Principal Issues: What is the appropriate date for calculating refund interest on Part XIII tax.
Position: The effective interest date for calculating refund interest on Part XIII tax is the later of the date of the assessment and the date on which the payment arose.
Reasons: S. 164(3)(c)(ii).
October 15, 2009
Trust Accounts Division HEADQUARTERS Income Tax Rulings Attention: Lorraine Maisonneuve, Manager Directorate Policy and Legislative Research Section Lindsay Frank (613) 948-2227
2009-032474
Effective Refund Interest Date for Part XIII Tax
This is in reply to an email from Joshua Drake. At issue is the appropriate date for calculating refund interest on Part XIII tax.
As explained below, the effective interest date for calculating refund interest on Part XIII tax is the later of the date of the assessment and the date on which the payment arose.
Sections 212 and 215 of the Income Tax Act ("the Act") require a person paying a non-resident to withhold and remit Part XIII tax. Pursuant to subsection 227(6) of the Act, a non-resident who has paid more than the required amount of tax could apply for a refund of the excess amount. To effect the application, the non-resident must file form NR7-R, Application for Refund of Non-Resident Part XIII Tax Withheld.
If, however, the Canada Revenue Agency ("CRA") were to be satisfied that the non-resident person was liable to pay Part XIII tax, or that the amount that the non-resident paid was less than the required amount, an assessment under subsection 227(7) of the Act would ensue. This assessment prompts a number of rules in Part I to apply. Subsection 164(3) is one of the applicable rules. It provides the dates that must be considered to determine the effective refund interest date.
Subsection 164(3) reads:
"Where under this section an amount in respect of a taxation year ... is refunded ... to a taxpayer or applied to another liability of the taxpayer, the Minister shall pay or apply interest on it at the prescribed rate for the period beginning on the day that is the latest of the days referred to in the following paragraphs and ending on which the amount, if refunded ... :
...
(a) if the taxpayer is an individual, the day that is 30 days after the individual's balance-due day for the year;
(b) if the taxpayer is a corporation, the day that is 120 days after the end of the year;
(c) if the taxpayer is(i) a corporation, the day that is 30 days after the day on which its return of income for the year was filed under section 150, unless the return was filed on or before the corporation's filing-due date for the year;
(ii) an individual, the day that is 30 days after the day on which the individual's return of income for the year was filed under section 150;(d) in the case of a refund of an overpayment, the day on which the overpayment arose; ..."
Keeping in mind that Part I applies to a subsection 227(7) assessment with appropriate modifications, the CRA took the position in Lord Rothermere Donation v. The Queen, [2009] 4 C.T.C. 2084 (T.C.C.), that "the day on which the individual's written application for the year was filed under section 150" in subparagraph 164(3)(c)(ii), should be modified to read "the day on which the individual's written application for the year was filed under subsection 227(6)". This modification would support the notion that the effective refund interest date for Part XIII tax is the same as it is for Part I tax.
The Court upheld this view. However, it found that two dates are relevant for determining the effective refund interest date: the day that is 30 days after the day on which the application for the refund was received, and the day on which the payment arose. The Court did not find it relevant to include the rule in paragraph 164(3)(a), since the balance-due date does not apply to Part XIII tax, which is payable immediately.
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. Joshua Drake
Policy and Legislative Research Section
Trust Accounts Division