15 March 2013 Internal T.I. 2012-0468081I7 - Paragraph 164(1)(b)

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 a refund may be issued where the application for the refund was not made prior to the statute barred date, however a valid waiver identifying specific issues was filed with the Minister within the normal reassessment period.

Position: No, unless the request for refund is based on issues which are identified in the waiver.

Reasons: Paragraph 164(1)(b) does not provide for a refund beyond the period within which the Minister would be allowed under subsection 152(4) to assess tax payable, regardless of whether a waiver was filed for the taxation year.

March 15, 2013

Legislative Application and Policy HEADQUARTERS
Services Income Tax Rulings
International and Large Business Directorate Directorate
Attention: Jennifer Mann Gillian Godson

2012-046808

Application of Paragraph 164(1)(b)

We are writing in reply to your email of November 1, 2012, regarding the application of paragraph 164(1)(b) of the Income Tax Act (the "Act"), and whether a refund may be issued in particular circumstances.

Specifically, you have requested clarification of whether the provisions of paragraph 164(1)(b) permit the Minister to issue a refund in a situation where a taxpayer has filed a valid waiver to allow a reassessment beyond the normal reassessment period. However, the taxpayer's request for a refund is made after the normal reassessing period provided by subsection 152(4) of the Act.

In addition you have requested clarification of the comments made with respect to a reassessment to create a refund in paragraph 4 of IC75-7R3, "Reassessment of a Return of Income".

Our comments

The provisions of subsection 164(1) of the Act clearly state the circumstances in which the Minister may issue a refund of an overpayment of tax to a taxpayer. In that regard, paragraph 164(1)(b) provides that a refund may be made by the Minister if the taxpayer's return has been filed within 3 years from the end of the year and the request for the refund is made in writing by the taxpayer within the period within which the Minister would be allowed under subsection 152(4) to assess the taxpayer's tax payable if that subsection were read without reference to paragraph 152(4)(a).

In general, subsection 152(4) of the Act provides that for a particular taxation year, the Minister may, at any time, issue an assessment, reassessment or additional assessment of tax or notify a taxpayer that no tax is payable. However, assessments, reassessments, or additional assessments of tax, interest or penalties for a taxation year cannot be issued by the Minister beyond the "normal reassessment period" in respect of the year unless otherwise permitted by section 152. The "normal reassessment period" is defined in subsection 152(3.1). In particular, paragraph 152(3.1)(b) provides that the normal reassessment period for Canadian-controlled corporations is three years from the date of the initial assessment or notice that no tax is payable. However, subparagraph 152(4)(a)(ii) of the Act provides the Minister with the ability to make an assessment after the taxpayer's normal reassessment period if the taxpayer has filed a waiver in prescribed form within the normal reassessment period.

In the circumstances you have described, the taxpayer has provided a valid waiver identifying the specific issues which were under audit at that time. The taxpayer also made a request for a refund based on issues that are unrelated to those covered by the waiver. However the taxpayer did not request a refund within the time frames required by paragraph 164(1)(b). As stated above, the taxpayer must make the refund request within the period that would be provided by subsection 152(4) if it were read without reference to paragraph 152(4)(a). As a result, although the taxpayer filed a waiver within the normal reassessment period to extend the period in which the taxpayer may make a reassessment, the Minister is not permitted to issue a refund in these circumstances. It should be noted that where a refund request is based on issues which are covered by a valid waiver, a refund may be issued notwithstanding that the refund request may have been made after the required time frame.

With respect to your concerns regarding IC75-7R3, in our view paragraph 4 outlines our policy regarding requests for refunds made within the period provided by paragraph 164(1)(b). In particular, the taxpayer must file a request for a refund within the normal reassessment period or within the period allowed by paragraphs 152(4)(b) through (d). However, if the request for a refund is submitted close to the deadline to issue a refund, the taxpayer should also file a waiver. This will allow the Minister sufficient time to review and process the refund request.

In your inquiry you raised an additional question concerning the validity of a taxpayer's objection to issues other than those identified in a waiver. Subsection 152(4.01) of the Act limits the circumstances in which the Minister can reassess, where a reassessment to which paragraph 152(4)(a),(b) or (c) applies is made beyond the normal reassessment period. In that regard, where the taxpayer has filed a waiver for a particular taxation year, the Minister may reassess the taxation year only to the extent that it can reasonably be regarded as relating to the waiver.

On the other hand, subsection 165(1) of the Act does not limit the taxpayer's objection to matters raised in the reassessment. Although subsection 165(1.1) does limit an objection in certain cases, to those matters which gave rise to the assessment or redetermination, the special circumstances to which the restrictions of 165(1.1) apply do not include an assessment issued as a result of a waiver under 152(4)(a)(i). Therefore, while a reassessment may be limited by subsection 152(4.01) to the issues that are reasonably related to the issues covered in the waiver, the taxpayer may object to that same reassessment even if the basis for the objection is not related to the issues raised in the reassessment. In that regard, in the situation you have described, the taxpayer may object to the reassessment and raise issues in the objection that were not part of the reassessment for that taxation year. In addition, as noted in your inquiry, due to the fact that the taxpayer is a large corporation within the meaning assigned by subsection 225.1(8), the objections to an assessment must follow the requirements of subsections 165(1.11) to 165(1.14).

We trust these comments will be of assistance.

Yours truly,

Terry Young, CA, CPA
for Director
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch