Where a corporation has been formally dissolved and has an "overpayment," the CRA may refuse to issue a refund, whereas if it has a a balance of tax owing, CRA assesses the parent corporation. Would CRA accept a subsidiary's assignment of its right to a refund of tax to its parent? Alternatively, would it refund an overpayment in respect of a dissolved subsidiary pursuant to s. 164(1) (a)? CRA stated:
Section 67 of the Financial Administration Act expressly prohibits the assignment of a refund between different legal entities…. When a subsidiary corporation is wound up into a parent corporation, it ceases to exist as a legal entity… . Paragraph 164(1)(a)... establishes when a refund is payable but does not provide any provision for assignment of a refund from one legal entity to another.
[A]ny right to a refund of overpayments which a subsidiary corporation may have is lost once the corporation ceases to exist… . Although we are unable to issue a refund from a wound up subsidiary corporation to a parent, when certain conditions are met, a refund of an overpayment may be issued to the sole shareholder of a subsidiary corporation or to a legal representative of a subsidiary corporation when there are multiple shareholders. For example, when:
- … all returns have been filed up to the date of dissolution, the articles of dissolution indicate that the corporation will distribute its assets to the shareholder(s) after satisfying its creditors, and immediately prior to the dissolution, it was owned by a sole shareholder and it has been determined that the shareholder is the rightful owner of the funds and the sole shareholder completes and returns a signed "Release and Indemnification" form to the CRA; or
- it was owned by multiple shareholders and a legal representative, as defined in Section 248(1) of the Income Tax Act, has been appointed by the shareholders, to act on their behalf and the appointed legal representative completes and returns a signed "Release and Indemnification" form to the CRA.