Principal Issues: Whether the Canada Revenue Agency accepts a taxpayer prepayment of tax for an anticipated reassessment.
Position: Yes. This allows the taxpayer to reduce charges of arrears interest under subsection 161(1).
Reasons: Wording of the Act and previous positions.
XXXXXXXXXX 2007-023949 S. Prud'Homme (613) 957-8975 October 15, 2007
Dear Madam,
Subject: Advance payments in anticipation of a reassessment
This is in response to your email of June 4, 2007, in which you asked whether it is correct that the Canada Revenue Agency (the "CRA") accepts advance payments made by taxpayers in anticipation of a reassessment to be issued.
Unless otherwise stated, all statutory references to a statutory section or included provision in this letter are to a section of the Income Tax Act (the “Act”), or to one if its included provisions.
1) Our comments on this case
We confirm that the CRA accepts advance payments made by corporations in anticipation of a reassessment under the Act.
This allows the corporation to reduce its arrears interest expense pursuant to subsection 161(1). Under this provision, such interest charges accrue from the corporation's "balance-due date" (as defined in subsection 248(1)) for the particular taxation year, regardless of the date on which the Minister reassesses.
This CRA position is referred to in the "Corporation Instalment Guide 2007" (Rev. 2006) - T7B Corp. in the section "Transfers, Refunds and Advance Payments" under the heading "Prepaying reassessments":
Prepaying reassessments
If you prepay tax for an anticipated reassessment you may reduce charges of arrears interest.
To make prepayments, use Form RC159, Amount Owing Remittance Voucher (however, we will accept any corporation remittance voucher). Clearly indicate that the payments are prepayments. Also include your Business Number and the tax year-end for which the prepayments are intended. We will hold the payments for this purpose and apply them when we process the reassessments.
The "Corporation Instalment Guide 2007" also refers to a corporation's ability to prepay a reassessment under the Act in the section "Paying Instalments" under the heading "Using the right payment voucher":
Form RC159, Amount Owing Remittance Voucher
Use Form RC159 to make payments on an existing debt or to make a prepayment for an anticipated reassessment. When using this payment voucher to make a prepayment, indicate on the voucher that the payment is a prepayment and provide the tax year-end of the reassessment. Form RC159 can also be used to pay tax under Parts IV, IV.1 and XIV.
Paragraph 44 of Information Circular 81-11R3, now archived, also notes that the CRA accepts prepayments made by corporations in anticipation of a reassessment being issued:
Prepayments of reassessments
44. Corporations may make a payment toward an anticipated reassessment. The corporation should indicate that the payment is a prepayment and include the account number and taxation year-end involved. When the Department receives the prepayment, it will send the corporation a letter stating that the prepayment will be held in a separate account for the expected reassessment.
In addition, we understand that the CRA's position is also to accept advance payments made by individuals in anticipation of a reassessment under the Act.
Note that under subsection 152(3), the fact that no assessment has been made does not affect the taxpayer's liability for Part I tax. Furthermore, section 158 provides that where the Minister mails a notice of assessment of any amount payable by a taxpayer, that part of the amount assessed then remaining unpaid is payable forthwith by the taxpayer to the Receiver General. However, nothing in the Act prevents a taxpayer from making, and the CRA from accepting, prepayments in anticipation of a reassessment to be issued under the Act.
We hope that our comments are of assistance.
Best regards,
Stéphane Prud'Homme, Notary, M. Fisc.
For the Director
Corporate Reorganizations and Resource Industries Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.