Anyone have a definitive answer? Statute of Limita

In a previous post, I wrote:

In response, Johnny wrote:

There is no provision in the Income Tax Act ( Canada ) that overrides the application of the "right of set-off" as provided for in Subsection 164(2) for defaulted Federal student loans that are "statute-barred" or are outside the limitation period as provided for in Section 16.1 of the Canada Student Financial Assistance Act.

In Section 2 of the Canada Student Financial Assistance Regulations, a "student loan" is defined as a "risk-shared loan or a direcr loan". Risk-shared loans were issued between August 1, 1995 and July 31, 2000 and direct loans were issued after July 31, 2000.

Under Subsection 16.1(2) of the Canada Student Financial Assistance Act, it reads as follows:

"Money owing under a student loan may be recovered AT ANY TIME by way of deduction from or set-off against any sum of money that may be due or payable by Her Majesty in Right of Canada to the borrower or the estate or the succession of the borrower."

You will note that Subsection 16.1(2) does not state that monies may be recovered ONLY if the defaulted student loan is NOT "statute-barred" or is ONLY within a limitation period. Therefore, any defaulted student loan is subject to the "right of set-off" as long as the loan exists.

You will also note that there is no provision to extinguish a defaulted student loan once it becomes "statute-barred". In other words, even if a defaulted Federal student loan becomes "statute-barred", the loan still exists.

Having said that, it should also be noted that the CRA has two divisions. One division is responsible for income taxes and the other division is responsible for commodity taxes ( i.e. sales and excise taxes ). It has been my observation over the years that there ihas been very weak communication between these two divisions as evidenced by a recent report entitled "Getting it Right" issued in July, 2012 by Mr. Paul J. Dube, Canada's Taxpayers' Ombudsman.

It is not uncommon for a taxpayer that owes a debt to the Crown, such as a defaulted student loan, only to have their income tax refund seized and paid toward their outstanding debt while at the same time receive their quarterly GST rebate. I'm at a loss to explain why this happens.

In response to my previous post regarding the CRA exercising their "right of set-off" for defaulted Federal student loans assigned to them for collection by the NSLSC, Johnny wrote:

For argument's sake, let's say that your position is correct.

Here is my question.

Is this an administrative policy of the Department of Justice with the Attorney General of Canada issuing a "Directive" to the Canada Revenue Agency to cease all applications of the "right of set-off" as provided for in Subsection 164(2) of the Income Tax Act ( Canada ) for all debts owing to the Crown or to Her Majesty in Right of Canada, including Federal student loans that have become "statute-barred"?

If so, can you produce that policy or any other documentation issued by the Department of Justice to support your position? I have never heard of such a policy and I am sure that our many readers and members would be keenly interested if such a policy or documentation could be provided or reproduced on this forum.

@Mark O'Meara

I raised this question because a neighbour of mine operated a very successful business in 1995-1996 to which he did not remit any employee withholdings, GST collected and a large amount of income tax that he personally owed. He showed me an account update that he received from the Winnipeg Taxation Office in 2010 showing that the balance owing including interest and penalties was in excess of $300,000. He has never been issued a judgment from the Federal court, had his wages garnished or any assets seized. Clearly, this debt is "statute-barred".

However, each year when he files his personal income tax return, the CRA withholds his income tax refund and applies the refund to his outstanding debt. This has happened since 1998. Surprisingly enough, he has always received his quarterly GST rebate. Go figure. This one is a real "head-scratcher".