6 September 2006 Internal T.I. 2006-0202361I7 - Refund

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether a refund may be issued where the return is filed within the 10 year limitation in paragraph 164(1.5)(a), the normal reassessment period has not expired, but the request for reassessment is made beyond the 10 year limitation.

Position: Yes

Reasons: The normal reassessment period has not expired and return was filed in accordance with paragraph 164(1.5)(a).

							September 6, 2006

	Julie Scopel				HEADQUARTERS
	Problem Resolution Program		Income Tax Rulings
	Taxpayer Services	  			Directorate
	London TSO					Catherine Bowen
(613) 957-8284

							2006-020236

Subsection 164(1.5)

We are writing in response to your email of August 23, 2006 wherein you requested our interpretation concerning the application of subsection 164(1.5) of the Income Tax Act (the "Act") to the following situation:

• The individual taxpayer filed his 1995 tax return just before December 31, 2005, i.e. barely within the 10-year limit under paragraph 164(1.5)(a) of the Act.
• The initial assessment of the taxpayer's return was issued in early 2006 and resulted in tax payable.
• The taxpayer has now established that the income as filed was over reported and has requested a subsequent adjustment to reduce the 1995 income as reported which will create a refund to offset the tax payable.
• This request has been denied under the fairness provisions, as the adjustment request was not made within the 10-year time limit.

You have requested our interpretation of whether the 10-year limit in subsection 164(1.5) of the Act would preclude the CRA from issuing a refund in this situation. You have noted that under subsection 152(4) of the Act, the CRA may generally make a reassessment within 3 years from the day of mailing of the original notice of assessment, which would be in early 2009.

Our Comments

Subsection 164(1) of the Act generally requires the CRA to issue a refund where an overpayment arises and the taxpayer's return has been made within 3 years from the end of the taxation year to which it relates. However, in spite of this general limitation, paragraph 164(1.5)(a) of the Act allows the CRA to issue a refund where an individual's return for a taxation year has been filed within 10 calendar years of the particular year-end. In addition, paragraph 164(1.5)(b) of the Act permits the CRA to issue a refund where the individual has requested a reassessment under subsection 152(4.2) of the Act, which also requires that this request be made within 10 calendar years of the particular year-end.

Subsection 152(4) of the Act generally allows the CRA to re-assess for any reason within the taxpayer's normal reassessment period (which for an individual is defined in subsection 152(3.1) of the Act to be within 3 years of the original assessment). Furthermore, subsection 152(4.2) of the Act allows the CRA to reassess at any time after the individual's normal reassessment period provided that the individual makes the request within 10 calendar years from the end of that taxation year.

In the situation that you have described, the normal reassessment period for the individual's 1995 tax return has not expired such that the 10 year limitation found in subsection 152(4.1) of the Act is not an issue. Consequently, we believe that since the individual's 1995 return was filed within the 10-year period provided under paragraph 164(1.5)(a) of the Act, the CRA would not be precluded from reassessing the taxpayer's 1995 return and issuing the refund.

In considering your request, we have also communicated with representatives of the Individual Returns Payment and Processing Directorate at Headquarters, who have indicated their agreement with our interpretation.

We trust that these comments will be of assistance.

for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch