Principal Issues: Whether a private corporation could choose not to claim a dividend refund under subsection 129(1) on its T2 return of income?
Position: In theory yes. However, the CRA policy is to issue automatically a dividend refund.
Reasons: 129(1)
XXXXXXXXXX 2016-064984
R. Gagnon
May 12, 2017
Dear Sir,
Subject: Section 129(1) of the Act
This letter is in response to your letter of May 24, 2016, in which you asked us whether a private corporation (the "private corporation") as defined in subsection 89(1) of the Income Tax Act (the “Act”) may, at the time of filing its T2 return, not apply for a dividend refund ("DR") within the meaning of subsection 129(1) to which the private corporation would otherwise be entitled.
Unless otherwise indicated, all legislative references in this letter are references to provisions of the Act.
Our Comments
This technical interpretation provides general comments on the provisions of the Act. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R7, Advance Income Tax Rulings and Technical Interpretations.
We are of the view that it is not mandatory for a private corporation to apply for a DR for a taxation year if it has refundable dividend tax on hand (as defined in subsection 129(3)) at the end of that taxation year and has paid a taxable dividend in that taxation year. Paragraph 129(1)(a), on the other hand, provides that the Minister may (where a return of a corporation’s income is made within three years after the end of the year), when sending the assessment for a taxation year, refund the DR without a request. Paragraph 129(1)(a) is discretionary in nature. This discretion may be exercised by the Minister (or a person to whom Ministerial authority has been delegated). Therefore, in a situation where a private corporation does not request the CRA to make an otherwise-available DR under subsection 129(1), and the Minister exercises discretion to make the DR, the latter is not obliged to accede to the request of the private corporation.
Currently, the CRA policy (Assessment & Benefit Services Branch) is to automatically make a DR where the information required for the calculation of the DR has been filed on the T2 return (including the Schedule 3/T2SCH3), even where a private corporation does not request it (for example, by entering zero on line 784 of its T2 return).
We hope that our comments will be of assistance.
Urszula Chalupa, LL.B, M. Fisc.
for the Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy
and Regulatory Affairs Branch