21 May 2015 Internal T.I. 2015-0567981I7 - Refundable ITC

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: 1. Does a revision to the corporate status of a taxpayer require a reassessment? 2. Is the CRA required to reassess the returns revising the taxpayer's claims from ITC to the RITC in the statute-barred years?

Position: 1. No. 2. Yes, if the redetermination period has not expired.

Reasons: 1. The Act does not require it. 2. Based on subsections 127.1(1) and 152(1) and case law

May 21, 2015

Chris Boucouvalas HEADQUARTERS
Senior Technical Specialist Income Tax Rulings
Financial SR&ED and Film Division Directorate
SR&ED Directorate Lata Agarwal, CPA,
Compliance Programs Branch CMA, MBA

2015-056798

Refundable Investment Tax Credit

We are writing following our meeting with you on January 27, 2015 (Boucouvalas/ D'Addario/Young/Agarwal), in which you requested our comments on the following issues:

1. whether revising the corporate status of a taxpayer to "Canadian-controlled private corporation" (CCPC), as that term is defined in subsection 125(7) of the Income Tax Act (the "Act"), requires a reassessment of the taxpayer's tax returns for the specific tax years; and
2. if a reassessment is not required under 1. above, whether the Act requires the Minister to reassess or process a taxpayer's amended tax returns for its statute-barred tax years in response to the taxpayer's request to claim the Scientific Research and Experimental Development (SR&ED) refundable investment tax credits (RITC) pursuant to subsection 127.1(1) of the Act, in those years.

You explained that you received a request in XXXXXXXXXX in which the taxpayer requested a revision of its SR&ED investment tax credit (ITC) claim from non-refundable investment tax credits (NRITC) to RITCs, for its XXXXXXXXXX tax years. You have further explained that the taxpayer has relied on the Federal Court decision in Parthenon (footnote 1) to substantiate its request. In Parthenon, the Court allowed the taxpayer's appeal on the CCPC issue. The Court rejected the concept of "simultaneous control" and accepted that the taxpayer was a CCPC on the basis that it was ultimately controlled by Canadian resident corporations in the relevant taxation years.

Our comments

1. Does a revision to the corporate status of a taxpayer require a reassessment?

Subsection 125(7) of the Act contains the definition of CCPC. However, neither this subsection nor any other provisions of the Act expressly provide for a separate CCPC determination to be made. As such, in a case where a qualifying CCPC originally filed its tax returns as a non-CCPC, the Act does not require the Minister to reassess those tax returns in order to correct the taxpayer's corporate status. Therefore, unless the change in status changes the tax payable by the corporation for the year and the taxation year can be reassessed, no reassessment can or should be made. However, as discussed below, the change from a non-CCPC to a CCPC can change other balances of the corporation.

2. Is the CRA required to reassess a taxpayer's tax returns pursuant to the taxpayer's request to revise its ITC claim from NRITCs to RITCs, in its statute-barred years?

In the situation at hand, you have advised us that the corporation has requested a determination of its RITC balance and a refund of the RITCs, if any. As we advised you in XXXXXXXXXX, the CRA has accepted the Federal Court (the "Court") decisions in Signalgene R & D Inc. v. The Queen, 2012 FC 1375 and Theratechnologies Inc. v. The Queen, 2012 FC 1376. In those decisions, the Court concluded that paragraph 127.1(1)(b) does not contain a deadline by which a taxpayer is required to request a determination of its RITCs. Therefore, if the CRA has not already done so, it must determine the taxpayer's RITCs and issue a notice of that determination. In determining whether the corporation was a CCPC for the years in question, it does not matter what the corporation reported on its tax return. Instead, the CRA must determine whether the corporation was, in fact, a CCPC at that time.

Subsection 152(1) of the Act requires the Minister to assess tax, interest and penalties on receipt of a tax return and to determine various amounts including the RITCs. The Court had concluded that where a taxpayer files a return and does not claim the RITCs, and the Minister issues an Assessment or a Nil Assessment that is silent on the amount of the corporation's RITCs, there is no evidence that the Minister has determined the amount of the RITCs (if any).

We also note that, in respect of a statute-barred year, a Notice of Determination pursuant to paragraph 127.1(1)(b), would be based on the amounts used in making the last assessment or reassessment, if any, and would not open the year to allow adjustments to discretionary amounts claimed by the taxpayer under the other sections of the Act (for example, the amount of capital cost allowance deducted pursuant to paragraph 20(1)(a) of the Act). A response to a particular taxpayer request will require a consideration of all relevant facts and circumstances.

We trust that these comments will be of assistance. If you would like to discuss the matter further, please do not hesitate to contact us.

For your information, unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers, following a 90-day waiting period (unless advised otherwise to extend this waiting period), 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 the taxpayer request a copy of this memorandum, they may request a severed copy using the Privacy Act criteria, which does not remove taxpayer identity. Requests for this latter version should be e-mailed to: ITRACCESSG@cra-arc.gc.ca. In such cases, a copy will be sent to you for delivery to the taxpayer.

Yours truly,

Terry Young, CPA, CA
Manager, Administrative Law Section
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 (FCA) Parthenon Investments Ltd. v MNR, 97 DTC 5343