2022-0941391I7 (Re)determination of section 125.7 applications

Principal Issues: 1. Whether there is a time limit within which the Minister is required to make an initial determination under subsection 152(3.4) of an amount deemed by subsection 125.7(2), (2.1), or (2.2) to be an overpayment of Part I tax? 2. Whether section 125.7 can be interpreted such that: a. an eligible entity is not precluded from being a “qualifying entity” if it files separate section 125.7 applications on a payroll account-by-payroll account basis (RP-account basis) that aggregate to an overall deemed overpayment for a qualifying period; and if so b. whether upward and downward adjustments may be made between such payroll account (RP account) applications provided that the overall deemed overpayment for the qualifying period is not adjusted above the total amount of benefit claimed by the eligible entity for the qualifying period? 3. Whether there is an issue with respect to the validity of the Notices of Determination (NOD) previously issued under subsection 152(3.4) on an RP-account basis? 4. Whether a redetermination made under subsection 152(3.4) of an amount deemed by subsection 125.7(2), (2.1), or (2.2) to be an overpayment of Part I tax is subject to a “normal redetermination period” described in subsection 152(3.1), modified as the circumstances require? 5. The impact of subsection 125.7(16) on: a. the deadline for a taxpayer to file a section 125.7 application; b. the Minister’s ability to redetermine amounts upon receiving a request to amend a section 125.7 application; and c. the deadline to amend or revoke an election made under section 125.7. 6. Confirmation of the recourse available to a taxpayer if they disagree with the Minister’s decision to deny a subsection 125.7(16) request to extend the deadline to file a section 125.7 application. 7. Whether subsections 160.1(1) and (3) apply to an excess CEWS, CERS, or CRHP refund made under subsection 164(1.6)?

Position: 1. No. 2a. Yes. 2b. Yes. 3. No. 4. Yes. 5a. It extends the deadline to file a section 125.7 application. 5b. It has no impact on requesting an amendment to a section 125.7 application. 5c. It has no impact on requesting an amendment or revocation of an election made under section 125.7. 6. Judicial review is the proper recourse. 7. Yes.

Reasons: 1. Although an initial 152(3.4) determination is dependant on a taxpayer’s submission of a section 125.7 application, in our view, the use of the words “at any time” means that an initial determination of the taxpayer’s deemed overpayment for a qualifying period under subsection 152(3.4) is not dependant upon the filing of a return of income or the assessing of any Part I tax payable for the relevant taxation year. There is no specific deadline in the Act to make this initial determination. 2a. In our view, an eligible entity that files separate section 125.7 applications on a RP-account basis that aggregate to an overall deemed overpayment for a qualifying period, rather than one single wage subsidy application for the qualifying period, should be considered to have made an application for the qualifying period in the prescribed form and manner as required by paragraph (a) of the definition “qualifying entity”. In addition, in our view, it is appropriate to interpret the reference to an application in paragraph (a) of the definition “qualifying entity” as referring to the total of the wage subsidy applications by RP account filed by the eligible entity for the qualifying period. 2b. Any offsetting of upward or downward adjustments between various RP accounts through redeterminations would be appropriate in certain circumstances, provided that the overall deemed overpayment does not exceed the amount claimed in the applications filed within the deadline for the qualifying period. 3. It is our view that where the determination of an eligible entity’s wage subsidy claim for a CEWS benefit, computed using all of its eligible employees and eligible remuneration (and other required criteria specified in section 125.7), can be reconciled with each wage subsidy application, the NOD issued for each RP account should be considered to be valid under subsection 152(8). 4. In our view, using a modified version of subsection 152(3.1), the “normal redetermination period” (within which a redetermination may be issued under subsection 152(3.4) with respect to a qualifying period) would end three (or four) years after the earlier of the date of sending the original notice under subsection 152(3.4) stating the amount deemed to be an overpayment on account of the taxpayer’s Part I tax liability that arose during the qualifying period, or stating that no such overpayment exists. In addition, the Minister may make a subsection 152(3.4) redetermination of a deemed overpayment under subsection 125.7(2), (2.1), or (2.2) for a qualifying period, or notify a taxpayer that no such overpayment exists, after the taxpayer’s “normal redetermination period” for the qualifying period only to the extent that it is allowed for by subsection 152(4), (4.01), (4.2), (4.3), (5), or (9), modified as the circumstances require. 5a. If an eligible entity has already filed a section 125.7 application for a qualifying period within its specified deadline, that eligible entity would not need an extension of the time to file that application under subsection 125.7(16). Where an eligible entity has not filed a section 125.7 application for a qualifying period within its specified deadline, subsection 125.7(16) provides the Minister with the discretionary authority to extend that deadline when determining if the eligible entity to has met the definition “qualifying entity”, “qualifying renter”, or “qualifying recovery entity”, as the case may be. Such an extension would allow the eligible entity to file an application for a qualifying period (taking into consideration any section 125.7 elections in respect of that qualifying period) to receive a refund of the amount deemed to be an overpayment of Part I tax under subsection 125.7(2), (2.1), or (2.2), respectively. 5b. Any redetermination under subsection 152(3.4) is made at the discretion of the Minister and would have to consider the restrictions of subsections 152(3.1) and (4), modified as the circumstances require. This would include the consideration of a “normal redetermination period.” Subsection 125.7(16) makes no reference to, and has no impact on, a taxpayer’s “normal redetermination period” for a qualifying period. 5c. In our view, subsection 125.7(16) applies to initially filed applications; it does not apply to requests to amend applications. As such, in our view, subsection 125.7(16) does not provide the Minister with the discretion to allow an eligible entity to amend or revoke a previously made election under section 125.7. 6. As with other discretionary decisions, the taxpayer ultimately apply for judicial review of that decision to the Federal Court within 30 days of the date of receipt of the CRA decision. 7. If an excess refund of a subsection 125.7(2), (2.1), or (2.2) deemed overpayment for a qualifying period is provided to a taxpayer under subsection 164(1.6), that excess may be determined and assessed at any time under subsections 160.1(1) and (3), respectively.

Author: Clarkson, Julia
Section: 125.7(2), (2.1), (2.2), (10) and (16), 152(3.4), 160.1(1) and (3)

                                                                         April 26, 2023

Technical Support and Policy Section             HEADQUARTERS
Domestic Tax Division, ILBD, CPB                 Income Tax Rulings Directorate
                                                                         Julia Clarkson

Attention: Kerri Hanley    
                                                                         2022-094139,
                                                                         2022-092846,
                                                                         2022‑093790

Application for, and (re)determination of, COVID-19 benefits under subsections 125.7(2), (2.1), and (2.2)

All statutory references in this document are to the Income Tax Act, R.S.C. 1985, (5th Suppl.) c.1, as amended (the Act), unless stated otherwise.

We are writing in reply to your emails of February 17, 2022, June 24, 2022, and related correspondence in which you request our views regarding how certain provisions of the Act would apply to COVID-19 benefits provided to an entity as a Canada Emergency Wage Subsidy (CEWS), Canada Emergency Rent Subsidy (CERS), or Canada Recovery Hiring Program (CRHP) subsidy. For simplicity, the remainder of this Memorandum will refer to an application for an amount to be deemed to be an overpayment of Part I tax under subsection 125.7(2) (the CEWS), (2.1) (the CERS), or (2.2) (the CRHP) as a section 125.7 application.

More specifically, as we understand it, you have requested our guidance on the following matters:

1. Whether there is a time limit within which the Minister is required to make an initial determination under subsection 152(3.4) of an amount deemed by subsection 125.7(2), (2.1), or (2.2) to be an overpayment of Part I tax?

2. Whether section 125.7 can be interpreted such that:

a. an eligible entity is not precluded from being a “qualifying entity” if it files separate section 125.7 applications on a payroll account-by-payroll account basis (RP-account basis) that aggregate to an overall deemed overpayment for a qualifying period; and if so

b. whether upward and downward adjustments may be made between such payroll account (RP account) applications provided that the overall deemed overpayment for the qualifying period is not adjusted above the total amount of benefit claimed by the eligible entity for the qualifying period?

3. Whether there is an issue with respect to the validity of the Notices of Determination (NOD) previously issued under subsection 152(3.4) on an RP-account basis?

4. Whether a redetermination made under subsection 152(3.4) of an amount deemed by subsection 125.7(2), (2.1), or (2.2) to be an overpayment of Part I tax is subject to a “normal redetermination period” described in subsection 152(3.1), modified as the circumstances require?

5. The impact of subsection 125.7(16) on:

a. the deadline for a taxpayer to file a section 125.7 application;

b. the Minister’s ability to redetermine amounts upon receiving a request to amend a section 125.7 application; and

c. the deadline to amend or revoke an election made under section 125.7.

6. Confirmation of the recourse available to a taxpayer if they disagree with the Minister’s decision to deny a subsection 125.7(16) request to extend the deadline to file a section 125.7 application.

7. Whether subsections 160.1(1) and (3) apply to an excess CEWS, CERS, or CRHP refund made under subsection 164(1.6)?

Our comments

We note that the following terms referred to within this document are defined in subsection 125.7(1):

* “eligible entity”

* “qualifying entity”

* “qualifying recovery entity”

* “qualifying renter”

* “qualifying period”

1. Initial determination time period

In order to have an amount deemed by subsection 125.7(2), (2.1), or (2.2) to be an overpayment on account of a taxpayer’s liability under Part I of the Act that arose during a qualifying period, the taxpayer must be an eligible entity and also must meet the conditions of the definition “qualifying entity”, “qualifying renter”, or “qualifying recovery entity”, as the case may be. In order to meet the conditions of the definition of any of these three types of entities, the eligible entity must, among other things, submit a section 125.7 application within the deadline specified in paragraph (a) of the definition. Subject to a few exceptions, the specified deadline for submitting a section 125.7 application is 180 days after the end of the qualifying period.

The Minister is authorized to issue a determination under subsection 152(3.4) to a qualifying entity, qualifying renter, or qualifying recovery entity that submitted a section 125.7 application and met the other conditions of the definition of the particular entity. Subsection 152(3.4) states:

“The Minister may at any time determine the amount deemed by any of subsections 125.7(2) to (2.2) to be an overpayment on account of a taxpayer’s liability under this Part that arose during a qualifying period (as defined in subsection 125.7(1)), or determine that there is no such amount, and send a notice of the determination to the taxpayer.”

Although an initial 152(3.4) determination is dependant on a taxpayer’s submission of a section 125.7 application, in our view, the use of the words “at any time” means that an initial determination of the taxpayer’s deemed overpayment for a qualifying period under subsection 152(3.4) is not dependant upon the filing of a return of income or the assessing of any Part I tax payable for the relevant taxation year.

There is no specific deadline in the Act to make this initial determination. The lack of the wording “with all due dispatch”, in our view, further indicates that the Minister has no specific timeline within which to make an initial subsection 152(3.4) determination.

2. Determinations by RP account

We understand that the processing of an application for the CEWS or CRHP benefit (being the determination of the benefit provided by subsection 152(3.4)) is performed at the RP account level, similar to a payroll remittance audit. The instructions provided by the CRA both

on the application and the CRA website also indicate that a separate application must be filed for each RP account. This could result in an eligible entity having more than one such application submitted for the same qualifying period.

For simplicity, reference in this Memorandum to a wage subsidy application is intended to mean an application for an amount to be deemed to be an overpayment of Part I tax under subsection 125.7(2) or (2.2) for a single RP account. In addition, reference in this Memorandum to a wage subsidy claim will be intended to mean the total of all amounts sought to be deemed by subsection 125.7(2) or (2.2) to be an overpayment of Part I tax resulting from each wage subsidy application submitted by the entity for a qualifying period. For clarity, our comments below with respect to wage subsidy applications under subsection 125.7(2) (the CEWS) and wage subsidy claims for CEWS benefits apply equally to wage subsidy applications for an amount to be deemed to be an overpayment of Part I tax under subsection 125.7(2.2) (the CRHP) and wage subsidy claims for CRHP benefits.

a. Applications by RP account for the same qualifying period

A CEWS deemed overpayment of Part I tax is determined under subsection 125.7(2) and restricted under subsection 125.7(5). In general terms, the deemed overpayment is calculated for a qualifying entity for a qualifying period based on the total of various amounts related to that qualifying period. For example, a qualifying entity’s wage subsidy claim for a CEWS benefit is calculated using a formula that includes the total amount of eligible remuneration for each eligible employee for the qualifying period. The legislation in subsection 125.7(2) is relevant for a qualifying entity, which is required under paragraph (a) of that definition in subsection 125.7(1) to have filed a wage subsidy claim “with the Minister in respect of the qualifying period in prescribed form and manner” within the required period.

The legislation does not require more than one wage subsidy application to be filed by an eligible entity to make a claim for a CEWS benefit for a qualifying period. This is reasonable, given that the calculation of the deemed overpayment is based on the entity’s total amounts for the qualifying period. That being said, if the Minister, or the CRA on behalf of the Minister, requires an eligible entity to complete their claim for a CEWS benefit through separate wage subsidy applications, in our view, this would meet paragraph (a) of the definition “prescribed” in subsection 248(1):

“prescribed means

(a) in the case of a form, the information to be given on a form or the manner of filing a form, authorized by the Minister,…”

In addition, subsection 244(16) states:

“Every form purporting to be a form prescribed or authorized by the Minister shall be deemed to be a form authorized under this Act by the Minister unless called in question by the Minister or by a person acting for the Minister...”

As noted in technical interpretation 2014-0547641E5, this legislation supports the interpretation that any form authorized by the Minister is considered a prescribed form. In other words, all CRA forms are prescribed forms.

Therefore, in our view, an eligible entity that files separate section 125.7 applications on a RP-account basis that aggregate to an overall deemed overpayment for a qualifying period, rather than one single wage subsidy application for the qualifying period, should be considered to have made an application for the qualifying period in the prescribed form and manner as required by paragraph (a) of the definition “qualifying entity”.

In addition, in our view, it is appropriate to interpret the reference to an application in paragraph (a) of the definition “qualifying entity” as referring to the total of the wage subsidy applications by RP account filed by the eligible entity for the qualifying period. An eligible entity’s wage subsidy claim for a CEWS benefit (being the total of its wage subsidy applications for the qualifying period) should encompass all of its eligible employees, regardless of which RP account contains their eligible remuneration.

b. Upward and downward adjustments between RP accounts

It is our understanding that the CRA will consider upward or downward adjustments between wage subsidy applications for the same qualifying period. Any offsetting of upward or downward adjustments between various RP accounts through redeterminations would be appropriate, in our view, under the following circumstances:

- the criteria required by the CRA’s current practice are met;

- the CRA’s determination of the CEWS deemed overpayment of Part I tax for the qualifying period considers the eligible remuneration from all RP accounts of a qualifying entity for that qualifying period; and

- the redeterminations are issued within the eligible entity’s “normal redetermination period”. (for a discussion of the “normal redetermination period” please see section 4 below).

We do note however, that the CRA’s current practice of restricting any such upward or downward adjustments to not allow an overall upward adjustment to the qualifying entity’s wage subsidy claim for a CEWS benefit for the qualifying period is consistent with paragraph 125.7(5)(a), which provides the limitation that the deemed overpayment cannot exceed the amount claimed in the wage subsidy claim filed within the deadline for the qualifying period. (endnote 1) As a result, a wage subsidy claim for a CEWS benefit could not be redetermined to be more than the total of all amounts sought to be deemed by subsection 125.7(2) to be an overpayment of Part I tax as reflected on each wage subsidy application submitted by the entity for the qualifying period within the deadline for the qualifying period.

Discussions of the reference to “the application” in paragraph 125.7(5)(a) and our view that subsection 125.7(16) has no impact on the paragraph 125.7(5)(a) limitation against overall upward adjustments can be found in section 5 below.

3. Validity of Notice of Determinations by RP account

It is our view that the determination under subsection 152(3.4) is required to be made based on the total of various amounts related to that qualifying period (such as the total amount of eligible remuneration for each eligible employee for the qualifying period). It is not to be based on the separate RP accounts of a taxpayer that has more than one RP account.

Nevertheless, where a taxpayer has made wage subsidy applications for one qualifying period for each of its RP accounts and a NOD is issued for each of those applications, we consider subsection 152(8) (endnote 2) to apply such that the NODs issued by RP account would be valid and binding. Therefore, it is our view that where the determination of an eligible entity’s wage subsidy claim for a CEWS benefit, computed using all of its eligible employees and eligible remuneration (and other required criteria specified in section 125.7), can be reconciled with each wage subsidy application, the NOD issued for each RP account should be considered to be valid.

4. Subsection 152(3.4) “normal redetermination period”

With respect to redeterminations under subsection 152(3.4), we note that subsection 152(1.2) applies to modify, as the circumstances require, the provisions of Divisions I and J when considering determinations and redeterminations made under Division I, which includes subsection 152(3.4). Subsections 152(3.1) and (4) are within Division I and, therefore, modified versions thereof should be applied to subsection 152(3.4) determinations and redeterminations. This conclusion is supported by comments of the Federal Court of Appeal in paragraph 8 of the Iris Technologies (endnote 3) decision, which states:

“[8] Importantly, for the purposes of the adjudication of the issues in this appeal, subsection 152(1.2) renders the recourse and appeal provisions of Divisions I and J of the ITA applicable to disputes with respect to the CEWS. As with notices of assessments, notices of determination are deemed to be correct unless varied or set aside following objection or appeal (s. 152(8)). Unlike appeals in respect of income tax, however, notices of determination may be challenged immediately, without waiting for the filing of the annual return and assessment (ss. 152(3), (4)).”

As such, any redetermination made under subsection 152(3.4) would have to consider the restrictions of subsection 152(4), modified as the circumstances require. This would include the consideration of a “normal redetermination period”.

In our view, using a modified version of subsection 152(3.1), the “normal redetermination period” (within which a redetermination may be issued under subsection 152(3.4) with respect to a qualifying period) would end three (or four) years after the earlier of the date of sending the original notice under subsection 152(3.4) stating the amount deemed to be an overpayment on account of the taxpayer’s Part I tax liability that arose during the qualifying period, or stating that no such overpayment exists.

It should be noted that where no original subsection 152(3.4) notice has been sent, it is our view that the “normal redetermination period” for the relevant qualifying period would not have begun.

In addition, the Minister may make a subsection 152(3.4) redetermination of a deemed overpayment under subsection 125.7(2), (2.1), or (2.2) for a qualifying period, or notify a taxpayer that no such overpayment exists, after the taxpayer’s “normal redetermination period” for the qualifying period only to the extent that it is allowed for by subsection 152(4), (4.01), (4.2), (4.3), (5), or (9), modified as the circumstances require. For example, a redetermination can be made beyond the “normal redetermination period” of a qualifying period if there has been a misrepresentation that is attributable to neglect, carelessness or wilful default.

5. Subsection 125.7(16) extensions

Subsection 125.7(16), included in Bill C-19 as tabled in Parliament on April 28, 2022, was enacted on June 23, 2022. The legislation states:

“For the purposes of determining whether an eligible entity is a qualifying entity, a qualifying recovery entity or a qualifying renter, the Minister may, at any time, extend the time for filing an application under this section.”

The Finance Consolidated Explanatory Notes for subsection 125.7(16) indicate that the purpose of subsection 125.7(16) is to provide the CRA with “the specific discretion to accept late filed subsidy applications on a case-by-case basis in exceptional circumstances, consistent with the more general existing fairness rules.” [emphasis added]

a. Late-filed section 125.7 applications

If an eligible entity has already filed a section 125.7 application for a qualifying period within its specified deadline, that eligible entity would not need an extension of the time to file that application under subsection 125.7(16).

Where an eligible entity has not filed a section 125.7 application for a qualifying period within its specified deadline, subsection 125.7(16) provides the Minister with the discretionary authority to extend that deadline when determining if the eligible entity to has met the definition “qualifying entity”, “qualifying renter”, or “qualifying recovery entity”, as the case may be. Such an extension would allow the eligible entity to file an application for a qualifying period (taking into consideration any section 125.7 elections in respect of that qualifying period) to receive a refund of the amount deemed to be an overpayment of Part I tax under subsection 125.7(2), (2.1), or (2.2), respectively.

We would like to emphasize, however, that although an eligible entity may make an election in a late-filed section 125.7 application for a qualifying period whose deadline has been extended by subsection 125.7(16), they may only do so if their particular circumstances allow for the election to be made. For example, some elections must be taken for all qualifying periods and some must be taken by all eligible entities within a group. Therefore, an eligible entity must consider all of their relevant facts and circumstances, as well as those of their group, when determining if an election is available to them when making a late-filed section 125.7 application.

We would also like to emphasize that subsection 125.7(16) provides the Minister with the discretionary authority to accept late-filed section 125.7 applications. It does not grant an eligible entity with the legislative ability to cause the Minister to accept a late-filed application. It also does not override the Minister’s discretion (as opposed to outright obligation) under subsection 152(3.4) to make a determination of the amount deemed to be an overpayment of Part I tax under subsection 125.7(2), (2.1), or (2.2). There may be circumstances under which the Minister may find it inappropriate to accept a late-filed section 125.7 application. As the parameters surrounding the exercising of the Minister’s discretion with respect to subsections 125.7(16) and 152(3.4) are not a matter of legislative interpretation, but rather are a matter of administration of the Act, we have no further comment on this specific topic.

b. Redeterminations based on requests to amend section 125.7 applications

Subsection 125.7(16) has no impact on the Minister’s ability to accept a taxpayer’s request to amend a section 125.7 application.

If the Minister has made a determination under subsection 152(3.4) of the amount deemed to be an overpayment on account of the taxpayer’s Part I tax liability that arose during the qualifying period and the taxpayer subsequently requests that their section 125.7 application for the qualifying period be amended, a redetermination under subsection 152(3.4) would be required in order for the amount of deemed overpayment to be changed.  

As previously noted in this Memorandum, any redetermination under subsection 152(3.4) is made at the discretion of the Minister and would have to consider the restrictions of subsections 152(3.1) and (4), modified as the circumstances require. This would include the consideration of a “normal redetermination period”, which would end three (or four) years after the earlier of the date of sending the original notice required under subsection 152(3.4) stating the amount deemed to be an overpayment on account of the taxpayer’s Part I tax liability that arose during the qualifying period, or stating that no such overpayment exists.

Subsection 125.7(16) (which allows the Minister to extend the time for filing a section 125.7 application) makes no reference to, and has no impact on, a taxpayer’s “normal redetermination period” for a qualifying period. As such, when receiving a taxpayer’s request to amend a section 125.7 application for a qualifying period, subsection 125.7(16) does not allow the Minister to extend the deadline to redetermine the amount deemed to be an overpayment on account of the taxpayer’s Part I tax liability that arose during the qualifying period beyond the taxpayer’s “normal redetermination period” for the qualifying period that, as noted above, is restricted by subsections 152(3.1) and (4). Similarly, subsection 125.7(16) does not allow the Minister to recognize audit adjustments by making a redetermination beyond the normal determination period.

However, if the CRA received a request to amend a section 125.7 application before its filing deadline, the Minister has discretion to redetermine the amount deemed to be an overpayment on account of the taxpayer’s Part I tax liability for the qualifying period and, consistent with our comments in section 2 above, such redetermination could not result in a deemed amount in excess of the amount claimed by the taxpayer in their amended application. As previously noted, paragraph 125.7(5)(a) provides for this limit on upward adjustments.

Section 125.7 was enacted as part of Canada’s swift action in support of Canadians who encountered hardships caused by the COVID-19 pandemic. Since it was enacted, the CRA, the Department of Finance, and various other stakeholders have gained experience in interpreting and applying its various provisions. For example, in order to give meaning and purpose to both paragraph 125.7(5)(a) (the limitation against overall upward adjustments) and subsection 125.7(10) (a permission discussed below for amending and revoking elections before the date an application is due), it has been determined that the better view is that the reference to “the application” in paragraph 125.7(5)(a) can be administered as including an application as amended before the date the application is due. This better view, that the Minister may consider a request to amend an application before the filing deadline of the application and make an upward adjustment, considers the totality of circumstances surrounding the COVID-19 pandemic, reflects consultations with the Department of Finance, and is within the scope of the policy with respect to the legislation enacted to provide emergency support for Canadians who encountered hardship during the COVID-19 crisis.

c. Requests to amend or revoke elections under section 125.7

With respect to your question regarding a taxpayer’s request to amend or revoke an election under section 125.7, it is our understanding that the taxpayer would have already filed their section 125.7 application pertaining to that election. We have arrived at this understanding because section 125.7 applications are the form and manner in which taxpayers file their section 125.7 elections with the Minister. As such, a taxpayer’s request to amend or revoke an election under section 125.7 is, for all intents and purposes, the taxpayer’s request to amend a section 125.7 application. We have discussed above that subsection 125.7(16) has no impact on the Minister’s ability to accept a taxpayer’s request to amend a section 125.7 application. We also discussed above that subsection 152(3.4) provides the Minister with the discretion (within the time limits provided by subsections 152(3.1) and (4)) to consider a taxpayer’s request to amend a section 125.7 application. That being said, if such a taxpayer’s request is due to a taxpayer’s desire to amend or revoke an election under section 125.7, consideration must be given to subsection 125.7(10).

Subsection 125.7(10) allows an eligible entity to amend or revoke an election made under section 125.7 “on or before the date that the application is due for the first qualifying period in respect of which the election is made.” In our view, subsection 125.7(16) does not operate to extend the time limit provided in subsection 125.7(10) to amend or revoke an election. We are of this view, as discussed above, because subsection 125.7(16) applies to initially filed applications; it does not apply to requests to amend applications. As such, in our view, subsection 125.7(16) does not provide the Minister with the discretion to allow an eligible entity to amend or revoke a previously made election under section 125.7.

6. Available recourse

With respect to the recourse available where a subsection 125.7(16) request to extend the time to make a section 125.7 application is denied, we have the following comments. The Minister’s decision under subsection 125.7(16) to deny an extension to make an initial section 125.7 application (or said another way, the Minister’s decision to not accept a late-filed section 125.7 application) is a discretionary decision. As with other discretionary decisions, the taxpayer could ask the CRA for a second administrative review. Where, in the taxpayer’s view, the CRA did not properly exercise its discretion in arriving at the decision, the taxpayer may apply for judicial review of that decision to the Federal Court within 30 days of the date of receipt of the CRA decision.

7. Recovery under section 160.1 of an excess CEWS, CERS, or CRHP refund

Subsection 164(1.6) states:

“Notwithstanding subsection (2.01), at any time after the beginning of a taxation year of a taxpayer in which an overpayment is deemed to have arisen under subsection 125.7(2) to (2.2), the Minister may refund to the taxpayer all or any part of the overpayment.” [emphasis added]

Subsection 164(1.6) was enacted in order to allow COVID-19 benefits to be efficiently paid out to affected Canadians during the pandemic. It provides the Minister with the discretion to refund a CEWS, CERS, or CRHP deemed overpayment to a taxpayer even when certain returns have not yet been filed, as would otherwise be disallowed by subsection 164(2.01). Therefore, subsection 164(1.6) provides the Minister with the discretion to refund the amount of CEWS, CERS, and CRHP deemed overpayments to eligible taxpayers “at any time,” or as quickly as possible.

Subsection 160.1(1) states:

“Where at any time the Minister determines that an amount has been refunded to a taxpayer for a taxation year in excess of the amount to which the taxpayer was entitled as a refund under this Act, the following rules apply:

(a) the excess shall be deemed to be an amount that became payable by the taxpayer on the day on which the amount was refunded; and

(b) the taxpayer shall pay to the Receiver General interest at the prescribed rate on the excess (other than any portion thereof that can reasonably be considered to arise as a consequence of the operation of section 122.5 or 122.61) from the day it became payable to the date of payment.”

The ability to assess a liability under subsection 160.1(1) “at any time” is provided in subsection 160.1(3). Jurisprudence supports the interpretation that the Minister is able to assess excess refunds under subsections 160.1(1) and (3) at any time. (endnote 4)

Therefore, if an excess refund of a subsection 125.7(2), (2.1), or (2.2) deemed overpayment for a qualifying period is provided to a taxpayer under subsection 164(1.6), that excess may be determined and assessed at any time under subsections 160.1(1) and (3), respectively. Once made, a subsection 160.1(3) assessment would be subject to the provisions of Division I of the Act, with any modifications that the circumstances may require, as though it had been made under section 152. Such modifications would require, for example, that any reassessment of a subsection 160.1(1) excess refund be issued within the limitations of subsections 152(3.1) and (4).

We trust these comments will be of assistance.

Unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency’s electronic library. After a 90-day waiting period, a severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. You may request an extension of this 90-day period. The severing process removes all content that is not subject to disclosure, including information that could reveal the identity of a taxpayer. You may ask for a version that has been severed using the Privacy Act criteria, which does not remove taxpayer identity. You can request this by e-mailing us at: ITRACCESSG@cra-arc.gc.ca.

Yours truly,

Gillian Godson
Manager
Specialty Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

ENDNOTES

1 Paragraph 125.7(5)(a) states:

“the amount of any deemed overpayment by an eligible entity under any of subsections (2) to (2.2) in respect of a qualifying period cannot exceed the amount claimed by the eligible entity in the application referred to in paragraph (a) of the definition qualifying entity in subsection (1) — or paragraph (a) of the definition qualifying renter in subsection (1) or paragraph (a) of the definition qualifying recovery entity in subsection (1) — in respect of that qualifying period;…”

2 Modified as necessary pursuant to subsection 152(1.2).

3 AGC v Iris Technologies Inc. (2021 FCA 223).

4 See paragraphs 78 and 79 of The Queen v 984274 Alberta (2020 FCA 125):

“[78] In this respect, I agree with the Tax Court judge that subjecting the application of subsections 160.1(1) and 160.1(3) to the issuance of a prior reassessment constrained by a time limit would run against the plain language of these provisions which empower the Minister to determine that an excessive refund has been made and to recover it "at any time" by way of an assessment. Here, this determination necessarily flowed from the fact that the respondent generated a taxable capital gain totaling $3, 952, 238 in circumstances where the tax paid on that account had been refunded, plus accrued interest, five years earlier. Nothing more was required in order for the Minister to determine that there had been an excessive refund as described in subsection 160.1(1) and to recover it by issuing the 2015 assessment pursuant to subsection 160.1(3). This fully accords with the conclusion that was reached by the Supreme Court in Markevich that the words "at any time" are to be given effect in accordance with their plain meaning (para. 16). As was explained by the Tax Court judge, this effect "would be greatly diminished if its application depended on a reassessment pursuant to another provision of the Act which is subject to a limitation period" (Reasons, para. 99).

[79] Giving these words their plain meaning effectively allows for the determination that an excessive refund of Part I tax has been made after the normal reassessment period has expired, but only for the purpose of allowing the Minister to recover tax that is owed and determined to have been improperly refunded. This power necessarily flows from the words used by Parliament which, as noted, provide in express terms that there is no time limit as to when this recovery can take place (see to that effect Addison & Leyen Ltd. v. Canada, 2006 FCA 107, [2006] 4 F.C.R. 532, affirmed in 2007 SCC 33, [2007] 2 S.C.R. 793, para. 90).”

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