Section 160.1

Subsection 160.1(1) - Where excess refunded

Cases

Canada v. 984274 Alberta Inc., 2020 FCA 125

ss. 160.1(1) and (3)’s application not subject to the issuance of a prior time-constrained reassessment

The taxpayer (“984”) reported a capital gain on its 2003 sale of land on the basis that it had acquired it from its parent (Henro) on a rollover basis. In 2010, the Minister assessed Henro (to include an income account gain) and 984 (to reverse the previously reported capital gain and refund the capital gains tax plus interest, totalling $1.7M) on the basis that the 2003 drop-down had occurred on a non-rollover basis. On March 23, 2015, the Minister implemented a settlement agreement (effectively agreeing with 984’s and Henro’s initial filing position) by inter alia assessing 984 to claim back the 2010 payment, including the refund interest, plus arrears interest since 2010, in what Noël CJ found (contrary to the Tax Court below) to be in proper reliance on ss. 160.1(1), 160.1(3) and 164(3.1).

Noël CJ noted (at para. 68) that, although the 2010 assessment of 984 was a nil assessment, and although Okalta found that a nil assessment is not appealable, nonetheless:

[A]n assessment that levies tax and a nil assessment have the same legal effect i.e. both start the limitation period when issued as the original notice, both replace a prior assessment or reassessment when issued as the last notice, and both fix the tax payable for the year.

Given that the 2010 nil assessment was an “assessment” including for the purposes of s. 164(1)(a)(iii), it followed “that the 2010 payment was a refund authorized to be made pursuant to subparagraph 164(1)(a)(iii)” (para. 73), from which it further followed “that the refund interest paid by the Minister to the respondent in 2010 can be recovered pursuant to subsection 164(3.1)” (para. 74).

Furthermore, it did not matter that the 2010 assessment was issued more than three years after the previous 2003 (re)assessment of 984, given that (para. 58) the “three-year limit [in s. 152(4)] does not apply to a notice that no tax is payable.”

In further rejecting a taxpayer submission based on no reassessment having been issued to bring the 2003 tax payable back from zero, as per the 2010 nil assessment, to the amount initially assessed, he stated (at paras. 77-78):

Markevich makes it clear that an excessive refund can be assessed even if the power to issue a reassessment for the year pursuant to subsection 152(4) has expired.

…[S]ubjecting the application of subsections 160.1(1) and 160.1(3) to the issuance of a prior reassessment constrained by a time limit would run against the plain language of these provisions which empower the Minister to determine that an excessive refund has been made and to recover it “at any time” by way of an assessment.

Accordingly, the 2015 assessment for an overpayment and interest was valid.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 164 - Subsection 164(1) nil assessment was an “assessment” giving rise to an s. 164(3.1) overpayment 445
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) nil assessment not subject to 3-year limitation in s. 152(4) 190
Tax Topics - General Concepts - Stare Decisis prior decision of the FCA that “manifestly overlooked [the] established line of cases” was not to be followed 76

See Also

984274 Alberta Inc. v. The Queen, 2019 TCC 85, rev'd 2020 FCA 125

refund made pursuant to a void reassessment was not made pursuant to the Act (and also was not a “refund” on ordinary principles) so that s. 160.1(1) unavailable

The taxpayer (“984”) reported a capital gain on its 2003 sale of land on the basis that it had acquired it from its parent (Henro) on a rollover basis, paid the computed capital gains tax and was assessed as filed. In 2010, the Minister assessed the Henro (to include an income account gain) and 984 (to reverse the previously reported capital gain and refund the capital gains tax, plus interest, totalling $1.7M) on the basis that the 2003 drop-down had occurred on a non-rollover basis – but its assessment of 984 was found to be void as being statute-barred. In a 2015 settlement agreement of the Minister with Henro and 984, it was agreed that the 2010 reassessments of both 984 and Henro would be reversed. However, the resulting 2015 reassessment of 984 could not be justified as valid based on s. 169(3) because the 2010 assessment was itself invalid – hence, 984 was not an appealing “taxpayer” referred to in s. 169(3) (as it was not engaged in a valid appeal procedure).

This meant that the only basis for justifying the 2015 assessment of 984 was that, pursuant to s. 160.1(1), the 2010 refund represented an amount that had been “refunded to a taxpayer … in excess of the amount to which the taxpayer was entitled as a refund under this Act.”

Preliminarily to considering this issue, Smith J determined that there had been no “overpayment” by 984 for purpose of s. 164(1) because the 2010 assessment purporting to refund the capital gains tax was void, so that there was no reduction in the capital gains tax amount, and there therefore had been no overpayment thereof. Accordingly, there had been no refund pursuant to s. 164(1) of an overpayment. It followed that the related interest was not interest described in s. 164(3).

Turning now to s. 160.1(1) and after noting (at para. 105) that “the wording of subsection 160.1(1) does not support the Appellant’s position that the taxpayer must ‘claim’ a refund in order for section 160.1 to apply,” Smith J went on to find (at para. 107) “that in order to reassess a taxpayer pursuant to subsection 160.1(1) and (3), the amount refunded must be pursuant to a provision of the Act” – and, as noted, the refund had not occurred pursuant to s. 164. He stated (at para. 118):

Since the Payment was not made pursuant to a provision of the Act, it was a payment made in error in that it was made without any statutory authority. It follows that the Minister was not entitled to reassess the Appellant under subsection 160.1(1) and (3).

He went on to find that if he were incorrect that the payment was required to be made pursuant to a specific provision of the Act in order to qualify as a refund for s. 160.1(1) purposes, the 2010 payment was not a “refund” in the ordinary sense of the word, stating (at para. 133) that this term referenced “the return of an overpayment.” Accordingly, “either way subsection 160.1(1) would not apply” (para. 134).

The appeal was allowed.

Words and Phrases
refund overpayment
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) - Paragraph 152(4)(a) - Subparagraph 152(4)(a)(ii) reassessment made pursuant to late waiver was void 34
Tax Topics - Income Tax Act - Section 152 - Subsection 152(8) reassessment made pursuant to late waiver could not be cured by s. 152(8) 47
Tax Topics - Income Tax Act - Section 169 - Subsection 169(3) voidness of assessment against 2nd taxpayer to a settlement agreement meant that it could not be assessed under s. 169(3) 285
Tax Topics - Income Tax Act - Section 164 - Subsection 164(1) invalid reassessment could not establish a refund amount 263

Ashton v. The Queen, 2012 DTC 1292 [at 3912], 2012 TCC 353 (Informal Procedure)

Pursuant to s. 160.1, the Minister reassessed the taxpayer to effect the return of refunds that the taxpayer claimed and was not entitled to. The taxpayer appealed on the basis that she had been the victim of identity theft, and had not claimed the false refunds herself. The Minister argued that the Tax Court's jurisdiction over refunds is restricted to the determination of the amount of refunds payable, and not over whether refunds or returns of refunds were in fact owed.

Boyle J. found that the Tax Court did have jurisdiction over refunds owed. He stated (at para. 3):

[The] wording in section 160.1, and the express conferral of appeal jurisdiction on this Court in subsection 160.1(3), indicates Parliament intended this Court to have jurisdiction to decide if the excess amounts were refunded to a taxpayer.

He also stated that this finding was "largely moot," given the unlikelihood, in this day and age, that a person could do as the taxpayer had alleged - walk into tax preparer's office with a forged signature and driver's licence, and collect false refunds (para. 10).