Principal Issues: [TaxInterpretations translation] Is the amount of the security for departure tax under subsection 220(4.5) considered in determining the amount the individual will receive as a refund of overpaid instalments?
Position: In practice, yes.
Reasons: Wording of the Act and administrative position.
XXXXXXXXXX 2008-029984 Yannick Roulier Attention : XXXXXXXXXX
May 4, 2009
Dear Madam:
Subject: Security for departure tax
This is in response to your letter of November 10, 2008, in which you requested our opinion with respect to the application of subsections 164(7) and 220(4.5) of the Income Tax Act in the following hypothetical situation.
Note that the legislative references below are to the provisions of the Income Tax Act (R.S.C. 1985, c. 1 (5th Supp.)) as amended (the "Act"), in force as of the date hereof.
Hypothetical situation
- An individual residing in Québec left Canada during 2002.
- The tax payable for the year by virtue of Part I was $190,000, net of any provincial tax abatement.
- Without the application of subsection 128.1(4), the individual’s tax payable for the year under Part I would have been $100,000, net of any provincial tax abatement.
- The individual made instalments pursuant to the Act totalling $110,000 for the 2002 taxation year.
- The provincial tax abatement was the only amount deemed by the Act or other legislation to be tax paid for the year under element C of the formula in subparagraph 220(4.5)(a)(i).
- The individual owes no other amount by virtue of the Act or any other legislation of Parliament.
- The individual made the election under subsection 220(4.5) and provided sufficient security, in prescribed manner, for an amount equal to the maximum amount permitted by the security for departure tax rules, being $90,000.
Questions
Under the hypothetical situation submitted, what, if any, is the amount of the refund of overpaid instalments that the individual will receive?
Comments
Under subsections 220(4.5) to 220(4.54), it appears that the amount of the security provided by an individual is for an equivalent amount of tax payable by the individual by virtue of Parts I and I.1. The amount of sufficient security thus relates specifically to the amount of the individual's departure tax.
Furthermore, the refund of overpayments, as defined in subsection 164(7), is generally governed by section 164. Thus, for example, an excess of instalments for a year over the amount for which a taxpayer is liable may be refunded by the Minister under subparagraph 164(1)(a)(iii). If the Minister does not make the refund, the taxpayer may apply for a refund under paragraph 164(1)(b) or subsection 164(1.5), as the case may be.
In this respect, the provision of sufficient security does not constitute a payment. Thus, we have concerns with the technical treatment of the amount of sufficient security provided for the purposes of section 164 because of the wording of subsections 164(7) and 220(4.5) to 220(4.54). It should be noted that the presumption in paragraph 220(4.5)(b), providing in certain circumstances that the amount for which sufficient security is accepted is a paid amount, does not apply for the purposes of subsection 164(7).
In this context, we contacted various branches of the CRA to inquire about the accounting treatment standards adopted for the purposes of implementing these provisions. We have obtained confirmation from the Individual Returns and Payments Processing Directorate, Assessment, Benefit, and Service Branch of CRA that the standards codified in the "Tax Operations Manual" ("TOM") and the methodology for processing the accounts of emigrant individuals result in the granting of a refund in the circumstances set out in the hypothetical situation.
Thus, in the hypothetical situation described above, the individual could benefit from a refund of overpaid instalments of $10,000 for the individual’s 2002 taxation year.
We hope you find the above comments of assistance. Please note, however, that they are not binding on the CRA and may, in some circumstances, not apply to a particular situation.
Best regards,
Alain Godin
for the Director
International Operations and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.