Principal Issues: A taxpayer prepays tax for an anticipated reassessment. The CRA refunds a portion of the amount prepaid to the taxpayer pursuant to subsection 164(1) of the Act. Whether the CRA may have to pay refund interest in that respect.
Position: Yes, pursuant to subsection 164(3) of the Act. However, the practice described in response to question 61 of the Revenue Canada Round Table held at the 1991 Congress of the Canadian tax Foundation, applies only with respect to a bona fide possibility of a reassessment.
Reasons: Wording of the Act and previous positions.
2008-030176 XXXXXXXXXX S. Prud'Homme (613) 957-8975 December 2, 2008
Dear Madam,
Subject: Prepayments in anticipation of reassessment - Interest income
This is in response to your memorandum of November 11, 2008 addressed to Ms. Jacqueline Hallé, Director, Quebec Affairs and Commodity Tax Division, Corporate Strategies and Business Development Branch of the Canada Revenue Agency (the "CRA").
Unless otherwise stated, all references to a statutory section or included provision in this letter are to a section of the Income Tax Act (the "Act") or one of its provisions.
1) Background
In June 2007, XXXXXXXXXX asked for confirmation that the CRA accepts advance payments made by taxpayers in anticipation of a reassessment to be issued.
In an October 15, 2007 letter to XXXXXXXXXX, we confirmed that CRA accepts advance payments made by corporations in anticipation of a reassessment to be issued under the Act. We indicated that one of the benefits of this is that it allows the affected corporation to reduce its arrears interest charges payable under subsection 161(1).
2) Your question regarding this file
To complement this response, you wish to know the CRA's position on the payment of interest income in the event that an overpayment is refunded to the corporation following the issuance of the reassessment. In addition, you wish to know what provisions of the Act allow for the payment of interest income in such circumstances.
3) Our comments on this file
In the situation described above, the Minister would refund to the subject corporation any "overpayment" (as defined in subsection 164(7)) for the particular taxation year by virtue of subsection 164(1).
Furthermore, in such a situation, we confirm that CRA may be required to pay refund interest to the corporation in accordance with subsection 164(3). In general, this legislative provision sets out, inter alia, that if, by virtue of section 164, an amount in respect of a taxation year is refunded to a taxpayer, the Minister shall pay to the taxpayer interest on the amount at the prescribed rate (paragraph 4301(b) of the Income Tax Regulations) for the period beginning on the later of the days referred to in paragraphs 164(3)(a) to (e) and the day on which the amount is refunded.
This CRA position was referred to, inter alia, in response to Question 61 of the Canada Revenue Agency Roundtable held at the 1991 Canadian Tax Foundation Conference. A copy of that question and the related response is attached hereto.
In conclusion, we would like to point out that the answer to Question 61 above expressly states that the practice described therein applies only in respect of a genuine possibility of reassessment.
We hope that our comments will be of assistance.
Best regards,
Stéphane Prud'Homme, Notary, M. Fisc.
Manager
Mergers and Acquisitions Section
Corporate Reorganizations and Resource Industries Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.
c.c.: Ms. Jacqueline Hallé, CA
Director
Quebec Affairs and Commodity Tax Division
Corporate Strategy and Business Development Branch
Canada Revenue Agency