Principal Issues: Whether an income tax refund can be assigned
Position: No.
Reasons: Section 67 of the Financial Administration Act provides that, unless provided in an Act, a Crown debt is not assignable.
2008-028248 XXXXXXXXXX Lindsay Frank (613) 948-2227 August 6, 2008
Dear XXXXXXXXXX :
Re: Assignment or Redirection of Refunds
This is in reply to your letter of February 15, 2008, addressed to the Sudbury Taxation Centre, and referred to our office for comment on June 19, 2008. You are seeking assistance with respect to collecting your fee from a taxpayer, where you have enabled that individual to obtain a tax refund.
You have presented two options to ensure collection of the fee. In the first option, you propose to amend the contract whereby the taxpayer would agree to make your firm the payee of the refund. In that case, it is proposed that the CRA would pay your firm, which in turn would remit ninety per cent of the refund to the taxpayer. In the second option, you propose that the taxpayer authorise the refund be mailed to your firm, with your firm and the taxpayer being joint payees. On receipt of the cheque, your firm would deposit the cheque in its bank account, and then pay the taxpayer ninety per cent of the cheque.
Both options amount to an assignment of a Crown debt and as such would be inconsistent with the provisions of section 67 of the Financial Administration Act, which stipulate that, unless provided otherwise in an Act of Parliament, a Crown debt is not assignable. Another possibility would be to arrange with the taxpayer for the refund to be mailed to your firm's address. But this poses problems too. Even if the cheque were made payable to the taxpayer, but mailed to your address, there is no absolute certainty that you would receive your fee, since you could not withhold the refund to leverage payment of your fee.
Although you mentioned in your correspondence that you do not provide tax discounter services, you may wish to seek legal advice on the provisions of the Tax Rebate Discounting Act to see if those provisions might afford your firm any advantage in collecting your fee, when enabling a taxpayer to obtain a refund in respect of the previously unclaimed tax credit.
We trust you find this explanation satisfactory,
B.J. Skulski
Manager
Insolvency and Administrative Law Section
Business and Partnerships Division
Income Tax Rulings Directorate