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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: A nil assessment for a XXXXXXXXXX T2 was issued on XXXXXXXXXX and is now statute barred. Can a t/p requested change to provide the t/p with refundability on its ITC be allowed?
Position: no
Reasons: The CCRA is not obligated to do so. Although a nil assessment may be issued at any time as a matter of policy (IC 75-7R3 and TOM13 (152)6 par.7) the CCRA would not issue another nil assessment to process the t/p's requested changes.
February 13, 2002
Financial Legislative HEADQUARTERS
Application Section Shaun Harkin, CMA
Mel Machado, Manager
Clarica Bldg., 50 O'Connor St. 7th floor
Attention: Jack Ledger
2001-010982
Technical Interpretation Request: Investment Tax Credit ("ITC")
This is in reply to your memorandum of September 28, 2001 wherein you requested our opinion on whether a taxpayer's request to change its ITC from non-refundable to refundable in the taxpayer's XXXXXXXXXX T2 is permissible when the following conditions exist:
- the t/p initially filed a T2 for the period ending XXXXXXXXXX claiming to be a subsidiary of a public corporation
- the XXXXXXXXXX T2 reported a net loss of approximately $XXXXXXXXXX and a non-refundable ITC of $XXXXXXXXXX
- a notification that no tax is payable (hereinafter referred to as a "nil assessment") for the XXXXXXXXXX year was issued on XXXXXXXXXX
- upon review the loss was revised to approximately $XXXXXXXXXX and the non-refundable ITC was revised to $XXXXXXXXXX and another nil assessment was issued on XXXXXXXXXX
- in XXXXXXXXXX the taxpayer filed an amended XXXXXXXXXX T2 establishing to be a
Canadian-controlled private corporation, a qualifying corporation (as defined in subsection 127.1(2) of the Income Tax Act (the "Act")) and requesting to change its ITC from non- refundable to refundable resulting in a requested refund of $XXXXXXXXXX.
Although nil assessments are not assessments, they are relevant with respect to subsection 152(4) of the Act for identifying the date from which the statute of limitation for future assessments or reassessments begins. This is consistent with the wording of subsection 152(4) of the Act, Information Circular ("IC") 75-7R3 (paragraph (1)) and TOM 13(152)6 (paragraphs (1) and (2)). Subsection 152(4) of the Act permits the Minister to issue a nil assessment at any time. Only the issuance of an assessment, reassessment or additional assessment (not a nil assessment) is generally restricted to the "normal reassessment" period as defined in subsection 152(3.1) of the Act. Note that the word "may" and not "shall" is used in describing the Minister's obligations under subsection 152(4) of the Act.
The taxpayer's representative claims that if the new nil assessment is issued paragraph 164(1)(b) of the Act obligates the Minister to issue the refund. We disagree with this view. Subparagraph 164(1)(a)(iii) and paragraph 164(1)(b) of the Act pertain to situations where a notice of assessment has been or is being issued. In the situation you describe no notice of assessment has been or is being issued. If the Minister issues another nil assessment to process the revisions requested by the taxpayer, subparagraph 164(1)(a)(i) of the Act would permit the Minister to issue the refund in respect of a refundable ITC before mailing the notice of assessment. Note that the word "may" and not "shall" is used in describing the Minister's obligations under subparagraph 164(1)(a)(i) of the Act.
If one were to conclude that the term "notice of assessment" in subsection 164(1) of the Act includes nil assessments, and the Minister issued another nil assessment to process the revisions requested by the taxpayer in XXXXXXXXXX, the Minister would still not be obligated by paragraph 164(1)(b) of the Act to issue the refund created because the period within which the Minister would be allowed under subsection 152(4) of the Act to assess tax payable would have expired. The Minister would be restricted to the "normal reassessment" period as mentioned in the preamble of subsection 152(4) of the Act. The additional three years permitted by paragraph 152(4)(b) of the Act does not apply to the situation described.
Although subsection 152(4) of the Act permits the Minister to issue another nil assessment at any time and subparagraph 164(1)(a)(i) of the Act permits the Minister to issue the refund in respect of a refundable ITC before mailing the notice of assessment, the Minister is not obligated to do so. We must look to the Canada Customs and Revenue Agency's ("CCRA") policy in order to determine if the taxpayer's requested revision should be accepted.
IC 75-7R3 sets out the CCRA's general policy with respect to the reassessment of returns. Paragraph 4 of IC 75-7R3 states, in part,
"A reassessment to create a refund ordinarily will be made upon receipt of a written request by the taxpayer, even if a notice of objection has not been filed within the prescribed time, provided that
(a) the taxpayer has, within the four year filing period required by subsection 164(1), filed the return of income;
(b) the Department is satisfied that the previous assessment or reassessment was wrong;
(c) the reassessment can be made within the four year period or the seven-year period, as the case may be, referred to in paragraph 1 of IC 75-7R3 or, if that is not possible, the taxpayer has filed a waiver in prescribed form;
(d) the requested decrease in taxable income assessed is not based solely on an increased claim for capital cost allowances or other permissive deductions, where the taxpayer originally claimed less than the maximum allowable; and
(e) the application for a refund is not based solely upon a successful appeal to the Courts by a taxpayer".
The requested revision to the XXXXXXXXXX T2 would result in another nil assessment being issued and not a reassessment. There does not seem to be a published policy with respect to issuing an additional nil assessment to create a refund. However, it is our view that the general consensus of IC 75-7R3 would apply and as a matter of policy the CCRA should not issue another nil assessment to create a refund because the time period referred to under paragraph (c) above has expired (i.e. the period within which the Minister would be allowed to assess tax payable as provided in subsection 152(4) of the Act has expired). Also, the application for a refund could be considered to be based upon a successful appeal to the Courts by a taxpayer.
As the taxpayer's representative states, the taxpayer may request a notice of loss determination and object to it, which would cause the Minister to fulfill his duties under subsection 165(3) of the Act and reconsider the notice of loss determination. However, we disagree with the taxpayer's view that this action would obligate the Minister to issue another nil assessment to process the revisions requested by the taxpayer. It is our opinion, that where no claim for the amount of tax deemed by subsection 127.1(1) of the Act to be paid on account of the taxpayer's tax payable has been originally claimed, no determination of the amount of tax deemed by subsection 127.1(1) of the Act to be paid would be issued when the minister issues the notice of loss determination.
If the taxpayer is of the view that a claim for the amount of tax deemed by subsection 127.1(1) of the Act has been originally claimed then the determination would have been given to the taxpayer as part of the original nil assessment and the determination would act like an assessment for the purposes of the refundable ITC amount. This is consistent with the wording of TOM 13(152)6 paragraph 7. The determination under paragraph 152(1)(b) of the Act, by virtue of subsection 152(1.2) of the Act, is subject to the provisions of subsection 152(4) of the Act. When applying subsections 152(4) and 152(3.1) of the Act, with the modifications made for the words determination and redetermination as required by subsection 152(1.2) of the Act, subsection 152(4) of the Act does not ordinarily permit the minister to issue a redetermination of the refundable ITC outside the normal redetermination period as defined in subsection 152(3.1) of the Act. Therefore, if a claim for the amount of tax deemed by subsection 127.1(1) of the Act were considered originally claimed then the time where the Minister would have been able to issue a redetermination for the purposes of the refundable ITC would have expired on XXXXXXXXXX . The exceptions to the normal reassessment period, described in paragraphs 152(4)(a) and (b) of the Act, do not apply to the situation described. However, as previously stated, it is our opinion that since the 'NIL' amount indicated for the refundable ITC on the original T2038 does not constitute a claim for an amount under subsection 127.1(1) of the Act, the Minister has not issued a determination in respect of the subsection 127.1(1) of the Act amount with either the issuance of the original nil assessment or a possible notice of loss determination.
We also disagree with the taxpayer's representative's claim that the filing of the amended XXXXXXXXXX T2 obligates the Minister, pursuant to paragraph 152(1)(b) of the Act, to determine the amount of tax deemed to have been paid under subsection 127.1(1) of the Act. The Minister has already fulfilled its obligation to examine the taxpayer's return of income for the XXXXXXXXXX year. In the situation you describe, there is no provision in the Act for filing an amended return. It is our view that the filing of amended returns, including claims for ITC refunds, constitutes a taxpayer request for a revision to the original return filed.
We trust the above comments are of assistance.
Steve Tevlin
for Director
Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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