4 June 2002 Internal T.I. 2002-0131077 - Statute-Barred Refund

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:

Where an overpayment of tax of a corporate taxpayer for a particular taxation year is statute-barred under subsection 164(1) because the corporate taxpayer's tax return for the particular taxation year was late-filed beyond the three-year period from the end of the particular taxation year as described in subsection 164(1), whether such statue-barred tax refund can be transferred to a different taxation year or to a different tax account under section 221.2 of the Act?

Position: No.

Reasons: To transfer the statute-barred tax refund of the corporate taxpayer to another tax account or to a different taxation year would constitute another form of refunding, which refunding is prohibited under subsection 164(1).

June 4, 2002

Wendy Baldwin, Manager Income Tax Rulings
Business Accounting Programs Division Directorate
Canada Post Place Daniel Wong

750 Heron Rd. Room 2006, 9th floor (613) 954-4949

Ottawa ON K1A 0L5
2002-013107

Transfer of Statute Barred Credits

This is in reply to your letter of February 12, 2002 addressed to the Legislative Policy Division, wherein you requested a technical interpretation with respect to the application of section 221.2 of the Income Tax Act (the "Act") to the following scenario. Your request was forwarded to the Income Tax Rulings Directorate for reply.

A corporate taxpayer made a tax instalment payment of $XXXXXXXXXX in XXXXXXXXXX for its XXXXXXXXXX taxation year (which ended on XXXXXXXXXX ). However, the corporate taxpayer did not file its XXXXXXXXXX tax return until XXXXXXXXXX, which filing date was beyond the three-year period from the end of its XXXXXXXXXX taxation year as described in subsection 164(1) of the Act. The corporate taxpayer's XXXXXXXXXX taxation year was assessed on XXXXXXXXXX with nil tax payable and an overpayment of tax of $XXXXXXXXXX and interest of $ XXXXXXXXXX. The Representative of the corporate taxpayer admitted that the corporate taxpayer's XXXXXXXXXX tax return was late-filed and the corporate taxpayer's overpayment of tax pertaining to its XXXXXXXXXX taxation year was statute-barred under subsection 164(1). However, the Representative is now requesting the Minister of National Revenue (the "Minister") to transfer such statute-barred refund of the corporate taxpayer to a personal tax account of a shareholder of the corporate taxpayer under section 221.2 of the Act.

You noted that the Practitioner's Income Tax Act 2000 has made the following comments on the application of subsection 221.2 to a statue-barred refund under subsection 164(1):

"[w]here the 3-year limit in the opening words is not met, one can still ask the CCRA to transfer an unrefunded instalment balance to another year under 221.2. That section was enacted more recently than 164(3) and appears to solve what the Tax Court described in Chalifoux, [1991] 2 C.T.C. 2243 (TCC) as a "confiscation of the appellant's property" that was "deplorable"."

You indicated that you are encountering a number of requests by certain corporate taxpayers, which requests are similar to the present case, to transfer their statute-barred refunds to another taxation year or to a different tax account under subsection 221.2 so as to avoid the application of subsection 164(1). Consequently, you queried as to whether the Minister has the discretion to grant such requests either under subsection 221.2 or pursuant to the Tax Court of Canada's decision in Chalifoux v.M.N.R. 91 DTC 946 (TCC).

Our comments

Subsection 164(1) of the Act grants the Minister an authority to refund an overpayment of tax of a taxpayer pertaining to a particular year, provided that, inter alia, the taxpayer has filed the tax return for the particular year within three years from the end of the year.

In Chalifoux, an individual filed her tax return for a particular taxation year outside the three-year period stipulated in subsection 164(1) and the assessment of such tax return resulted in an overpayment of tax by the individual for the particular taxation year. The Tax Court of Canada upheld the Minister's position that the individual's refund was statute-barred under subsection 164(1), because the tax return for the particular taxation year was filed outside the three-year period described in subsection 164(1). However, the Court recommended that the Minister take the necessary steps with the Treasury Board for the latter to authorize him to return the statute-barred refund to the individual.

Subsequent to the Chalifoux decision, subsection 164(1.5) was implemented which allowed the Minister to return a statute-barred refund to a taxpayer where the taxpayer is an individual (other than a trust) or a testamentary trust. In our view, the implementation of subsection 164(1.5) clearly reflects Parliament's intention that corporations generally remain subject to having their refunds statute-barred where they fail to file the return within the three-year period described in subsection 164(1).

Section 221.2 is intended to provide explicit authority for the Minister, inter alia, to accept transfers of payments from one tax account to another, or from one year to another, such that any amount so transferred under section 221.2 will be treated as though it had never been paid on account of the first account, and had initially been a payment made in respect of the second. However, where an overpayment of tax of a corporate taxpayer is statute-barred under subsection 164(1), it is our view that such amount would be prohibited from being re-appropriated by the Minister under section 221.2, as such re-appropriation by the Minister would constitute another form of refunding by the Minister, which refunding is prohibited under subsection 164(1). Since the forfeiting of the statute-bared refund, in a corporate taxpayer case, is not an unintended result of the legislation, in our view, there appears to be very little the Canada Customs and Revenue Agency can do to assist the corporate taxpayer.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Department's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version or they may request a copy severed using the Privacy Act criteria which does not remove client identity. Requests for this latter version should be made by you to Jackie Page at (819) 994-2898. The severed copy will be sent to you for delivery to the client.

We trust that our comments will be of assistance.

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