4 March 2011 External T.I. 2010-0384921E5 - Overpayment of tax.

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 overpayment of tax can be refunded or applied to another year, whether the carryback of an SRED tax credit can be reversed, and whether instalment payments can be re-appropriated to another amount that is or may become payable in a subsequent year.

Position: Depends on the facts.

Reasons: See below.

XXXXXXXXXX
									2010-038492
									Richard Aronoff
									613-941-7239

March 4, 2011

Dear XXXXXXXXXX :

Re: Refund or Carry Forward of an Overpayment of Tax

This is in reply to your email of October 26, 2010, wherein you asked the following questions concerning a company for which you are acting:

1) Whether an overpayment of tax for the company's 2004 taxation year can be refunded?
2) If the refund cannot be made, whether the company's return for the 2004 taxation year can be reassessed to reverse the carryback of a 2007 Scientific Research and Experimental Development (SRED) tax credit?
3) If the 2004 taxation year is statute barred, whether instalment payments originally made in 2007 and subsequently applied to the 2004 taxation year, can be transferred to a subsequent year?

The salient facts you provided are as follows: The company is a non-resident owned Canadian corporation that had unused SRED tax credits in respect of its 2007 taxation year. The credits were carried back to the 2004 taxation year along with instalment payments made in 2007. The 2004 return was filed three years and 11 days past the end of that fiscal year and was first assessed on January 24, 2008. The taxes for that year were overpaid and there is a credit outstanding.

Subsection 164(1) of the Act provides that no refund of tax can be made where the taxpayer's return of income for a taxation year has not been made within three years from the end of the year. From the facts provided, the company's return was filed 11 days past the three year period provided in subsection 164(1).

Subsection 164(1.5) of the Act gives the Minister the discretion to refund an overpayment of tax to an individual or to a testamentary trust outside the three year limitation period in subsection 164(1) provided the return is filed within ten years after the end of the taxation year in respect of which the refund is sought. However, that discretion does not extend to corporations seeking the refund outside the three year limitation.

Since the corporation is non-resident owned, under subsection 125(7) of the Act it cannot be a Canadian-controlled private corporation (CCPC). Subsection 152(3.1) of the Act provides that where the taxpayer is a corporation other than a CCPC, the normal reassessment period is the period that ends four years after the earlier of the date of mailing of an original assessment under Part I in respect of the taxpayer for the year and the day of mailing of an original notification that no tax is payable by the taxpayer for the year. As the first return for the company's 2004 year was assessed on January 24, 2008, the normal reassessment period would end four years after this date which is January 24, 2012. As a result, the company can request that its 2004 taxation year be reassessed to reverse the carryback of a 2007 SRED tax credit.

Subsection 221.2(1) of the Act provides that, under certain conditions, where an amount was appropriated to a debt that is or may become payable by a person, it may, on application by that person, be re-appropriated to another amount that is or may become payable. The provision does not contemplate the refund of an amount that is statute barred. Rather, it permits the re-appropriation to an amount that is either payable or that may become payable.

In this regard, a re-appropriation pursuant to subsection 221.2(1) would not override the three year limitation provided in subsection 164(1). The re-appropriation would need to be proportionate to the anticipated indebtedness. For example, a statute barred overpayment of tax in the amount of $100,000 could not be re-appropriated in anticipation of a $1,000 amount payable with the result that the remaining $99,000 would be refunded. Accordingly, the company could request that the tax, including instalments, which were overpaid in the 2004 taxation year be re-appropriated in full to another amount or amounts that are or may become payable in a subsequent year or years.

Should you have any queries or require additional information in regard to this matter, please do not hesitate to contact Richard Aronoff at the telephone number provided at the outset of this letter.

Yours truly,

B.J. Skulski
Manager
Insolvency and Administrative Law Section
Income Tax Rulings Directorate