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.
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."
See Also
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."
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 Memorandum 2015-0583081I7 - Refund Request - Normal Reassessment Period
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
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.
CBAO National Commodity Tax, Customs and Trade Section – 2014 GST/HST Questions for Revenue Canada, Q. 7
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… .
5 November 2014 T.I. 2014-0538901E5 - Refund Sought/Notices of Objection, ss. 164(1)
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 Memorandum 2012-0468081I7 - Paragraph 164(1)(b)
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.
8 October 2008 Memorandum 2008-0269581I7 - statute-barred refund
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.
7 June 2012 Memorandum 2012-0435561I7
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
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 Memorandum 2008-0269581I7 - statute-barred refund
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… .
Subsection 164(2) - Application to other debts
Administrative Policy
18 July 2013 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 Memorandum 2010-0389171I7
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.
Subsection 164(2.01) - Withholding of refunds
Administrative Policy
18 July 2013 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
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.
Subsection 164(4.1) - Duty of Minister
Cases
Trzop v. The Queen, 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.
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
12 February 2013 Memorandum 2012-0437211I7 F - NRT rules and subsection 164(6)
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):
As the Estate is deemed to reside in Canada for purposes of applying Division I (sections 150 to 168)...it has the right to make an election by virtue of paragaph 164(6)(c) respecting capital losses realized in the course of its first taxation year, without distinction as to the type of property disposed of.
Respecting the recognition of the capital loss from the residence, the Directorate referred to 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.
25 February 2004 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 Memorandum 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.
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
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 Q. , 2014-0523011C6
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. …
30 October 2012 Ontario CTF Roundtable Q. 14, 2012-0462941C6
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 Memorandum 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 Memorandum 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.