Canadian Tax Adviser
January 3, 2012
Statute-Barred Dividend Refunds Cannot Be Recovered
In an internal technical interpretation, the CRA confirms that dividend
refunds and refundable tax credits arising in a statute-barred year cannot
be re-appropriated for use against other tax debts. While the CRA has
previously stated that certain refundable tax amounts owing from
statute-barred years may be re-appropriated against other debts (e.g., EI
and CPP premiums owing) under section 221.2, the
CRA's view is that statute-barred dividend refunds cannot be
re-appropriated as they do not represent an amount that was paid on
account of a tax debt.
To obtain a dividend refund for a taxation year, a
corporation must make a return of its income within three years after the
end of that year. Where a dividend refund is statute-barred, it cannot be
applied to another tax liability.
An amount cannot be re-appropriated under section 221.2 unless it previously
was appropriated to another tax debt.
The CRA has the discretion to accept the transfer of payments from
one tax account to another, and from one year to another under this
The CRA will not generally refund tax where the taxpayer’s return
of income for a taxation year has not been made within three years from the
end of the year.
CRA's TIThe taxpayer filed a corporate tax return more than three years after
the filing deadline for a taxation year that created a dividend refund.
The taxpayer asked the CRA to confirm whether the dividend refund, which
could not be refunded, could instead be re-appropriated against tax debts
arising in other years.
At issue is whether section 221.2 could be applied to transfer an
otherwise statute-barred refund.
The CRA noted that section 221.2 is limited to the
re-appropriation of "payments", and does not extend to dividend refunds or the
reallocation of credits. A statute-barred dividend refund is not an
amount that is paid on account of a tax debt.
Therefore, this refund cannot be appropriated for use against another
tax debt under section 221.2.
Similarly, the CRA said that this section does not apply to reallocate
refundable tax credits.
For more information, contact your KPMG adviser.