Canadian Tax Adviser
January 3, 2012

Statute-Barred Dividend Refunds Cannot Be Recovered

Candace Sears
Fredericton, East

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.

Legislative background
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 provision. 

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.

Facts in CRA's TI
The 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.

Issue
At issue is whether section 221.2 could be applied to transfer an otherwise statute-barred refund. 

CRA comments
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.

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