of interest and provides that interest will be computed from the day the Minister receives an acceptable request for an adjustment to the day the amount is refunded.

The result of the application of subsections 164(3) and (3.2) is that the interest payable on refunds requested within the normal reassessment period will generally exceed the interest payable on refunds requested pursuant to subsection 152(4.2) of the Act (i.e. beyond the normal three year period).

The CCRA is responsible for the administration of the Act. Whether the tax consequences described above are unintended and require changes to the legislation is a question that is within the purview of the Department of Finance. However, based on our understanding of the tax policy underlying the legislation, as embodied in the Technical Notes discussed above, in our view the results are intended.

We trust our comments will be of assistance to you. These comments are provided in accordance with the practice outlined in paragraph 22 of Information Circular 70-6R4.

Yours truly,

for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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