6 March 2012 Internal T.I. 2012-0438471I7 - Collection Limitation Period

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 operation of subsection 222(4) would be sufficient to forego collecting an account?

Position: No.

Reasons: Although subsection 222(4) provides that the limitation period to collect an amount owing under the Act is ten years, there are exceptions to this general rule. The exceptions, found in subsection 222(5), (7), and (8), allow the period to be either restarted or extended.

								March 6, 2012

	Information Returns Legislative and 	HEADQUARTERS
	    Technical Support Section			Income Tax Rulings
								  Directorate
	Attention: Mukaddes Koç 			Lindsay Frank
	Senior Programs Officer				(613) 957-2097

								2012-043847

Collection Limitation Period

We are replying to your inquiry on the interpretation of section 222 of the Income Tax Act (the "Act"), which imposes on the Minister a limitation period to collect an amount owing under the Act.

The amount at issue is the penalty for filing an information return late. Such an amount is assessed manually, and then entered on the SubLedger ("SL") system, which is on the mainframe. Although on the mainframe, the SL system is not on the corporate platform and does not interact with any of the other systems thereon. If the taxpayer does not pay the amount, the account, if it consists of a minor balance amount, is not referred to Revenue Collections and remains on the SL system indefinitely.

If, after many years, the taxpayer files another information return, and is late in doing so, another late filing penalty will be assessed, interest will be calculated on the earlier assessment, and the current late filing penalty will be added to bring the account up-to-date. A Notice of Assessment will then be prepared and sent to the taxpayer. However, it is your understanding that, if the earlier assessment is at least ten years old, the limitation period in subsection 222(4) precludes the Minister from collecting the amount owing.

Subsection 222(4) provides the general limitation rule for collecting an amount owing under the Act. However, there are a few exceptions to the rule, and any one of the exceptions could render any decision to refrain from collecting an amount, on the strength of the age of the assessment, premature.

Section 222 sets up a ten-year limitation period for the Minister to collect an amount payable. If a notice of assessment or a notice referred to in subsection 226(1) for a tax debt was sent to, or served on, a taxpayer after March 3, 2004, pursuant to subsection 222(4), the limitation period begins 90 days after the day on which the last of those notices was sent or served. And where no notice was sent or served after March 3, 2004, the limitation period began on March 4, 2004. In either case, the period ends ten years after the day on which it began. But the limitation period can be restarted under subsection 222(5), or it can be extended under subsection 222(8).

There are three circumstances under which the limitation period can be restarted. It can be restarted where the taxpayer acknowledges the debt in accordance with subsection 222(6). It can also be restarted where the Minister commences an action, such as offset under subsection 164(2) or section 203, and garnishment pursuant to section 224, to collect the debt. Furthermore, the period can be restarted where the Minister issues a derivative assessment under subsections 159(3) [failure to obtain a clearance certificate] and 160(2) [non-arm's length transfer of property], or paragraph 227(10)(a) [directors' liability] in respect of the tax debt. To know if any of these situations exist, it will be necessary to consult the Accounts Receivable Directorate.

The debt may be acknowledged in three ways, pursuant to subsections 222(6). The taxpayer promises in writing to pay the debt. Second, the taxpayer acknowledges the debt in writing, regardless as to whether a refusal to pay can be inferred from the acknowledgement. Third, the taxpayer makes a payment, including a purported payment of the debt, by way of a negotiable instrument that has been dishonoured. Furthermore, pursuant to subsection 222(7), an acknowledgement made by a taxpayer's agent or legal representative has the same effect as if the taxpayer had made it.

As well, the limitation period can be extended by adding to the period the time when the Minister is precluded from taking collection action. This would arise where a taxpayer has disputed an amount assessed; the number of days during which the Minister was restricted from collecting the amount will be added to the limitation period. In addition, the number of days where the Minister has accepted and holds security in lieu of payment of the debt will be added to the period. The number of days will also be added to the period where the taxpayer was a non-resident when the notice of assessment for the amount was issued. Furthermore, where the stay of proceedings imposed on the Minister by the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act, or the Farm Debt Mediation Act precludes the Minister from taking collection action, the number of days occasioned by such a stay will be added to the limitation period. Such information would also be available from Accounts Receivable.

Should you have any questions or require additional information, please do not hesitate to contact Lindsay Frank at the telephone number provided at the outset of this memorandum.

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