28 September 2011 Internal T.I. 2011-0421291I7 - Re-Appropriation of Statute-Barred Dividend Refund

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 section 221.2 could be applied to effect the transfer of an otherwise statute-barred refund?

Position: No.

Reasons: Under section 221.2, an amount to be re-appropriated is one that had been paid and appropriated to another tax debt. A statute-barred dividend refund is not an amount that was paid on account of a tax debt; accordingly, it cannot be considered to be an amount that a corporation had paid on account of a tax debt and therefore it cannot be re-appropriated. The fact that the provision may have been misapplied in prior instances does not lend support to the interpretation advanced by the taxpayer's representative.

							September 28, 2011

	Ms. Roma Delonghi				HEADQUARTERS
	A/Director					Income Tax Rulings
	Toronto Centre Tax Services Office	  Directorate

							2011-042129

Re-Appropriation of Statute-Barred Dividend Refund

This is in response to the email from Colin Kohlsmith wherein he requested an interpretation as to whether section 221.2 of the Income Tax Act could be applied to effect the transfer of otherwise statute-barred dividend refunds. The request was made as a result of representations made on behalf of two corporations. The representative advanced the proposition that such a transfer would be consistent with the position taken in interpretation letter 2010-0384921E5.

It should be noted at the outset that the course of action proposed by the representative is not consistent with the position taken in the foregoing interpretation letter. The wording of sections 221.2 clearly provides that the amount to be re-appropriated is one that had previously been appropriated to another tax debt. The provision, in essence, affords the Minister the discretion to accept the transfer of payments from one tax account to another, and from one year to another.

In order to obtain a dividend refund in respect of a taxation year, a corporation must make a return of its income within three years after the end of the year as provided in subsection 129(1). A dividend refund is not an amount owing by the Crown to a corporation if the corporation is not entitled to the refund under the provisions of that subsection. Where a dividend refund is statute-barred, it cannot be applied to another tax liability pursuant to subsection 129(2). A statute-barred dividend refund cannot be considered to be an amount that was paid by the corporation on account of a debt and, therefore, it cannot be re-appropriated.

The representative refers to several occasions where section 221.2 was purportedly applied. It should be noted that in two of the instances cited the provision appears to have been misapplied. The fact that the representative was able to persuade someone to refund amounts that were otherwise statute-barred is hardly persuasive. Likewise, the proffered example of a transfer to another tax debt of a statute-barred refund arising from the application of losses also falls outside the scope of the provision. Re-appropriation pursuant to section 221.2 does not override the three-year time limitation on the issue of refunds as provided in subsection 164(1).

A re-appropriation under section 221.2 cannot be used to effect the issuance or transfer of a statute-barred refund. The application of the section is limited to the re-appropriation of payments, and does not extend to the reallocation tax credits or dividend refunds. The Minister has a statutory duty under subsection 220(1) to administer and enforce the Act. In this regard, the Minister is not bound by any agreement made erroneously by her officials, see Cohen v. The Queen, [1980] C.T.C. 318, 80 DTC 6250 (F.C.A.). It follows that the historic existence of any such agreement offers no precedential value or compulsion for the administration and enforcement of the Act in similar circumstances.

In closing, a statute-barred dividend refund is not an amount that was paid on account of a tax debt; accordingly, section 221.2 cannot be used to re-appropriate an amount that had not been appropriated in the first place. Hopefully, these comments will enable you to formulate your reply to the representative. Meanwhile, should you have any queries or require additional information regarding this issue, please do not hesitate to contact me at the number provided below.

B.J. Skulski
Manager
Insolvency and Administrative Law Section
Income Tax Rulings Directorate
613-957-9767