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 the taxpayer relief provisions would permit the Minister to exercise his discretion to refund an overpayment to a corporation where the tax return for the year has not been filed within the 3-year limit in subsection 164(1).
Reasons: Review of the legislative provisions and related jurisprudence
October 8, 2008
Azra Rizvi/Robert Banachowicz Income Tax Rulings
Large Business Audit Directorate
Section 453-2-1 Bob Naufal
Toronto Centre Tax Services Office (613) 957-2097
Request for Refund of Tax - Subsection 164(1)
This is further to our memorandum of XXXXXXXXXX relating to a request made on behalf of XXXXXXXXXX that the CRA exercise its discretion under any of subsections 220(2.1), 220(3) or 221.2(1) of the Income Tax Act to refund an overpayment in a situation where XXXXXXXXXX did not file its tax return within the three year time period specified in subsection 164(1). As you know, XXXXXXXXXX (the "Representative") has made additional submissions on this matter in their letter of XXXXXXXXXX. All statutory references herein are references to the Income Tax Act, R.S.C. 1985, C. 1 (5th Sup.), as amended.
The relevant facts have been summarized in our memorandum of XXXXXXXXXX and will not be repeated herein.
In its letter of XXXXXXXXXX, the Representative has reiterated many of the arguments made in its previous correspondence, which were considered in preparing our previous memorandum in which we concluded that the discretionary powers granted to the Minister under the provisions in question did not apply to XXXXXXXXXX's situation. However, the Representative has also made the following additional clarifications and submissions:
(a) The Representative has clarified that XXXXXXXXXX is not asking the Minister to waive the requirement to file a return under paragraph 150(1)(a) or to extend the time therein for the filing of that return. What they are seeking is that the Minister waive or extend the requirement that the return be filed within the three year period found in subsection 164(1).
(b) The Representative disagrees with our conclusion that the discretion provided in subsections 220(2.1) and 220(3) does not apply to XXXXXXXXXX's situation. In this regard, they submit that the express language of subsection 220(2.1) permits the Minister to waive any requirement in the Act or a regulation to file a prescribed form and that this would include the tax return filing requirement in subsection 164(1). Furthermore, they believe that where the Minister waives the requirement in a particular provision, the particular provision must be read and applied as if the waived requirement had been satisfied. Similarly, the Representative believes that subsection 220(3) is sufficiently broad to permit the Minister to extend the three-year deadline contained in subsection 164(1), which they submit is a stand-alone requirement that can be waived or extended.
The Representative has also referred to proposed subsection 220(2.2) as support for XXXXXXXXXX's position that the discretion under subsection 220(2.1) is sufficiently broad to permit the Minister to waive the tax return filing required in subsection 164(1). They submit that, using the words of proposed subsection 220(2.2) that subsection 164(1) describes a requirement that a tax return be filed before a day specified in respect of such return.
(c) The Representative further submits that the fact that subsection 164(1.5) limits the Ministerial discretion provided thereunder to individuals and testamentary trusts does not suggest that Parliament intended to preclude corporate taxpayers from having the benefit of any other discretionary relief that the Minister might determine should be available under other provisions of the Act that might affect the application of subsection 164(1). They also suggest that subsection 164(1.5) is not really a discretionary provision but that it essentially gives individuals and testamentary trusts an "as of right" entitlement to a refund to an overpayment if they satisfy the ten year tax return filing requirement. They refer to the decisions of the Federal Court of Appeal in Jack Herdman Limited v. MNR 83 DTC 5274 and Amoco Canada Petroleum Company Ltd. v. MNR 85 DTC 5169, which found that the use of the word "may" in the refund provisions of subsection 44(1) of the Excise Tax Act, R.S.C. 1970, c. E-13 was not permissive, but mandatory.
(d) The Representative also suggests that our conclusion that the discretionary provisions were not applicable to XXXXXXXXXX's situation was influenced by a concern that a favourable decision would act as a precedent and "open the floodgates" and that this concern is not a valid reason not to exercise this discretion.
(e) Alternatively, the Representative requests that the CRA exercise its statutory authority under subsection 221.2(1) to re-appropriate the full amount of this overpayment for XXXXXXXXXX's XXXXXXXXXX taxation year to XXXXXXXXXX's current taxation year or to an amount that is or may become payable by a Canadian resident corporation that is related to XXXXXXXXXX, such as XXXXXXXXXX. This re-appropriation would not result in a refund of the overpayment but would be used to offset amounts payable in the current year. In this regard, they note that there is nothing in the language of subsection 221.2(1) which precludes an appropriation to an amount that is or may become payable by another person under the Act. In the event that the amount is re-appropriated to XXXXXXXXXX's current taxation, XXXXXXXXXX will undertake a profit and loss consolidation arrangement with one or more related Canadian resident corporations to ensure that XXXXXXXXXX will have a sufficient tax liability against which the re-appropriated amount could be applied.
We have reviewed the additional clarifications and submissions made by the Representative and we are still unable to agree with the Representative's position on the possible application of any of these taxpayer relief provisions to XXXXXXXXXX's situation. Our comments with respect to each of the additional submissions made by the Representative follow.
(a) We acknowledge the Representative's clarification that XXXXXXXXXX is asking that the Minister exercise the discretionary powers provided in subsection 220(2.1) or subsection 220(3) to waive or extend the requirement that XXXXXXXXXX's XXXXXXXXXX return be filed within the three year period found in subsection 164(1). However, as discussed in more detail below, we do not agree that either of these provisions grant the Minister the authority to waive or extend this time.
(b) Subsection 220(2.1) of the Act provides discretion to the Minister to waive any requirement in the Act or Regulations to file a prescribed form, receipt or other document, or to provide prescribed information. Further, subsection 220(3) of the Act provides discretion to the Minister to extend the time for making a return under this Act. Subsection 150(1) of the Act sets out the tax return requirements and filing deadlines for taxpayers. It should be noted that subsection 164(1) of the Act provides rules governing the refunds of overpayments of tax; it does not set out a stand-alone requirement relating to the filing of tax returns or prescribed forms or documents. In our view, the Ministerial discretion contained in subsections 220(2.1) and 220(3) is only applicable to provisions such as subsection 150(1). Accordingly, it is our position that subsections 220(2.1) and 220(3) have no application to subsection 164(1).
(c) We do not agree with the Representative's submission that subsection 164(1.5) is not really a discretionary provision but essentially gives individuals and testamentary trusts an "as of right" entitlement to a refund to an overpayment if they satisfy the ten year tax return filing requirement. Although, in the cases referred to by the Representative, the Federal Court of Appeal found that the use of the word "may" in the refund provisions of subsection 44(1) of the Excise Tax Act, R.S.C. 1970, c. E-13 was mandatory, this finding was based on the wording of the particular legislation under consideration. Although section 28 of the Interpretation Act, R.S.C. 1970, c. I-23 provided that the word "may" is to be construed as permissive, and the word "shall" is to be construed as imperative, Justices Le Dain and Clement both found that the use of the word "entitled" in subsections 44(6), (7) and (7.1) of the Excise Tax Act as it applied to the years in question were indications that the word "may" as used in subsection 44(1) of that Act, when read in context, should be construed as being mandatory. Both judges were of the opinion that section 3 of the Interpretation Act, which provided that the provisions of that act applied "unless a contrary intention appears, to consider the context in which the word "may" appeared. LeDain, J. also indicated that the absence of the contrasting use of "shall" and "may" in subsection 44(1) of the Excise Tax Act influenced his opinion. In this regard, he referred to the cases of Smith & Rhuland Limited v. The Queen Ex. Rel. Brice Andrews et al.,  2 S.C.R. 95 and Re Falconbridge Nickel Mines Ltd. and Minister of Revenue for Ontario, 32 O.R. (2d) 240 (C.A.), 25 O.R. (2d) 117 (Div. Ct.) as examples of situations where the contrasting use of the words "shall" and "may" should be construed as conferring a discretion rather than a duty to make a refund of tax wrongfully paid.
Based on these principles, the legislator's use of the word "may" in subsection 164(1.5) can only be construed as permissive given the contrasting use of both "may" and "shall" in section 164 of the Act. For example, paragraph 164(1)(a) uses "may", while paragraph (b) uses "shall". Also, the fact that subsection 164(1.6) indicates that the Minister "shall" refund an overpayment of a taxpayer's UI premium tax credit, whereas subsection 164(1.5) states that the Minister "may" refund an overpayment supports that there is absolutely nothing in the context of subsection 164(1.5) to suggest that the word "may" as used in that subsection is not to be construed as permissive.
(d) We do not know the basis for the Representative's suggestion that our conclusion has been influenced by a concern that a favourable decision would "open the floodgates". Our conclusion is based solely on our interpretation of the particular provisions in question.
(e) Finally, we do not agree with the Representative suggestion that the statutory discretion under subsection 221.2(1) is available to re-appropriate the full amount of XXXXXXXXXX's overpayment for its XXXXXXXXXX taxation year to XXXXXXXXXX's current taxation year or to an amount that is or may become payable by a Canadian resident corporation that is related to XXXXXXXXXX, such as XXXXXXXXXX. As indicated in our previous memorandum, it is the CRA's interpretation that subsection 221.2(1) may not be used to re-appropriate an overpayment that cannot be refunded once the three year period contained in the preamble to subsection 164(1) has lapsed. We believe that the recent decision of Sheridan J. in Landmark Auto Sales Ltd. v. The Queen [2008 TCC 121], while heard under the Informal Procedure, supports this view.
In summary, we do not believe that the Minister has the statutory authority under any of subsections 220(2.1), 220(3) or 221.2(1) to grant the relief that XXXXXXXXXX and their Representative are seeking.
We trust that our comments will be of assistance.
Resources and Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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