13 February 2006 External T.I. 2005-0151221E5 - Interest on Tax Refund

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: (1) Is the date that a return of income is filed that is referred to in 164(3)(c)(i) the date of filing of the original return? (2) Is the date of an overpayment the date that amounts were paid in excess of taxes payable, rather than the date a request for a refund is made?

Position: General Comments provided.

Reasons: The legislation

XXXXXXXXXX 							2005-015122
								Marc Edelson LL.B.
Attention:  XXXXXXXXXX 

February 13, 2006

Dear Sir:

Re: Technical Interpretation - Subsection 164(3) of the Act

This is in reply to your letter of September 14, 2005 wherein you requested our views regarding the application of subsection 164(3) of the Income Tax Act (Canada) (herein, the "Act") in the circumstances described below. Unless otherwise stated, all statutory references herein are to the Act.

You have asked that we consider the following situation:

A Canadian resident corporation ("Canco") originally filed its return of income pursuant to paragraph 150(1)(a) for each of its taxation years (in each case referred to as the "original return") on or before the filing-due date under section 150 but not earlier than 90 days after the end of the particular taxation year. Tax instalments and other payments equal to or greater than the federal and provincial taxes payable as reflected on the original returns for each of the taxation years were made during the relevant taxation year or within 120 days of the end of the relevant taxation year.

Canco has filed an amended Canadian federal income tax return (the "amended return") for these taxation years requesting additional deductions and to apply for a refund of excess taxes paid together with interest thereon.

Your question concerns the date on which interest would commence to be payable on any refund that would be paid by the Minister.

Our Comments

Your request appears to relate to a specific proposed transaction or a completed transaction. Confirmation of the income tax consequences of proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. To make such a request the advance income tax ruling must be submitted in accordance with the guidelines set out in Information Circular 70-6R5 ("IC-70-6R5") dated May 17, 2002. However, if the situation relates to a completed transaction a request for the Canada Revenue Agency's views should be made to your local Tax Services Office. We can, however, provide the following general comments.

Where a refund of an overpayment in respect of a particular taxation year is to be paid to a corporation pursuant to subparagraph 164(1)(a)(iii) or paragraph 164(1)(b), interest on the amount to be refunded would be calculated pursuant to subsection 164(3) from the latest of:

1. the day that is 120 days after the end of the particular taxation year (paragraph 164(3)(b));

2. the day that is 30 days after the day on which the corporation's return of income for the particular taxation year was filed under section 150, unless the return was filed on or before the filing-due date for that year (subparagraph 164(3)(c)(i)); and

3. the day on which the overpayment arose (paragraph 164(3)(d)).

For these purposes, the "return of income" referred to in paragraph 2 above is the original return.

In the circumstances where a corporation's return of income for a particular taxation year was filed on or before its filing-due date, subparagraph 164(3)(c)(i) will not apply. Consequently, interest will begin to accrue on an amount to be refunded to the corporation on the later of the day that is 120 days after the end of the particular taxation year and the day on which an overpayment arises.

Generally, an "overpayment" will be considered to arise in respect of a particular taxation year on the day that the aggregate payments made on account of the corporation's liability under Parts I, I.3, VI or VI.1 of the Act for the particular taxation year exceed all amounts payable by the corporation in respect thereof (subsection 164(7)) as determined by any assessment or reassessment. In certain circumstances, such as those described in subsection 164(5), the day that an overpayment arises may be deemed to be some other date.

Our comments are provided in accordance with the practice outlined in paragraph 22 of IC-70-6R5.

Yours truly,

for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy & Regulatory Affairs Branch