Section 164

Subsection 164(1.2)

Cases

Canada (National Revenue) v. 0741449 B.C. Ltd., 2016 FC 530

order based on taxpayer’s low net worth and poor payment history

An individual (“Consiglio”) his wife was the sole director and shareholder of the respondent corporation, whose assets consisted of several heavily mortgaged properties plus a refund claim of approximately $1.2 million. The only property with real value was a development property with an outstanding foreclosure order against it. The Minister sought jeopardy orders under s. 164(1.2) permitting funds then in the hands of the Minister to be retained notwithstanding the refund claim, such funds having been paid by the corporation in respect of assessed taxes that had been appealed (with a hearing date not yet set).

Hughes J granted the order, stating (at paras. 10-11):

Justice Blanchard in Chabot [2010 FC 574] established that in order for a Judge to be satisfied that there are “reasonable grounds to believe” that the collection of tax would be jeopardized, the Court must assess the taxpayer’s net worth and ability to satisfy the tax debt independently of the refund at issue. Factors such as unorthodox behaviour of the taxpayer and evidence regarding potential dissipation of assets by the taxpayer may be considered.

… I am satisfied that there are reasonable grounds to believe that the funds now in the hands of the Minister would likely be jeopardized if returned to the Respondent. The only real asset is the Chute Lake property; it is heavily mortgaged and subject to a foreclosure order. … The principal of the Respondent, Consiglio, or the companies with which he is associated, has a history of non-payment of taxes and bankruptcy.

Subsection 164(1) - Refunds

Cases

Clover International Properties Ltd. v. Canada (AG), 2013 DTC 5116 [at 6132], 203 FC 676

The taxpayer had an overpayment of tax in its 1996 taxation year, and did not file its T2 return within three years of the end of 1996. Although s. 164(1) would prevent the taxpayer from obtaining its 1996 refund, the taxpayer filed a request under s. 221.2(1) to have the Minister appropriate the 1996 payments to the taxpayer's 1999 taxation year. The taxpayer's argued that the phrase "may become payable" in s. 221.2(1) should be construed so broadly as to encompass even theoretical future liabilities - therefore, because it was always possible in theory that an amount "may become payable" in respect of 1999, under s. 221.2(1) the Minister should appropriate the 1996 overpayments to offset these theoretical liabilities. (No such liabilities were actually anticipated for 1999.)

Strickland J rejected the taxpayer's argument. Parliament is presumed not to make contradictory enactments, and the broad interpretation urged by the taxpayer would confer authority on the Minister to indirectly circumvent the refund restrictions in s. 164(1) (para. 59). She noted, however, that there is a possibility the taxpayer may realize the value of the 1996 overpayment, should the Minister determine that there is an amount that is payable or may become payable.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 221.2 - Subsection 221.2(1) 185

Twentieth Century Fox Film Corp. v. MNR, 2001 DTC 5125 (FCTD)

The taxpayer had filed income tax returns reporting Part XIV tax payable, its returns were assessed as filed, and it did not file Notices of Objection. The taxpayer later bought an application for mandamus to compel the Minister to pay a refund of the tax. He argued that s. 18.5 of the Federal Court Act did not prohibit such an application on the ground that s. 164(1)(b) of the Act, in providing that the Minister shall refund any overpayment, contemplated an alternative process to filing Notices of Objection. In rejecting the submission, MacKay J. found (at p. 5128) that the Act does not provide any exception to the normal process of objecting to an assessment. Furthermore, he noted (at p. 5129) that:

"If no overpayment is claimed in the return and the Minister accepts the taxpayer's calculations of tax owed, the taxpayer is not entitled to a refund, unless there is subsequently a successful objection to, or objection, and appeal of, the Minister's assessment."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 219 - Subsection 219(2) 56

See Also

984274 Alberta Inc. v. The Queen, 2019 TCC 85

invalid reassessment could not establish a refund amount

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) 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.

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 32
Tax Topics - Income Tax Act - Section 152 - Subsection 152(8) reassessment made pursuant to late waiver could not be cured by s. 152(8) 45
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) 279
Tax Topics - Income Tax Act - Section 160.1 - Subsection 160.1(1) 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 472

The Queen v. Erasmus, 92 DTC 6301 (FCA)

Pratte J.A. stated (pp. 6304-6305):

"Until an assessment is made, therefore, a court may not order the refund of the sums paid as income tax because, until that time, the Minister is entitled to retain them whether or not they have been unduly paid ... It follows that the Trial Division may not order the Minister to reimburse taxes unduly paid unless it be shown that the Minister, after determining by an assessment that the sums paid by the taxpayer exceeded his tax liability, illegally refuses to refund the overpayment."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(8) 37

Hughes v. The Queen, 91 DTC 5290 (FCTD)

The taxpayer filed tax returns beyond the time period referred to in s. 164(1)(b) seeking a refund of a portion of the source deductions remitted on her behalf to the Receiver General. In rejecting a claim that at the time of the remittance of the source deductions the amounts representing overpayments of tax were held in trust for the taxpayer, Collier J. noted that at such time "no one, including the Minister, had any idea what the Plaintiff's ultimate tax liability, for the years in issue, would be".

Administrative Policy

15 June 2015 Internal T.I. 2015-0583081I7 - Refund Request - Normal Reassessment Period

inferring refund request from waiver

In clarifying the indication in 2012-0468081I7 that "where a refund request is based on issues that are covered by a valid waiver, a refund may be issued notwithstanding that the refund request may have been made after the required time frame provided by paragraph 164(1)(b)," the Directorate stated:

[A] waiver does not extend the period within which a taxpayer may request a refund. Nevertheless, where…it is reasonable to conclude the waiver also contains an implicit request for a refund for the particular issue outlined in the waiver, the waiver may also be accepted as a request for a refund for the purposes of this paragraph. … [W]here a waiver does not identify the specific issue in dispute, and/or the specific issue may not result in an overpayment, the Minister would not issue a refund.

18 November 2014 TEI Roundtable, Q. E.4

refund re dissolved sub

Where a corporation has been formally dissolved and has an "overpayment," the CRA may refuse to issue a refund, whereas if it has a a balance of tax owing, CRA assesses the parent corporation. Would CRA accept a subsidiary's assignment of its right to a refund of tax to its parent? Alternatively, would it refund an overpayment in respect of a dissolved subsidiary pursuant to s. 164(1) (a)? CRA stated:

Section 67 of the Financial Administration Act expressly prohibits the assignment of a refund between different legal entities…. When a subsidiary corporation is wound up into a parent corporation, it ceases to exist as a legal entity… . Paragraph 164(1)(a)... establishes when a refund is payable but does not provide any provision for assignment of a refund from one legal entity to another.

[A]ny right to a refund of overpayments which a subsidiary corporation may have is lost once the corporation ceases to exist… . Although we are unable to issue a refund from a wound up subsidiary corporation to a parent, when certain conditions are met, a refund of an overpayment may be issued to the sole shareholder of a subsidiary corporation or to a legal representative of a subsidiary corporation when there are multiple shareholders. For example, when:

  • … all returns have been filed up to the date of dissolution, the articles of dissolution indicate that the corporation will distribute its assets to the shareholder(s) after satisfying its creditors, and immediately prior to the dissolution, it was owned by a sole shareholder and it has been determined that the shareholder is the rightful owner of the funds and the sole shareholder completes and returns a signed "Release and Indemnification" form to the CRA; or
  • it was owned by multiple shareholders and a legal representative, as defined in Section 248(1) of the Income Tax Act, has been appointed by the shareholders, to act on their behalf and the appointed legal representative completes and returns a signed "Release and Indemnification" form to the CRA.
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 88 - Subsection 88(1) refund re dissolved sub 102

CBAO National Commodity Tax, Customs and Trade Section – 2014 GST/HST Questions for Revenue Canada, Q. 7

discretion to delay refund if pending audit
available with membership password at http://www.cba.org/CBA/sections_NSCTS/main/GST_HST.aspx

It appears that these refunds are being withheld when an audit is about to take place even if the returns have been filed and duly paid. Is this authorized? CRA responded:

Subsection 164(1) of the Income Tax Act and subsection 229(1) of the Excise Tax Act require that the Minister pay refunds with "all due dispatch" after the corresponding return is filed. This term allows for some discretion on the part of the Minister. When determining a refund amount, it is both fiscally responsible for the CRA to examine the potential liability of the claimant where other amounts may be due and payable and fair to both parties… .

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 229 - Subsection 229(1) discretion to delay refund if pending audit 106

5 November 2014 External T.I. 2014-0538901E5 - Refund Sought/Notices of Objection, ss. 164(1)

no refund (following successful objections) of payments of assessments where returns filed too late

A non-resident corporation, which had not filed any T2 returns (notwithstanding having been subject to Reg. 105 withholding), was assessed under s. 152(7), paid the tax in order to cut off interest charges, and then (following the filing of late returns) successfully objected to the assessments on the basis that it did not have a permanent establishment in Canada, so that its earnings were Treaty-exempt.

In finding that s. 164(1) precluded CRA from now refunding the assessed tax (including that paid by the taxpayer following the arbitrary assessments), CRA stated:

Under section 164, no distinction can be made between the tax that was withheld pursuant to section 105 of the Regulations and the payment made by the Taxpayer upon receipt of the Notices of Assessment. … Since the Taxpayer did not file the T2 returns within [the] three-year limit, the Minister does not have the authority to refund the overpayment to the Taxpayer.

…[I]t is the taxpayer's responsibility to determine whether paying the amount in dispute is appropriate in their particular circumstances.

15 March 2013 Internal T.I. 2012-0468081I7 - Paragraph 164(1)(b)

refund request not related to issues in waiver issues

Does s. 164(1)(b) permit a refund to be made where a taxpayer has filed a valid waiver to allow a reassessment beyond the normal reassessment period but its request for a refund was made after the normal reassessment period? After noting that the taxpayer made the "request for a refund based on issues that are unrelated to those covered by the waiver," the Directorate stated:

[T]he Minister is not permitted to issue a refund in these circumstances. …[W]here a refund request is based on issues which are covered by a valid waiver, a refund may be issued notwithstanding that the refund request may have been made after the required time frame.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) - Paragraph 152(4)(a) - Subparagraph 152(4)(a)(ii) refund request not related to issues in waiver issues 113

8 October 2008 Internal T.I. 2008-0269581I7 - statute-barred refund

request to extend filing deadline or re-appropriate

The corporate taxpayer requested that CRA exercise its discretion under any of ss. 220(2.1), 220(3) and 221.2(1) to refund an overpayment where the taxpayer had not filed its tax return within the three year time period specified in s. 164(1). In rejecting this request, CRA stated:

[T]the Ministerial discretion contained in subsections 220(2.1) and 220(3) is only applicable to provisions such as subsection 150(1). Accordingly…subsections 220(2.1) and 220(3) have no application to subsection 164(1).

Furthermore:

[S]ubsection 221.2(1) may not be used to re-appropriate an overpayment that cannot be refunded once the three year period contained in the preamble to subsection 164(1) has lapsed.

Words and Phrases
may
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 164 - Subsection 164(1.5) "may" establishes CRA discretion 116
Tax Topics - Income Tax Act - Section 220 - Subsection 220(2.1) request to extend filing deadline 64
Tax Topics - Income Tax Act - Section 220 - Subsection 220(3) request to extend filing deadline 64
Tax Topics - Income Tax Act - Section 221.2 - Subsection 221.2(1) request to re-appropriate 82

7 June 2012 Internal T.I. 2012-0435561I7 - Refunds on Post-Bankruptcy Returns

tax over-remittance after bankruptcy

An individual becomes a bankrupt part-way through a year. In his return for his post-bankruptcy part year (commencing under s. 128(2)(d)(i) on the day of his bankruptcy), he miscalculates his tax liability and remits too much tax. Given that s. 67(1)(c) of the Bankruptcy and Insolvency Act (Canada) provides that the property vesting in the trustee in bankruptcy include income tax refunds owing to the bankrupt, the overpayment arising in this case should be paid to the trustee.

Subsection 164(1.1) - Repayment on objections and appeals

Cases

Grenon v. Canada (National Revenue), 2017 FCA 167

a refund of tax paid to a taxpayer after reversal of a jeopardy order should bear interest

After the taxpayer was reassessed for over $200 million and appealed to the Tax Court, the Minister obtained an ex parte order under s. 225.2 (the “Jeopardy Order”) to take collection action forthwith. The taxpayer paid $12.75 million on account of his tax liability. However, the Federal Court then made a consent order that the Jeopardy Order be “set aside and vacated” (which Webb JA interpreted as signifying its annulment) and the $12.75 million was refunded to the taxpayer pursuant to s. 164(1.1), but without interest, whose absence the taxpayer now challenged.

Webb JA stated (at para 17):

If the amount was refunded under [subsection 164(1.1)], then Mr. Grenon would have been entitled to interest on such refund under subsection 164(3) of the Act. Therefore, the issue in this case is whether subsection 164(1.1) of the Act applied.

Before ordering that the taxpayer was to be paid interest on the $12.75 million pursuant to s. 164(3), Webb JA stated (at paras. 26, 33 and 34):

… [S]etting aside the Jeopardy Order in this case would mean that subsection 164(1.1) of the Act, should be read as if the Jeopardy Order had never been issued. This would mean that “no authorization has been granted under subsection 225.2(2) in respect of the amount assessed” for the purposes of this subsection. Since Mr. Grenon has appealed the reassessments to the Tax Court and has applied in writing for the refund, the other conditions of this subsection have been satisfied and interest is payable under subsection 164(3) of the Act. ...

Since any interest paid on the amount refunded to him will have to be repaid with interest if the result of Mr. Grenon’s appeal is that all or a portion of the refunded amount is still payable, there is no loss to the federal government if interest is paid on the refunded amount, absent any collection concerns. …

There is a loss to Mr. Grenon if interest is not paid on the refunded amount and he is successful in his appeal in reducing his outstanding liability to less than the refunded amount. In my view, this would support the contextual interpretation that interest should be paid to him on the refunded amount.

Words and Phrases
set aside

Topol v. MNR, 2003 DTC 5343 (FCTD)

Layden Stevenson J. found that the correct standard of judicial review under s. 18.1 of the Federal Court Act of a decision of the Minister under s. 164(1.1) not to return security furnished by the taxpayer was a standard of reasonableness rather than a standard of patent unreasonableness. A submission of the taxpayer that a writ of seizure and sale by the Minister could be viewed as "security accepted" for purposes of s. 164(1.1) was rejected.

Subsection 164(1.5) - Exception

Administrative Policy

8 October 2008 Internal T.I. 2008-0269581I7 - statute-barred refund

"may" establishes CRA discretion

In disagreeing with the taxpayer's submission "that subsection 164(1.5) is not really a discretionary provision but essentially gives individuals and testamentary trusts an ‘as of right' entitlement to a refund to an overpayment if they satisfy the ten year tax return filing requirement," CRA referenced a further submission that "Jack Herdman Limited v. MNR 83 DTC 5274 and Amoco Canada Petroleum Company Ltd. v. MNR 85 DTC 5169… found that the use of the word ‘may' in the refund provisions of subsection 44(1) of the Excise Tax Act…was not permissive, but mandatory," before concluding:

[T]he legislator's use of the word "may" in subsection 164(1.5) can only be construed as permissive given the contrasting use of both "may" and "shall" in section 164… .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 164 - Subsection 164(1) request to extend filing deadline or re-appropriate 94
Tax Topics - Income Tax Act - Section 220 - Subsection 220(2.1) request to extend filing deadline 64
Tax Topics - Income Tax Act - Section 220 - Subsection 220(3) request to extend filing deadline 64
Tax Topics - Income Tax Act - Section 221.2 - Subsection 221.2(1) request to re-appropriate 82

Subsection 164(2) - Application to other debts

Administrative Policy

18 July 2013 External T.I. 2013-0483031E5 - Applying Income Tax Refund to Security for GST

In indicating that a non-resident's failure to post security under s. 240(6) of the ETA did not create a liability so that subsection 164(2) of the ITA would permit the Minister to apply an income tax refund to create security for a GST/HST liability, CRA stated that s. 240(6) "is not a charging provision, as it does not create a liability in the event that the non-resident fails to comply."

27 September 2011 Internal T.I. 2010-0389171I7 - Reassessment of a Bankrupt Taxpayer

After the taxpayer's return for 2006 was assessed on April 27, 2007 on a basis that showed a refund was owing to the taxpayer for that year, the overpayment was retained for the purpose of applying it against a pending assessment of the taxpayer under s. 227.1. However, in October 2008, efforts to hold the taxpayer liable under this section were abandoned. Although information subsequently became available that indicated that in fact the taxpayer owed tax for 2007, it was too late to retain the refund as this information became available after the decision was made to abandon the potential s. 227.1 assessment.

85 C.R. - Q.32

Although s. 164(2) does not apply to the request of a taxpayer, RC will honour a taxpayer's request to transfer an overpayment to a subsequent unassessed year instalment segment.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 161 - Subsection 161(2) 34

Subsection 164(2.01) - Withholding of refunds

Administrative Policy

18 July 2013 External T.I. 2013-0483031E5 - Applying Income Tax Refund to Security for GST

After noting that in order to post security pursuant to 240(6) of the ETA, a non-registrant is required to complete and return Form GST 114 together with the requisite amount, CRA stated:

However, Form GST 114 is not a return. Therefore subsection 164(2.01) of the ITA cannot operate to preclude the issuance of an income tax refund where a non-registrant fails to post security for GST.

Subsection 164(3) - Interest on refunds and repayments

Cases

Glatt v. Canada (National Revenue), 2019 FC 738

naming of a taxation year respecting a reassessment cancelling a s. 163.2 penalty was not an “error” that precluded the payment of refund interest

Following his assessment for a $2,890,050 penalty in 2012 under s. 163.2, the Applicant paid $1,000,000 to the Minister so as to offset interest which would be borne by him if the assessment were upheld. After the assessment was vacated pursuant to a consent judgment, the Minister issued a Notice of Reassessment on December 7, 2016 showing the cancellation of the penalty and a refund of the $1M, but which did not provide for any payment of interest on the $1M. In its upper right-hand corner it stated “Tax year 2012,” in contrast to the original Notice of Assessment, which designated the tax year as “N/A.” On February 28, 2017, Crown counsel indicated that there was no statutory authority to pay interest, because the relevant provisions of the Act require a taxation year to be specified in order for interest to be paid.

In rejecting the Crown’s argument that the naming of a taxation year in the Notice of Reassessment was an error, Diner J referred to s. 152(8), indicated (at para. 86) that it applies “equally to reassessments as it does to assessments,” and then stated (at para. 87):

Therefore, on a strict reading of the text of the statute, the 2016 Reassessment is presumed to be valid and binding … .

It was not relevant that the taxation year was not listed in the original Notice of Assessment, as it had been vacated by the consent judgement.

Respecting a further Crown argument that the Reassessment was properly described as a “notice of refund” or “refund receipt”, and that it was improperly named as a Reassessment, and after noting (at para. 92) that “the jurisprudence acknowledges that administrative errors do not vitiate an assessment and subsection 152(8) exists to protect the Minister from taxpayers attempting to invalidate assessments based on technicalities,” Diner J stated (at paras. 95-96):

It is one thing for the Minister seeking to prevent a taxpayer relying on minor defects in her department’s document. But it is another for the Minister to then herself claim that the minor error undermines the validity of her own document to avoid adherence to it, when all other data points of the form are entirely accurate … .

Consequently, for the purpose of this specific case, this Court concludes that the Reassessment issued by the Respondent is a valid reassessment, even if it also included both a refund to, and a nil balance owing from, Mr. Glatt.

Diner J went on to state (at para 108):

The non-payment of interest in these circumstances runs counter to … Grenon. Here, Mr. Glatt’s $1M payment in controversy was clearly made to avoid the accrual of interest with respect to an assessment that was then vacated. This is akin to Grenon, where the taxpayer provided $12.75M to the Minister in response to a Jeopardy Order that this Court issued against him, which was then vacated by the Court.

He concluded (at para. 112):

… I find that the current jurisprudence supports a finding that interest must be paid on the Principal Amount. As the reassessment still exists despite its nil status for the purpose of venue, subsection 154(8) continues to apply, as do the other provisions of the Act that then flow from it confirming that the refund must be returned with interest at the prescribed rate, including paragraph 164(3)(e).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(8) CRA could not treat its statement of a taxation year in its Notice of Reassessment as an error 367
Tax Topics - Other Legislation/Constitution - Federal - Federal Courts Act - Section 18.1 - Subsection 18.1(2) extension granted where the taxpayer had continually pursued relief 387
Tax Topics - General Concepts - Onus onus on Minister to establish that her refund of a s. 163.2 penalty did not relate to any particular taxation year] 270

Imperial Oil Resources Ventures Limited v. Canada (Attorney General), 2014 DTC 5113 [at 7275], 2014 FC 839

remission payment did not generate interest entitlement

In response to an increase in royalty charges by the Albertan government for the rights to oil sands, the federal government issued the Syncrude Remission Order ("SRO") in 1976. Under this order, participants in the Syncrude Project were entitled to a remission of federal income tax on the amount of the Alberta royalty charges. The taxpayer's right to this amount was also affirmed in an advance tax ruling. The Minister applied the SRO as a reduction in taxes payable in each taxation year.

Gagné J rejected the taxpayer's submission (at para. 47) that "when the Minister decided to apply the SRO payments against Imperial Oil's tax liability, he acted in the statutory power granted by the ITA and that, in doing so, the remission amounts that offset Imperial Oil's tax liability for that year was paid on account of Imperial Oil's liability within the meaning of subsection 164(7) of the ITA and had the effect of creating an overpayment," stating (at para. 50) that "whichever mechanism [payment or such application] is chosen, it does not create an obligation on the Minister, when acting pursuant to the SRO, to pay refund interest under the ITA."

Portage Tax Services v. The Queen, 82 DTC 6104, [1982] CTC 95 (FCTD)

The overpayments on which interest runs include rights to refunds which a discounter has acquired pursuant to the Tax Rebate Discounting Act, and where Department employees negligently paid the refunds to the taxpayers rather than the discounter, interest continued to run to the time of judgment.

Administrative Policy

IT-155R3 "Exemption from Non-resident Tax on Interest Payable on Certain Bonds, Debentures, Notes, Hypothecs or Similar Obligations"

The exemption in s. 212(1)(b)(ii)(C) is not applicable to refund interest.

Subsection 164(3.1) - Idem [Interest on refunds and repayments]

Cases

Interprovincial Steel and Pipe Corp. v. The Queen, 86 DTC 6583, [1986] 2 CTC 473 (FCA)

Prior to the enactment of s. 164(3.1), there was no basis for the Minister to collect interest in the circumstances described therein.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(1) 30

Subsection 164(4.1) - Duty of Minister

Cases

Trzop v. Canada, 2002 DTC 6728, 2001 FCA 380

The taxpayer had acquired debt with a nominal adjusted cost base to it and successfully argued before the Supreme Court of Canada that subsequent payments to him of interest that had accrued before he had acquired the debt were excluded from his income pursuant to s. 20(14). The realization of a taxable capital gain pursuant to s. 40(3) was a logical and inevitable consequence of the decision of the Supreme Court that s. 20(14) applied. Accordingly, this consequence was required to be taken into account by the Minister in reassessing the taxpayer following that decision.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Evidence 72
Tax Topics - Income Tax Act - Section 54 - Adjusted Cost Base no addition for unpaid labour 66

Indalex Ltd. v. The Queen, 86 DTC 6598, [1986] 2 CTC 482 (FCA)

The issuance of a fresh reassessment by the Minister pursuant to s. 164(4.1)(d) does not have the effect of nullifying the assessment from which the appeal was taken, i.e., notwithstanding the Abrahams case, the taxpayer is not required to launch a fresh appeal from the s. 164(4.1)(d) reassessment. "Parliament's intention in enacting subsection 164(4.1) is clearly to benefit taxpayers who have succeeded in appealing assessments. It would be antithetical to that intention if the Minister's compliance with paragraph 164(4.1)(d) were to have the effect of depriving unwary taxpayers of the right to further pursue appeals in which they have been only partly successful."

See Also

Hagedorn v. The Queen, 95 DTC 288 (TCC)

The Tax Court could not consider the appeal of the taxpayer from a reassessment of the Minister made pursuant to s. 164(4.1) given that such reassessment was entirely consistent with the Tax Court judgment that it was implementing, and given that s. 18(2.4) provided that such judgment was final and conclusive and not open to question or review except by the Federal Court of Appeal.

Subsection 164(6) - Where disposition of property by legal representative of deceased taxpayer

Administrative Policy

S4-F8-C1 - Business Investment Losses

Limitation on BIL carryback

1.71 ... Where an estate realizes a business investment loss in its first tax year, the legal representative of the estate may elect under paragraph 164(6)(c) to have all or part of such loss treated as a business investment loss realized by the deceased in the tax year of the death. However, the amount of business investment loss that can be the subject of such an election cannot exceed the excess of the capital losses over capital gains realized on dispositions of capital property by the estate in its first tax year.

2015 Ruling 2015-0569891R3 - Ss. 164(6) carry-back and post-mortem pipeline

redemption of Canco shares bequeathed to U.S. resident (coupled with s. 164(6) carryback) before pipeline strip of Canco

One of the beneficiaries (“Child 2”), of a Canadian estate holding stepped-up (per s. 70(5)) shares of A Co (a Canadian portfolio investment company) was a U.S. resident. A Co redeems a portion of its shares held by the estate, thereby giving rise to a deemed dividend and to a capital loss which can be carried back under s. 164(6) to partially offset some of the terminal year capital gain on the A Co shares, and such redemption proceeds are allocated and paid (less Part XIII withholding) by the estate to Child 2 through the issuance of a promissory note. The estate then engages in a conventional pipeline transaction for the benefit of its resident beneficiaries. Rulings on ss. 84(2), 84.1 and 245(2), but not 164(6) - but the summary indicates that the principal issue is "whether estate can elect under subsection 164(6) where there is a non-resident beneficiary."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 84 - Subsection 84(2) proceeds of share redemption (generating s. 164(6) carryback) allocated to U.S. beneficiary before pipeline for Cdn beneficiaries 664

12 February 2013 Internal T.I. 2012-0437211I7 F - NRT rules and subsection 164(6)

s. 94 deemed resident trust could carry back under s. 164(6) re capital loss on non-TCP shares

The estate of an individual, who was resident in Canada for more than 60 months, was deemed to be resident in Canada under s. 94. At the time of his death, the deceased held shares of a taxable Canadian corporation which were not taxable Canadian property, and his Canadian principal residence. The estate was deemed by s. 84(3) to receive a dividend when shares of the corporation were redeemed, and also realized a capital loss on those shares. A capital loss also was realized on the disposition by the estate of the residence. The executor had elected under s. 164(6)(c) to carry back these losses to the terminal return of the deceased.

After having previously referred to the position in E9507245 that a non-resident trust may only carry back losses under s. 164(6) on shares that are taxable Canadian property, CRA stated (TaxInterpretations translation):

Since the Estate is deemed to be resident in Canada for the purposes of Division I (sections 150 to 168) of Part I of the Act, we are of the view that it has the right to make an election pursuant to paragraph 164(6)(c) in respect of capital losses incurred in its first taxation year, without distinction as to the nature of the property disposed of.

However, in order for the capital loss on the Residence to be eligible, it must not have been used primarily for the personal use or enjoyment of a beneficiary of the Estate or any person related to the beneficiary. It should also not be an inventory property. In this regard, we refer you to the files you mentioned earlier, files E2008-0280751E5 and E2002-0148955 [where CRA had stated that a capital loss from the disposition of a personal residence of the deceased was eligible under s. 164(6) if it was not personal use property to any beneficiary or a related person.]

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 54 - Personal-Use Property personal residence of deceased potentially would not be personal-use property to estate 108
Tax Topics - Income Tax Act - Section 94 - Subsection 94(3) - Paragraph 94(3)(a) estate of resident deceased with one resident beneficiary was subject to s. 94(3) 301

25 February 2004 External T.I. 2004-005668 -

"When the total of the capital losses that are the subject of an election under subsection 164(6) and capital losses otherwise realized by the deceased taxpayer in the year of death exceed the amount of capital gains realized by the deceased taxpayer in that year, paragraph 164(6)(f) limits the application of the resulting net capital loss to any other taxation year to the extent that the amount of the net capital loss can be considered to be in respect of the capital losses that were the subject of the election under subsection 164(6)."

15 May 1995 T.I. 950724 (C.T.O. "NR Estate - is 164(6) Limited to 'Tax Cnd Pty'?")

Where an estate is a non-resident of Canada, only a capital loss arising on the disposition of taxable Canadian property is eligible for carryback pursuant to s. 164(6).

Halifax Round Table, February 1994, Q. 27

RC will accept a T1 Adjustment Request to amend the terminal year T1 return in order to deduct a capital loss incurred by the deceased taxpayer's estate within one year of death pursuant to s. 164(6).

30 November 1993 T.I. 932296 (C.T.O. "Executor's Year-Loss Carryback to Year of Debt Return")

Re whether prior to (1) the anniversary of the death of the deceased and (2) the winding-up of the estate, the executor has the right to wind-up a corporation, thereby accessing the loss under s. 164(6).

Where an executor requests a clearance certificate based on the return filed for the executor's year and that return is the only one to be filed for the trust, the return will generally be considered to be the final return and the trust will be considered to be wound-up during the executor's year, even where the actual distribution occurs shortly thereafter.

24 November 1993 Internal T.I. 7-932553

Discussion of when shares are capital property of the estate as opposed to the beneficiaries, including a finding that a flow-through of dividends to beneficiaries does not demonstrate that the beneficiaries had beneficial ownership of the shares.

91 C.R. - Q.42

If a capital loss is deemed to be nil as a result of s. 85(4), there is no capital loss to which the rules in s. 164(6) are applicable.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 85 - Subsection 85(4) 31

January 4 1991 T.I. (Tax Window, No. 2, p. 7, ¶1182)

The phrase "notwithstanding any other provision of this Act" does not exclude the application of s. 85(4) or similar stop-loss rules. Accordingly, if an estate transfers property to a corporation that, immediately after the transfer, is controlled by the estate or by a group of persons that controls the estate, s. 85(4) will apply to deny the capital loss in respect of which an s. 164(6) election might otherwise be made.

12 September 1990 T.I. (Tax Window, Prelim. No. 1, p. 21, ¶1014)

Where property is held in joint tenancy and one of the joint tenants dies, the surviving joint tenant is not entitled to make the election under s. 164(6) in respect of a subsequent disposition of the property because the property passed to him by operation of law and not from the estate of the deceased.

IT-484R "Business Investment Losses" under "Deceased Taxpayers"

Where the estate realizes a business investment loss in its first taxation year, an election under s. 164(6)(c) may be utilized to have it effectively treated as a business investment loss of the deceased in the year of death rather than merely as a capital loss.

Articles

Elie Roth, Tim Youdan, Chris Anderson, Kim Brown, "Taxation of Trusts Resident in Canada", Chapter 3 of Canadian Taxation of Trusts, (Canadian Tax Foundation), 2016.

Circularity problem where estate capital gains realized in 1st year (p 139)

The CRA has acknowledged that the wording of subsections 40(3.61) and 164(6) can create an inappropriate circularity problem when an estate realizes capital gains in the first year after death, since the loss arising on the redemption of the shares must be applied to the estate's capital gains for the year after, death and cannot be carried back to offset the capital gain arising on death. [fn 70: …2012-0462941C6…. This circularity problem was identified by Nick Moraitis and Manu Kakkar, in "Potential Circularity Problem with Estate Loss Carryback" (2006) 6:3 Tax far the Owner-Manager 6-7.] Since subsection 40(3.61) applies only to the extent that the loss is carried back to the year of death, subsection 40(3.6) applies, to deny the losses that would otherwise be applied against the estate's capital losses in the year of death.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 108 - Subsection 108(3) 374
Tax Topics - Income Tax Act - Section 251.1 - Subsection 251.1(4) - Paragraph 251.1(4)(d) 437
Tax Topics - Income Tax Act - Section 251.1 - Subsection 251.1(1) - Paragraph 251.1(1)(g) - Subparagraph 251.1(1)(g)(ii) 115
Tax Topics - Income Tax Act - Section 112 - Subsection 112(3.2) 331
Tax Topics - Income Tax Act - 101-110 - Section 107 - Subsection 107(1) 144
Tax Topics - Income Tax Act - Section 251.2 - Subsection 251.2(3) - Paragraph 251.2(3)(b) 112
Tax Topics - Income Tax Act - Section 252.2 - Subsection 252.2(2) 115
Tax Topics - Income Tax Act - Section 256 - Subsection 256(7) - Paragraph 256(7)(i) 176
Tax Topics - Income Tax Act - Section 70 - Subsection 70(6) - Paragraph 70(6)(d.1) 161
Tax Topics - Income Tax Act - Section 70 - Subsection 70(6) 1201
Tax Topics - Treaties - Income Tax Conventions - Article 29B 239
Tax Topics - Income Tax Act - Section 248 - (2)-(41) 157
Tax Topics - Income Tax Act - Section 248 - Subsection 248(8) 199
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(4) - Paragraph 104(4)(a.2) 59
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(4) - Paragraph 104(4)(a.3) 38
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(6) 174
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(6) 164
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(24) 163
Tax Topics - Income Tax Act - 101-110 - Section 105 - Subsection 105(1) 91
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(18) 49
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(7.01) 66
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(19) 311
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(13) 125
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(bb) 144
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(2) 379

Chris Falk, Stefanie Morand, "Current Issues Forum: Pipeline Planning; Subsection 164(6) Circularity Issue; Eligible Dividend Designations", 2012 Ontario Tax Conference of Canadian Tax Foundation

Interaction of Subsections 40(3.6), 40(3.61) and 164(6) — the "Circularity" Issue

As discussed in more detail in the Moraitis/Kakkar Article, if subsections 40(3.6), 40(3.61), and 164(6) are applied iteratively, the realization by the estate of any capital gain in the estate's first taxation year will have the effect of grinding to nil the amount of the loss that can be carried back pursuant to subsection 164(6), even if the loss is substantial and the gain is only nominal.

By way of example, assume the following:

• Ms. Y dies owning:

  • a portfolio of managed publicly-traded securities, which securities are assumed (for illustrative purposes) not to have had any accrued gain or loss on death; and
  • all of the shares of a private corporation, YCo, with PUC of $100,000.

• The shares of YCo were held by Ms. Y as capital property for purposes of the Act and had an ACB to Ms. Y of $100,000 and an FMV immediately prior to Ms. Y's death of $1,000,000. Accordingly, the deemed disposition of the YCo shares gives rise to a $900,000 capital gain in Ms. Y's terminal year.

• In the estate's first taxation year, YCo redeems 50% of the shares held by the estate for $500,000. 61 As a result of the redemption, the estate sustains a $450,000 capital loss.

The estate is also deemed to have received a $450,000 dividend (i.e., the amount by which the redemption proceeds exceed the PUC of the shares that were redeemed).

The estate should be entitled to elect pursuant to subsection 164(6) to apply the loss sustained on the redemption against the gain realized on the disposition on death.

However, assume further that, in the ordinary course, a nominal capital gain (e.g., $1) is realized on the publicly-traded securities such that the net capital loss of the estate in its first taxation year is $449,999 rather than $450,000.

Prior to the application of subsection 40(3.6), the maximum amount that the estate would be able to elect to carry back pursuant to subsection 164(6) is $449,999 (i.e., the estate's net capital loss for its first taxation year assuming that subsection 40(3.6) does not apply).

Subsection 40(3.61) provides that subsection 40(3.6) will apply in respect of the loss on the redemption to the extent that the amount of the loss (i.e., $450,000) exceeds the portion of the loss to which the subsection 164(6) election applies (i.e., $449,999). As a consequence, $1 of the loss on the redemption is denied pursuant to subsection 40(3.6).

If subsections 40(3.6), 40(3.61), and 164(6) are interpreted iteratively (i.e., in a manner giving rise to the circularity concern), one must recalculate the amount of the subsection 164(6) election to account for the amount of the loss denied pursuant to subsection 40(3.6). This recalculation, in turn, will affect the subsection 40(3.61) calculation and so on, with the end result that no amount may be carried back pursuant to subsection 164(6).

As discussed in more detail below under the heading "Statutory Interpretation", in the authors' view, this interpretation should be rejected since it leads to an absurd result that is clearly contrary to the context and purpose of subsections 40(3.61) and 164(6).

David Louis, "164(6) - This Time in Context", Tax Topics No. 1595, 3 October 2002, p. 1.

Subsection 164(6.1) - Realization of deceased employees’ options

Administrative Policy

16 June 2014 STEP Roundtable, 2014-0523011C6 - STEP Roundtable 2014-7(1)(e)

overview

After noting that s. 7(1)(e) did not apply if a deceased employee held unvested stock options because such options had no value immediately after his or her death, CRA went on to comment generally:

…Subsection 164(6.1) is intended to provide relief where a stock option is exercised, expires, or is otherwise disposed of within the first taxation year of the deceased taxpayer's estate and the value of the stock option has declined since the employee's death, such that the benefit realized by the deceased's estate is less than the benefit deemed by paragraph 7(l)(e) to have been received by the deceased taxpayer. If the legal representative of the deceased elects in prescribed manner, an amount [under s. 164(6.1)(a)] is deemed to be a loss from employment of the deceased taxpayer for the year of death. …

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 7 - Subsection 7(1) - Paragraph 7(1)(e) nil valuation of unvested options 93

30 October 2012 Ontario CTF Roundtable Q. 14, 2012-0462941C6 - 2012 Ontario CTF Q14 - Circularity with 164(6)

The query noted that when an estate elects under subsection 164(6) to apply a capital loss to the terminal return of the deceased, it is possible to create "circularity" under 164(6), when the estate carries back a loss but then realizes a capital gain on other assets in its first taxation year. CRA stated:

We…agree… that it is possible for a circularity issue to arise. If the estate realizes capital gains during its first taxation year, those gains must be applied against the loss on the share disposition, in accordance with the requirements of subsection 164(6), in order to determine the amount that can be carried back. Where this occurs, the application of 40(3.61) will result in an amount of loss stopped pursuant to subsection 40(3.6), which in turn will reduce the amount available for the 164(6) election, and the circular nature of these provisions becomes an issue….

We suspect that the incidence of this potential circularity issue is likely quite limited….

21 December 2012 Internal T.I. 2009-0327221I7 - Paragraph 7(1)(e) - Death of a Taxpayer

After noting that a deceased employee would be deemed under s. 7(1)(e) to dispose of unexercised stock options at fair market value on death, and that the estate would be treated by CRA as having acquired the options (under s. 69(1)(c)) at a cost equal to the same amount, CRA then addressed the possibility that the shares in question could decline in value following the death, and stated:

Subsection 164(6.1) is intended to provide relief in such situations and applies where a stock option is exercised, expires, or is otherwise disposed of within the first taxation year of the deceased taxpayer's estate. Where the legal representative elects in prescribed manner, the amount is deemed to be a loss from employment of the deceased taxpayer for the year of death. ...

If a deduction was claimed under paragraph 110(1)(d) in respect of the amount included in the deceased's income in the year of death under paragraph 7(1)(e), the amount of the loss that may be carried back is reduced by the deduction claimed pursuant to paragraph 110(1)(d). However, as a result of the amendment to subparagraph 110(1)(d)(i) that requires a taxpayer to acquire shares under the stock option agreement, a deduction pursuant to paragraph 110(1)(d) may not be available in circumstances where paragraph 7(1)(e) applies after March 4, 2010.

Subsection 164(6.4)

Administrative Policy

21 December 2012 Internal T.I. 2009-0327221I7 - Paragraph 7(1)(e) - Death of a Taxpayer

CRA stated:

Where an employee stock option provides that the option is automatically cancelled on death of an employee, the value of the option immediately after death will be nil with the result that no amount will be included in the deceased's income in accordance with paragraphs 7(1)(e) and 6(1)(a).

In a situation where the stock option provides that the deceased's estate may exercise the option within a limited period after the employee's death, paragraph 7(1)(e) may result in an income inclusion. Subsection 164(6.4) is intended to provide relief in such situations.

Subsection 164(7)

Cases

Imperial Oil Resources Limited v. Canada (Attorney General), 2016 FCA 139

remission payment did not generate interest entitlement

In response to an increase in royalty charges by the Albertan government for the rights to oil sands, the federal government issued the Syncrude Remission Order ("SRO") in 1976. Under this order, participants in the Syncrude Project were entitled to a remission of federal income tax on the amount of the Alberta royalty charges. The taxpayer's right to this amount was also affirmed in an advance tax ruling, which indicated that for purposes of computing whether the taxpayer owed interest in respect of under-installing, the remission payments would be credited as of the balance due date for the year so as to relieve of arrears interest.

In rejecting the position of the taxpayer that the remission payments should be treated in the same manner for purposes of entitling the taxpayer to refund interest under s. 164(3), Noël CJ stated (at paras. 51, 57):

[T]he correctness or validity of an assessed tax liability is not affected by a remission and must be determined on the basis of the relevant provisions of the ITA… . The effect of a remission order is limited to forgiving a debt once it has arisen pursuant to relevant provisions of the ITA, which would include in this case paragraphs 12(1)(o) and 18(1)(m)… .

[I]t is clear that an overpayment of taxes payable cannot result without some form of payment being made beforehand, and no such payment can result from a remission order whose sole effect is to prevent the collection of what is, and remains, a validly assessed tax debt. Given that a remission order can do no more than that, no amount can be said to have been “paid on account of [IORL’s] liability” (paragraph 164(7)(b) of the ITA) by reason of the SRO

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 171 - Subsection 171(1) Tax Court has no jurisdiction to hear an appeal on the computation of refund interest 323

See Also

McMillen Holdings Ltd. v. MNR, 87 DTC 585 (TCC)

dividend refund not an overpayment of tax

The taxpayer, which had received a dividend refund, for its taxation year ended July 31, 1982, on August 22, 1983, appealed to the Tax Court requesting a variance of the reassessment (dated December 19, 1983) of its 1982 year to provide that refund interest accrued on its refund claim (net of income tax payable) from July 31, 1982 until the date of the August 22, 1983 payment thereof, i.e., that the refund amount represented an "overpayment", within the meaning of s. 164(7) for its 1982 taxation year.

Rip J. found that a dividend refund was not an "overpayment of tax" such as would entitle a taxpayer to payment of interest, stating:

[T]he amounts of tax previously paid by the appellant under Parts I and IV were amounts paid under the Act because …such amounts were so payable; there had been no overpayment. The appellant's entitlement to a refund by virtue of payments of dividends to its shareholders in 1982 does not in my view turn what were properly assessed amounts of tax for prior years to an overpayment of tax in 1982. There is no provision in sections 129 and 164 or elsewhere in the Act, for example, similar to subsection 164(5), which provides for interest on overpayment of tax as a result of the carryback of losses…

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 171 - Subsection 171(1) no jurisdiction to order payment of refund interest 325