20 September 1996 External T.I. 9621155 - STATUTE BARRED REFUNDS

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 Department.

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

Principal Issues:

1.Availability of income tax refund when corporation has paid instalments in respect of a particular taxation year but did not file the required tax return within three years as required by subsection 164(1).

2.Department's authority to refuse to refund, carry back or forward overpayment of taxes.

Position:

1.overpayment not available for refund, carry back or carry forward.

2.Only authority to refund is 164(1) which provides for the three year limitation period.

Reasons:

See above

								962115
XXXXXXXXXX							D. Zion

Attention: XXXXXXXXXX

September 20, 1996

Dear Sirs:

Re: Section 164 of the Income Tax Act (the "Act")

We are writing in response to your correspondence of June 4, 1996, in which you requested a technical interpretation with respect to the application of section 164 of the Act. We regret the delay in replying.

You are concerned about the availability of an income tax refund when a corporation has paid instalments in respect of a particular taxation year but did not file the required tax return within three years from the end of the taxation year as required by subsection 164(1) of the Act. If that corporation subsequently filed the required return in the following year (i.e., the fourth year) which indicated that there was no income, and therefore, no taxes payable for the year, your first question is whether the overpaid taxes can be used against future taxes payable. Secondly, you have asked about the legal authority for retaining the refund.

You have outlined what may be an actual fact situation related to a past transaction. The review of such transactions falls within the responsibility of the Tax Services Offices and it is the practice of this Department not to comment on such transactions when the identities of the taxpayers are not known. However, we can provide the following general comments which are not binding on the Department.

Our comments

The only authority of the Minister to refund overpayments is found in subsection 164(1) of the Act. This subsection permits the Minister to issue a refund to a taxpayer provided that the return is filed no later than three years from the end of the year in question. The term "refund" is not defined in the Act, however the term is generally understood to refer to a repayment of an overpayment. The term "overpayment," on the other hand, is defined in the Act (subsection 164(7)) as "the aggregate of all amounts paid on account of the taxpayer's liability under this Part for the year minus all amounts payable in respect thereof." Accordingly, by filing a tax return within the specified period, the taxpayer acquires an enforceable right against the Minister for any amount of money the taxpayer has overpaid in tax. A taxpayer's refund is however, subject to the Minister's right of setoff provided for under subsection 164(2) of the Act.

Subsection 152(1) of the Act imposes a non-discretionary obligation on the Department to assess a return with all due dispatch. Thus, while subsection 164(1) of the Act prevents the Department from issuing a refund or applying an overpayment to a subsequent year account if the returns are filed after the end of the three year period, the Department still has the legal authority to issue an assessment after that period. If a return is assessed after the three year period provided for in subsection 164(1), and an overpayment is determined to exist, the overpayment is available for any subsequent assessment of that particular year but is not available for refund to the corporation nor for carryback or carryforward to other taxation years.

We would also like to bring to your attention the case of The Queen v. Consumers Glass Company Limited (1990) 107 N.R. 156, in which The Federal Court of Appeal held that there can be no unjust enrichment where the Crown is acting in accordance with the law. This case dealt with the Department's refusal to issue a refund due to time limitations set out under the Customs Act. Similarly, in our view, there is no statutory basis for allowing a refund to a corporation beyond the period specified in the Act. Furthermore, since the Department has no authority to make the refund, it follows that it has no authority to carry back or forward the instalments to a previous or subsequent year liability of the corporation.

We trust our comments will be of assistance to you.

Yours truly,

John F. Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch