Principal Issues: 1. Whether interest is exigible on revocation tax.
2. Whether collection restrictions apply to revocation tax.
Position: 1. No.
2. Yes.
Reasons: 1. By subsection 161(1), interest is not levied on Part V tax.
2. By paragraph 225.1(1.1)(a), the collection commencement date is one year after the day on which the notice of intention to revoke the registration of a charter is mailed.
October 1, 2009
Toronto West Tax Services Office HEADQUATERS Lindsay Frank Attention: Derek Romano, Manager (613) 948-2227 Aggressive International Tax Planning
2009-033272
Revocation Tax Liability Under Subsection 188(1.1)
This is in reply to the email from Gerry Frenza wherein he sought clarification on the operation of certain provisions of the Income Tax Act ("the Act") as they relate to revocation tax under subsection 188(1.1).
On XXXXXXXXXX , a notice of intention was issued to the XXXXXXXXXX to revoke its registration as a charity for failure to file information returns. The registration was subsequently revoked on XXXXXXXXXX . Shortly thereafter on XXXXXXXXXX was assessed under subsection 189(7) of the Act in respect of the revocation tax liability under subsection 188(1.1). The outstanding liability has since increased on account of interest charged from the time of assessment.
At issue are two questions, firstly whether interest is exigible from the time an assessment is raised under subsection 189(7) of the Act. Secondly, whether collection of the amount assessed is stayed by paragraph 225.1(1.1)(a), which provides that the collection commencement date is one year after the day on which the notice of intention was mailed.
While subsection 189(7) of the Act provides the authority for assessing a deregistered charity under Part V of the Act, there is no authority for imposing arrears interest on such a liability. While subsection 161(1) provides the authority for imposing arrears interest, the scope of that authority is limited to taxes payable under Parts I, I.3, VI and VI.1. Reference to the revocation tax under Part V has clearly been excluded. Subsection 189(8) lists a number of provisions that apply to assessments under Part V. Except for the inclusion of subsection 161(11), which relates to the imposition of interest on penalties, subsection 189(8) makes no provision for the imposition of arrears interest on the revocation tax liability under subsection 188(1.1).
Given that paragraph 225.1(1.1)(a) of the Act provides that the collection commencement date is one year after the day on which the notice of intention was mailed, it is suggested that the assessment of the revocation tax liability during that one year period does not collapse the length of that period. While subsection 189(8) makes specific reference to section 158, which makes the unpaid amount of the assessment payable forthwith, it does not override the collection restrictions contained in accordance subsection 225.1(1). Those restrictions apply to all amounts assessed under the Act, except those assessed under subsections 152(4.2), 169(3) and 220(3.1). Further exclusions to the application of subsections 225.1(1) to (4) are contained in subsection 225.1(6); however, amounts payable under Part V are not excluded. Accordingly, paragraph 225.1(1.1)(a) applies and the commencement day for enforcing collection of revocation tax is one year after the day on which the notice of intention was mailed.
In the instant case the one year period prescribed by paragraph 225.1(1.1(a) has already expired; consequently, collection enforcement action is no longer barred. Otherwise in order to overcome the provisions of subsections 225.1(1) and (1.1), an authorization to proceed forthwith would need to have been obtained from a judge pursuant to subsection 225.2(2) of the Act.
Meanwhile, should you need clarification or additional information, please do not hesitate to call Lindsay Frank at the number provided above.
B.J. Skulski
Manager
Insolvency and Administrative Law Section
Business and Partnerships Division
Income Tax Rulings Directorate
c.c. G.A. Frenza
Revenue Collections
Toronto East TSO
Holly Brant
Charities Directorate
H.Q., Ottawa