Re-Appropriation of Amounts – A Canadian Tax Lawyer Analysis

If a taxpayer submits a tax return within 3 years from the close of the tax year, tax authorities at the Canada Revenue Agency ("CRA") are required to pay back tax to the taxpayer any excess tax. In the absence of this 3-year period, the CRA does not have the obligation to provide tax refunds. tax reimbursement, however, can nevertheless offer tax refunds to taxpayers who are individuals at the discretion of the CRA. The CRA is not able to issue refunds to companies following the 3-year timeframe however, corporations may make an application to the CRA under s.221.2 under the Income Tax Act to re-allocate tax credits that are derived from the statute-barred years to pay current or anticipated taxes due.

Refunds of tax overpayments

In accordance with s.164 in the Income Tax Act, once a taxpayer completes the tax return for a taxation year the CRA typically must provide an amount of tax refund to the taxpayer in that amount of tax which the taxpayer paid in excess for the tax year. However, the obligation to refund is only valid for 3 years following the conclusion of the tax year. If, for instance, the taxpayer submitted tax returns for the 2014 tax year in 2017, the tax return for the 2014 tax calendar year during 2017, would be within three years of the close of 2014 and the CRA will be required to refund any overpayments. But if the taxpayer completed their tax return for the 2013 tax period in the year 2017, this would be outside the 3-year time frame and the CRA will no longer be under the obligation to issue an amount refund. In the event that you are a taxpayer who has a personal tax ID, you could still get refunds from CRA for tax years that are not within the three-year period, at the discretion of the CRA. For more information on late refunds, please contact one of our skilled Toronto tax lawyers.

Re-allocation of Corporate Tax Credits

When it is determined that the taxpayer is a corporation then the CRA is not only under no obligation to make a late refund, however, the CRA is in fact prohibited from making this refund. In contrast to individuals, however, the CRA does not have the discretion as to whether or how it decides to issue late refunds to corporations and is not able to make such a decision. The exception is that s.221.2 can be construed as a remedy that permits corporate taxpayers to apply for a corporate taxpayer to apply to the CRA to receive an overpayment credit in a tax year that was greater than 3 years before to be re-appropriated, as a matter of fact, applied to a future tax debt. In essence, it means that it is the case that a corporate taxpayer is unable to get a refund for an overpayment that occurred in an unconstitutional year, however, they can apply the tax credit that was derived due to an unpaid tax to pay off taxes that are due from a different tax year.

Submit form RC431. The application demands to taxpayers of corporate taxpayers explain why it could not complete the tax return within the standard three-year period. Furthermore, the CRA's policy on administrative matters is to no longer accept s.221.2 applications, unless exceptional circumstances hindered the timely filing of corporate tax returns. Reasonable reasons or conditions to consider an s.221.2 application may be caused by CRA negligence, a civil disturbance, natural or man-made catastrophe death or serious illness, or other exceptional circumstance. Call our best Canadian tax firm to learn how we can assist your company or organization with its tax problems or tax planning.

Tax-related Tips and Tricks for Taxpayers

The most important tax suggestion is to do this if you own a company and you anticipate that you might have overpaid taxes during a taxation year it is essential to ensure that your company's tax return is filed as early as you can to avoid getting tax credits held in a year that is statute-barred. However, if you discover that your business is able to claim tax credits during an unconstitutional year, contact one of our Canadian tax lawyers and you may be able to use these tax credits to pay off your current or anticipated tax liabilities through the application of s.221.2.

Disclaimer:

"This article contains information of a general nature. It is current only as of the date of publication. It has not been updated and could not be in use. It is not legal advice and cannot or should be relied on. Each tax scenarios are unique to its particular circumstances and could differ from the scenarios in the article. If you have any specific legal issues, you must consult an attorney."