Principal Issues: In a given situation, where a corporation has an amount payable under the ITA outstanding since 1998 and the Crown has not taken collection action, whether the tax debt is statute barred?
Position: No.
Reasons: The law.
XXXXXXXXXX Marc LeBlond 2005-013306 March 22, 2006
Dear Sir,
Subject: Prescription of a tax debt
This is in response to your email of May 25, 2005, in which you requested our comments regarding a debt owed under the Income Tax Act in the situation described below. We apologize for the delay in responding to your request.
Unless otherwise indicated, all statutory references herein are to provisions of the Income Tax Act (the "Act").
The situation
- The Corporation has owed an amount under the Act since 1998.
- Between the date that the Corporation's debt was created in 1998 and May 14, 2004, the Canada Revenue Agency (the "CRA") did not take any action to collect it.
- On May 14, 2004, Parliament amended section 222 by passing Bill C-30, An Act to implement certain provisions of the budget tabled in Parliament on March 23, 2004 ("Implementation Act") 37th Leg, 3rd Sess, 2004 (which received Royal Assent on May 14, 2004). Among other things, the Implementation Act establishes, under amended subsection 222(4) of the Act, a 10-year limitation period for the collection of a "tax debt", as defined in subsection 222(1).
Your questions
You asked us, in the situation you have presented to us, whether the Corporation's debt is statute-barred. You also asked us whether the Implementation Act has retroactive effect.
Our Comments
As stated in paragraph 22 of Information Circular 70-6R5 dated May 17, 2002, it is the practice of our Directorate not to issue a written opinion regarding proposed transactions otherwise than by advance rulings. Furthermore, when it comes to determining whether a completed transaction has received appropriate tax treatment, that determination is made first by our Tax Services Offices as a result of their review of all facts and documents, which is usually performed as part of an audit engagement. However, we can offer the following general comments which may not apply in full to the situation you have submitted to us.
In our view, in this situation, the Corporation’s debt is not statute-barred. On the other hand, the Implementation Act may have a retroactive effect on the CRA's authority to collect amounts owing under the Act. Our conclusions are based on the following observations.
Section 222(1) defines "tax debt" as "any amount payable by a taxpayer under this Act.”
In addition, section 222(4) provides that the limitation period for the collection of a tax debt is as follows:
The limitation period for the collection of a tax debt of a taxpayer
(a) begins
(i) if a notice of assessment, or a notice referred to in subsection 226(1), in respect of the tax debt is mailed to or served on the taxpayer, after March 3, 2004, on the day that is 90 days after the day on which the last one of those notices is mailed or served, and
(ii) if subparagraph (i) does not apply and the tax debt was payable on March 4, 2004, or would have been payable on that date but for a limitation period that otherwise applied to the collection of the tax debt, on March 4, 2004; and
(b) ends, subject to subsection (8), on the day that is 10 years after the day on which it begins. [emphasis added]
In particular, it follows from subsection 222(4), in the case of "tax debts" due before March 4 2004, that the limitation period begins to run on March 4, 2004, for a minimum period of 10 years. So, for example, the limitation period for a debt assessed in 1988 and a debt assessed in 1995 will start at the same time, i.e. on March 4, 2004.
In the situation you have presented to us, the Corporation's debt arose in 1998 as a "tax debt" within the meaning of section 222(1). It follows, therefore, that this "tax debt" of the Corporation is not statute-barred for the purposes of the Act because it was due on March 4, 2004,or would have been due on that date but for any limitation period that has otherwise applied to the collection of the debt, and that the minimum 10-year limitation period for the recovery of a "tax debt" under section 222(4)(b) will not end until 10 years after March 4, 2004, that is to say, March 4, 2014, at the earliest.
In our view, Noël J. of the Federal Court-Trial Division, in Collins v. Canada Revenue Agency, 2005 FC 1431, answers your question as to whether the Implementation Act has retroactive effect.
Collins involved an application for judicial review of the CRA's decision to collect federal and provincial taxes payable by Mr. Collins for the 1986, 1988 and 1994 taxation years that were outstanding on September 28, 2005. In that case, Noël J. said the following about the retroactive effect that the enactment of the Implementation Act may have had, at paragraph 10:
[10] The wording of subparagraph 222(4) ii) is clear. The word « tout » in the French version leaves no room for interpretation (the English version uses the general expression "a limitation"). Subparagraph 222(4)ii) overrules any limitation period that existed prior to the adoption of Bill C-30. The Federal Court and the Federal Court of Appeal jurisprudence is unambiguous on this issue (See C.I. Mutual funds Inc. v. Canada, [1999] F.C.J. No. 199, [1999] F.C. 613; Gibson v. Canada, [2005] F.C.J. No. 817, 2005 FCA 180). A tax debt that was prescribed prior to the adoption of Bill C-30 can nevertheless be enforced by the CCRA under the Act. [emphasis added]
Best regards,
Maurice Bisson, CGA
Manager
Corporate Reorganizations and Resource Industries Section
Corporate Reorganizations and Resource Industries Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch