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Income tax — refunds where returns filed late

My client was a large corporate group. One company in the group had been purchased from a U.S. company in 1994. Due to wrong interim information subsequently received from the U.S. vendor, the company overpaid its instalments for 1994 by many hundreds of thousands of dollars.

Because of delays in getting information from the U.S. vendor and complications in understanding the company's accounting system, my client did not file this company's corporate income tax returns for 1994 until early 1998.

The Income Tax Act provides for a refund to be paid only where the return is filed within three years of the year-end. The returns had been filed too late, and Revenue Canada refused to pay my client its refund.

I found a solution. An obscure section of the Income Tax Act allows instalment balances to be transferred from one year to another. I was familiar with this section because I have written annotations and commentary to the entire Act. I was able to convince Revenue Canada officials that it would be fair to transfer the overpaid instalments to a later taxation year, from which they could be refunded.

As this idea had never been considered before, the matter had to be sent to Ottawa for review at headquarters. Eventually the officials agreed with my proposal, and after almost two years, my client received a cheque for over $500,000, including refund interest.

Even so, not all of the possible refund had been obtained. The company claimed additional refund caused by loss carrybacks, and Revenue Canada had refused to process this amount. I persevered with further submissions on the technical basis by which the request for carryback should be processed. After another year, the company received a further refund cheque for over $340,000.

Money from nowhere!

(1998)