2014-0556211E5 Subsection 222(4) Collection limitation period

Principal Issues: In the case of a voluntary disclosure made more than ten years after the taxation year to which the disclosure relates, whether the limitation period under subsection 222(4) begins at the time income is earned, where no assessment has been issued for the particular taxation year.

Position: No.

Reasons: The collection limitation period provided by subsection 222(4) is with respect to a “tax debt” payable by the taxpayer. Although without an assessment a taxpayer may be liable for tax according to subsection 152(3) of the Act, a tax liability only becomes payable when the tax payable is fixed with a notice of assessment according to the definition of tax payable provided by subsection 248(2). Where no assessment has been made, the tax is not yet tax payable and is not a “tax debt” subject to the limitation period provided by subsection 222(4). Therefore, the collection limitation period cannot begin to run without a notice of assessment.

Author: Godson, Gillian
Section: 152(3.1), 152(4), 220(3.1), 222(3), 222(4)

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                                                                                                                                                           2014-055621
                                                                                                                                                           G. Godson
April 23, 2015

Dear Sir or Madam:

Re:  Collection Limitation Period

We are writing in reply to your email of November 13, 2014 requesting our comments regarding the collection limitation period provided by section 222 of the Income Tax Act (the “Act”).

In your inquiry you have made reference to a voluntary disclosure of unreported income earned in a taxation year that is more than ten years prior to the date of the voluntary disclosure. You have requested our views on whether in these circumstances, subsection 222(3) of the Act would restrict the Minister from imposing tax, interest and penalties for the taxation years prior to the ten-year collection limitation period provided in subsection 222(4).

In particular, you would like our comments on the view that, where an assessment has not been made for a particular taxation year, the ten-year collection limitation period begins from the time the income giving rise to the tax is earned. This view is based on the application of subsection 152(3) of the Act, which states that a taxpayer is liable for tax, even where no assessment has been made. If this view is correct, for taxation years that have not been assessed, the taxpayer would not have to report the income earned for the period that is more than ten years prior to the voluntary disclosure date since the Minister would not be able to enforce the collection of any resulting tax. 

Our Comments

This technical interpretation provides general comments about the provisions of the Act. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R6, Advance Income Tax Rulings and Technical Interpretations.

In general, subsection 222(3) of the Act imposes a limitation period after which the Minister may not take action to collect a tax debt. The rules with respect to when the collection limitation period begins and when it ends are set out in subsection 222(4).  Paragraph 222(4)(a) outlines the events that may begin the collection limitation period. Paragraph 222(4)(b) provides that the limitation period ends ten years after the day on which it was determined to begin. The limitation period can be restarted pursuant to subsections 222(5) and extended pursuant to subsection 222(8).

According to subparagraph 222(4)(a)(i) of the Act, the collection limitation period begins when a notice of assessment, or a notice referred to in subsection 226(1), in respect of the tax debt is sent to or served on the taxpayer, after March 3, 2004. Where this is the case, the limitation period commences on the day that is 90 days after the day on which the last one of those notices is sent or served. Accordingly, a notice of assessment is required by subparagraph 222(4)(a)(i) to begin the ten-year collection limitation period. In a situation where no notice of assessment has been made, it is our view the collection limitation period cannot begin under subparagraph 222(4)(a)(i).

If the requirements of subparagraph 222(4)(a)(i) of the Act do not apply, subparagraph 222(4)(a)(ii) provides that for a tax debt that was payable on March 4, 2004, or would have been payable on that date but for a limitation period that otherwise applied to the collection of the tax debt, the ten-year collection limitation period begins on March 4, 2004. Therefore, tax debts that were payable prior to that date, remained collectible until at least March 4, 2014.

The commencement of the collection limitation period provided by paragraph 222(4)(a) requires the existence of a “tax debt”. A “tax debt” is defined in subsection 222(1) as “any amount payable by a taxpayer under this Act”. The term “amount payable” is not defined in the Act. However, subsection 248(2) of the Act provides that “tax payable” by a taxpayer under any Part of this Act by or under which provision is made for the assessment of tax means the tax payable by the taxpayer as fixed by assessment or reassessment subject to variation on objection or on appeal, if any, in accordance with the provisions of that Part. Accordingly, it is our view that the “tax payable” by the taxpayer, as fixed by an assessment or reassessment, is included in the meaning of an amount payable under the Act, and a “tax debt” as defined by subsection 222(1). In that regard, it is necessary that an assessment fix the amount of the tax liability in order that the amount be “tax payable” according to subsection 248(2), and also to meet the definition of a “tax debt”.

Furthermore, subsection 222(2) of the Act provides that a “tax debt” is a debt due to Her Majesty and is recoverable as such in the Federal Court or any other court of competent jurisdiction. On the basis of the foregoing, if no assessment has been issued to fix the amount of the tax payable, the Minister does not have a tax debt that can be enforced and, consequently, nor does the tax debt exists. If no tax debt exists, the collection period cannot begin.

In your inquiry you referred to subsection 152(3) of the Act, which provides that the liability for tax under Part I of the Act is not affected by an incorrect or incomplete assessment or the fact that no assessment was made. In our view, although the taxpayer may be liable for tax according to subsection 152(3) of the Act, a tax liability only becomes payable when the tax payable is fixed with a notice of assessment. Therefore, as stated above, the collection limitation period cannot begin to run without a notice of assessment. Furthermore, where an assessment has not been made for a particular taxation year, the collection limitation period cannot begin at the time the income giving rise to the tax is earned.

The distinction with respect to the commencement of the ten-year collection limitation period was confirmed by the Supreme Court of Canada in Markevich v. Canada, 2003 SCC 9. In Markevich the Court found that the collection limitation period begins to run as of the time the tax debt comes into existence and the expiry of the 90-day period after the notice of assessment is sent. Furthermore, the Federal Court of Appeal, in both MacKinnon v. The Queen, 2003 FCA 158 and Ross v. Queen, 2002 FCA 359, concluded that it can no longer be argued that the applicable limitation period for the collection of taxes and related interests and penalties begins to run when the income is earned.

Therefore, it is our view that where there is no assessment of taxes payable for a particular taxation year, the ten-year collection limitation period has not yet begun. With respect to the issue in your inquiry, the collection limitation provisions do not apply to a valid voluntary disclosure for a taxation year which is more than ten years old and for which no assessment has been issued prior to the disclosure. In that circumstance, the Minister may issue an assessment and is not restricted by subsection 222(4) of the Act from the collection of the tax debt.

We trust these comments will be of assistance.

Yours truly,

Terry Young, CPA, CA
Manager, Administrative Law Section
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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