6 April 2000 Internal T.I. 2000-0013307 - DISPUTE OVER ASSIGN. OF TAX 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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: A trustee in bankruptcy is seeking the Agency's assistance in resolving a dispute between two creditors over the legal right to an income tax refund of the bankrupt.

Position: The Agency is not prepared to get involved in administering any assignment agreements, and will not get involved in possible disputes which may arise between assignor and assignee.

Reasons: Based on a Directive (SR&ED 99-01), dated January 19, 1999, issued by the Tax Incentive Audit Section and the Scientific Research Section (of the VECR Branch). It is important to note that under subsection 220(7) of the Act, the Agency is not obliged to accept an assignment nor does an assignment by a taxpayer create any liability to the Agency.

		April 6, 2000

	Winnipeg Tax Services Office	HEADQUARTERS
	Revenue Collections	J. Gibbons
(613) 957-2135
	Attention: Ed Szewczuk
		2000-001330

Assignment of Income Tax Refunds

We are replying to Henry Zerbin's facsimile of March 10, 2000, concerning an enquiry you received from a trustee in bankruptcy. The trustee is seeking the Agency's assistance in resolving a dispute between two creditors over the legal right to an income tax refund of the bankrupt. Mr. Zerbin requested that we reply to you directly.

Subsection 220(6)

In the past, corporations could assign expected refunds, such as refunds of SR&ED investment tax credits or Film Tax Credits, as security for bridge financing for their operations. However, following the Marzetti case in 1994, which held that income tax refunds were not generally assignable by virtue of section 67 of the Financial Administration Act, borrowers were no longer able to finance their operations in this manner. To overcome this impediment to financing, subsection 220(6) of the Income Tax Act was enacted to allow a corporation to assign any amount payable to it under the Act. At the same time, subsection 220(7) was introduced to place certain limitations on the scope of an assignment to ensure that an assignment of an income tax refund would not in any way affect the right or obligations of the Crown.

In a Directive (SR&ED 99-01), dated January 19, 1999, issued by the Tax Incentive Audit Section and the Scientific Research Section (of the VECR Branch), the Agency's role in the administration of subsection 220(6) was clarified. According to this Directive, the Agency is not prepared to get involved in administering any assignment agreements, and will not get involved in possible disputes which may arise between assignor and assignee. It is important to note that under subsection 220(7) of the Act, the Agency is not obliged to accept an assignment nor does an assignment by a taxpayer create any liability to the Agency.

Conclusion

The Agency will not become involved in disputes relating to the assignment of an income tax refund. Accordingly, it is our view that you should not offer any advice to the trustee but instead advise them of the law and the Agency's policy on assignments of income tax refunds.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Agency's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version, or they may request a copy severed using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be forwarded to Jackie Page at 613 957-0682, who will send you a severed copy for delivery to the client.

John Oulton
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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