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CRA REFUNDS: WHERE DID MY MONEY GO?

CRA EXPLAINS WHY TAX CREDITS ARE AUTOMATICALLY TRANSFERRED

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Many taxpayers expect that once the Canada Revenue Agency (“CRA”) determines that they are entitled to a GST/HST or income tax refund, that the refund will simply be paid. Unfortunately, that is often not the case (!) with the CRA explaining its “set-off” rights in a recent industry roundtable, confirming that where refunds are due, those amounts can often be automatically transferred to satisfy outstanding balances in other CRA tax accounts.

In the Tax Collection Series Report below, we review the CRA’s automatic set-off rights, including the legislative authority supporting these transfers, and the practical implications for businesses expecting GST/HST and other tax refunds or credits.

CRA Set-Off Rights

In response to questions from industry representatives, the CRA recently explained its set-off rights under section 318 of the Excise Tax Act (“ETA”) and 224.1 of the Income Tax Act (“ITA”). Essentially, before any refunds or credits are actually paid out to any GST/HST Registrant or income taxpayer, the CRA will automatically review the credit or debit position in other CRA tax accounts. Where monies are owed by the same taxpayer to the CRA, the CRA will apply a “set-off” and transfer the refund or credits owing to the taxpayer to the account in default, before remitting the net refund or credit balance to the taxpayer. While industry representatives suggest a monetary threshold for large corporations before such automatic transfers occur, the CRA indicated it did not support such an approach.

Somewhat astoundingly, the CRA also confirmed that it does not support implementing any advance notice before transferring available credits between tax accounts, and that the process is now fully automated: once its accounting systems identify a credit available for distribution, the system determines whether amounts remain outstanding on other tax accounts before any refund is issued.

Accordingly, the CRA confirmed it only provides notification to affected taxpayers, AFTER the transfer has occurred, with the transferred amount being reflected on their Statement of Account as an “Amount Transferred”.

Possible Avenue to Challenge Set-Off?

The recent decision of the Federal Court of Canada in Hillcore Financial Corporation v. Canada, 2025 FC 2009 (Hillcore) demonstrates that CRA collections decisions setting off ETA credit/refund amounts against ITA debts may successfully be challenged by way of judicial review. The Hillcore decision also suggests that set-off decisions may not be permitted under the ETA. Read more on Hillcore in our article in the Canadian Tax Foundation’s Tax Focus Journal here.

Takeaways

The CRA has recently confirmed that GST/HST and income tax refunds and other credits are generally automatically transferred to satisfy outstanding balances in any other CRA accounts, with the NET refund issued to the taxpayer. Businesses expecting significant GST/HST or income tax refunds should therefore review ALL CRA program accounts to determine whether other outstanding liabilities could reduce these refunds.

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For an updated Index of our Tax Collection Series, click here.