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Compliance refund hold legislation – Restrictions on refunds and rebates

Starting April 1, 2008, changes to the compliance refund hold legislation will become effective for corporate entities that are exempt from paying federal income tax under subsection 149(1) of the Income Tax Act, in the following sectors:

· municipalities
· universities
· schools
· hospitals
· non-profit organizations
· federal crown corporations
· Indian band councils

The 2006 Federal Budget introduced compliance refund hold legislation that became effective on April 1, 2007. This legislation requires the CRA to withhold the payment of rebates and refunds until all returns under the Income Tax Act, the Excise Tax Act, the Excise Act, 2001, and the Air Travellers Security Charge Act have been filed.

In order to ease the administrative burden on corporate entities that are exempt from paying tax under subsection 149(1) of the Income Tax Act, the CRA implemented an administrative position regarding outstanding corporation income tax (T2) returns for municipalities, universities, schools and hospitals, non-profit organizations, federal crown corporations and Indian bands. These entities will not have their refunds or rebates held because of outstanding corporate income tax returns with a fiscal period ending on or before March 31, 2008. However, failure by these entities to file corporate income tax returns, by their due dates, for taxation years ending April 1, 2008 and forward will result in a compliance refund hold being placed on their refunds or rebates.

Registered charities, Hutterites, and provincial crown corporations are not required to file a corporate income tax return and are therefore not subject to the provisions of the compliance refund hold legislation.

For information about filing a corporation income tax (T2) return, visit www.cra.gc.ca/t2return, or call 1-800-959-5525. Our automated business enquiries telephone service is available 24 hours a day, 7 days a week. Agents are available Monday to Friday (except holidays) from 8:15 a.m. to 8:00 p.m. (local time).