{"id":289,"date":"2012-12-10T16:17:07","date_gmt":"2012-12-10T16:17:07","guid":{"rendered":"https:\/\/thor.ca\/\/blog\/?p=289"},"modified":"2025-02-12T13:29:34","modified_gmt":"2025-02-12T21:29:34","slug":"cra-confirms-legitimate-confiscation-of-dividend-refund-where-tax-return-not-filed-in-time","status":"publish","type":"post","link":"https:\/\/www.thor.ca\/blog\/2012\/12\/cra-confirms-legitimate-confiscation-of-dividend-refund-where-tax-return-not-filed-in-time\/","title":{"rendered":"CRA confirms legitimate \u201cconfiscation\u201d of dividend refund where tax return not filed in time"},"content":{"rendered":"<p>In <a href=\"http:\/\/thor.ca\/blog\/wp-content\/uploads\/2012\/12\/2012-0436181E5.pdf\">2012-0436181E5<\/a>, the Canada Revenue Agency (CRA) disagreed with the Tax Court decision in <em>Tawa Developments Inc. v The Queen<\/em> 2011 DTC 1324, and said the Crown may legally confiscate a dividend refund under s. 129 if the taxpayer corporation does not file its tax return within the required three year period. \u00a0The issue is somewhat complicated, but here are the essential points.<\/p>\n<ul>\n<li>In broad terms, under s. 129 a Canadian-controlled private corporation (payer corporation) becomes entitled to a \u201cdividend refund\u201d for a particular year if it previously earned certain investment income, paid the applicable tax in relation to that investment income (generating a \u201crefundable tax account\u201d), and subsequently paid taxable dividends to its shareholder(s) in the particular year.\u00a0 The dividend refund amount then reduces the payer corporation\u2019s refundable tax account going forward.\u00a0 Further, under s. 186, a \u201cconnected\u201d corporate shareholder (receiving corporation) is generally taxable on the dividends it receives from the payer corporation, with the tax being equal to the dividend refund to the payer corporation.<\/li>\n<\/ul>\n<ul>\n<li>In disagreeing with the Tax Court in <em>Tawa Developments Inc.<\/em>, the CRA said that if the tax return of the payer corporation is <em>not<\/em> filed within the required three year period, the payer corporation can <em>never<\/em> obtain its dividend refund \u2013 because <em>both<\/em> the legal entitlement to the dividend refund <em>and<\/em> its related refundable tax account are wiped out going forward.\u00a0 In the CRA\u2019s view, the payer corporation\u2019s refund (in these circumstances) has essentially been confiscated by the Crown.\u00a0 Further, and to add insult to injury, the CRA also believes the <em>receiving<\/em> corporation must <em>still<\/em> pay its tax under s. 186 on the dividend received from the payer corporation.\u00a0 The CRA\u2019s view is based on a <em>notional<\/em> (defined) dividend refund amount in s. 129 for the year of the dividend, as it pertains to s. 186.\u00a0 The CRA considers this to be the correct technical reading of s. 129 and s. 186, notwithstanding that the actual refund and the refundable tax account for the <em>payer<\/em> corporation are, in the CRA\u2019s view, completely eliminated going forward.<\/li>\n<\/ul>\n<ul>\n<li>The CRA\u2019s technical position is unfortunate and can produce harsh results.\u00a0 The actual transaction considered in 2012-0436181E5 involved a spin-off (butterfly) transaction with large inter-corporate dividends that engaged the dividend rules in s. 129 and s. 186.\u00a0 Tax returns claiming the applicable dividend refunds under s. 129 were not filed within the required three year period.\u00a0 The CRA confirmed its technical view that legitimate confiscation (double tax) arose in the circumstances, as just described.\u00a0 It will be interesting to see if the CRA\u2019s position is sustained by the courts in the coming years.<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>In <a href=\"http:\/\/thor.ca\/blog\/wp-content\/uploads\/2012\/12\/2012-0436181E5.pdf\">2012-0436181E5<\/a>, the Canada Revenue Agency (CRA) disagreed with the Tax Court decision in <em>Tawa Developments Inc. v The Queen<\/em> 2011 DTC 1324, and said the Crown may legally confiscate a dividend refund under s. 129 if the taxpayer&hellip;<\/p>\n","protected":false},"author":11,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9],"tags":[],"class_list":["post-289","post","type-post","status-publish","format-standard","hentry","category-corporate-tax"],"_links":{"self":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts\/289","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/users\/11"}],"replies":[{"embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/comments?post=289"}],"version-history":[{"count":1,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts\/289\/revisions"}],"predecessor-version":[{"id":2830,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts\/289\/revisions\/2830"}],"wp:attachment":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/media?parent=289"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/categories?post=289"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/tags?post=289"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}