Administrative Policy
18 July 2013 T.I. 2012-0463421E5 - Section 221.2
A Canadian resident subsidiary over-withheld Part XIII tax on dividends paid to its non-resident parent, and did not discover this error until after the limitation period for application by the parent for a refund under s. 227(6). Could a re-appropriation of the overpayment could be made pursuant to s. 221.2?
After noting that "where a non-resident has overpaid Part XIII tax, the amount overpaid may be an amount available to be re-appropriated to another debt of the payee," CRA stated:
unless the non-resident payee has tax liabilities from amounts payable arising from other sources, the non-resident payee will not have a debt that "is or may become payable" for the purposes of subsection 221.2.
4 March 2011 T.I. 2010-038492 -
a corporation, which had unused SRED credits for its 2007 taxation year, carried those credits back to its 2004 taxation year along with instalment payments made in 2007. When the 2004 return was filed three years and 11 days after the 2004 year end, it showed that taxes had been overpaid. A refund claim for these taxes was barred by s. 164(1) as the return was not filed within three years.
CRA indicated that "the company could request that the tax, including instalments, which were overpaid in the 2004 taxation year be re-appropriated in full to another amount or amounts that are or may become payable in a subsequent year or years."
Subsection 221.2(1) - Re-appropriation of amounts
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.
Administrative Policy
8 September 2014 T.I. 2013-0482991E5 - 15(2) and related provisions
Debtco, a non-resident corporation which is connected to the non-resident wholly-owning parent (Parentco) of Canco, is indebted to Canco. Debtco repays its debt to Canco in the second year after the end of Canco's taxation year in which the debt arose - but Debtco does not apply for a refund within the time required under s. 227(6.1). May the amount that would otherwise be refundable under s. 227(6.1), had Debtco applied within the time required, be re-appropriated to a future amount of tax owing under s. 221.2(1)? CRA stated:
[T]he tax payable under Part XIII is that of Debtco (i.e., the non-resident) … . Therefore re-appropriation under subsection 221.2(1) in respect of the amount would be available to Debtco, not Canco, and only to the extent that Debtco were to have an amount that is or may become payable for the purposes of the subsection.
… [T]here is no situation where re-appropriation under section 221.2 is available when the re-appropriation would result in the refund of an amount contrary to legislated time limits (such as in subsections 227(6) or (6.1) and section 164). In addition, there are currently no provisions of the Act or the Income Tax Regulations which divest the payor (e.g., Canco) of their obligations under section 215 … . It is, therefore, unclear to us the precise situation for which re-appropriation under subsection 221.2(1) could be granted… .
8 October 2008 Memorandum 2008-0269581I7 - statute-barred refund
The corporate taxpayer requested that CRA exercise its discretion under 221.2(1) to appropriate the overpayment to a balance owing within the normal reassessment period where the taxpayer had not filed its tax return (for which a refund could have been claimed) within the three year time period specified in s. 164(1). In rejecting this request, CRA stated:
[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.