Chapter 3 - General refund processes and procedures

Issued: 2014/02; Revised: 2019/06/15

Verifying a refund application

1. Preliminary steps:

• Refer to the Taxpayer Administration, Compliance and Services (TACS) refund verification procedures training for step‑by‑step guidelines when processing a refund
• Review the documentation (application form and information provided) to verify that the claim is supported by legislation (and regulations, as appropriate)
• Obtain an authorization for communication to speak or correspond by fax or email with the taxpayer’s representative, such as a consultant or external accountant. Record all contact with the taxpayer or taxpayer’s representative as a “note” in TACS
• Ensure the claim is within the limitation period established by the legislation
  • If the claim relates to a payment of tax, the limitation period is four years from the date of payment
  • If the claim relates to a remittance of tax, the limitation period is four years from the date of the remittance
  • If the claim relates to the Provincial sales tax (PST) portion of a bad debt write-off, the limitation period is four years from the date the write-off was made (the collector must write the debt off within four years of the date the collector remitted the related tax amount)
  • If the claim is for the reimbursement of a PST credit or refund provided by a collector to the collector’s customer, the limitation period is four years from the date the credit or refund was provided by the collector (note the time limits referred to in collector refund provisions. For example, a collector must issue a credit or refund under Provincial Sales Tax Act (PSTA) 146 or 147 within 180 days of the date the purchaser or lessee paid the PST)
  • Record the date the refund request is received, for the purposes of the refund limit under PSTA 166
• Review the taxpayer’s audit and refund history in TACS to ensure the refund items have not been previously claimed
• Ensure the taxpayer’s name matches the legal name in TACS and BC Online
  • Deny invoices that show a different taxpayer’s name than the name on the refund application, unless you have documentation which shows that the refund applicant paid the tax
  • One exception to the general rule is when an agent purchases goods or services on behalf of their principal and documentation shows that the agent is the person entitled to the refund. In such cases, the agent is considered the purchaser and must apply for any refund available
• If the refund claim involves repetitive or similar transactions and a large amount of supporting documents, review statistical sampling criteria for guidance on use of sampling with the claim

Note: The standard turnaround time for processing a refund application is 30 days.

2. Incomplete refund applications:

• If the application is incomplete (for example, no supporting documentation is attached) or the basis for the refund claim is not clear, return the application to the taxpayer using the appropriate letter (ML 0282)
• If it cannot be determined from the information provided that the claim qualifies for a refund, use the appropriate letter in TACS to request additional information within a specified timeline
• If the taxpayer does not provide the requested information within the specified timeline (subject to a request for an extension), close the refund application
  • Return the refund application along with all documentation provided by the taxpayer to the taxpayer (or taxpayer’s representative)
  • Send a letter (Case Closed letter (ML 0202)) to the taxpayer advising them why their claim has been closed
• If the taxpayer provides the requested information, review the additional information and determine if the taxpayer qualifies for the refund
  • Approve, deny or adjust the refund based upon the review

3. Calculating interest paid on refunds:

Determining the application of interest to refund amounts depends on the type of refund claim and on the time at which the refund is paid. The policy which guides this determination is outlined in the Tax Interpretation Manual at PSTA’s 165/R.1 Payment of interest on refunds and overpayments of tax.

Informing taxpayers of a decision:

• Send the appropriate refund letter informing the taxpayer of the decision, if applicable
• If a refund application is allowed in full, a refund letter is not required
• If there are any adjustments (disallowance or adjustment to the amount claimed), generate a refund letter to advise the taxpayer of the reason(s) for adjustment(s). If the refund application is prepared by the taxpayer’s representative and the taxpayer has requested the branch to direct all correspondence to the representative, the refund letter is directed to that individual as requested, with a copy to the taxpayer. A copy of the refund summary (spreadsheet) is included with the letter
• If the taxpayer disagrees with the refund decision, they should contact the auditor for clarification. If they still disagree, they may file an appeal to the minister (see Refund application appeals process below)

4. Retention of all documentation related to refund applications:

• The verification form (working papers) must clearly document the basis for any disallowance and provide the appropriate reference to the relevant legislation and regulations
• Sufficient notes and other documentation relating to the refund must be scanned and attached to the refund verification case (such as, correspondence, emails, authorization for communication, and disallowed or adjusted invoices)
  • Supporting documentation and original records received must follow the policy and procedures detailed in the “Supporting documentation” section, in Section 2I, Finalizing the audit - Assessments
  • If the records are too large to attach, they must be sent to HPAS for scanning, attaching, and storage
  • For information on how to file working papers appropriately, see the TACS refund verification procedures

Refund applications received or refundable items identified during an audit

The following guidance applies when an audit is being carried out and the taxpayer requests a refund under the same act. A refund cannot be processed in conjunction with an audit if it is under a different tax act.

1. Refund application received during an audit

If a refund application is received during an audit, process the refund in conjunction with the audit. Verify the refund and enter the refund items into the tax credits / refunds working paper.

2. Refundable Items Identified During an Audit

If refundable items are identified, the taxpayer may select one of the following two options to claim a refund.

Option 1 – Refund Processed In Conjunction with the Audit

The taxpayer provides a refund application in the form of a letter, email, or refund application form, and supporting documentation, to request that the refund be processed in conjunction with the audit. If a letter or email is used, it must contain all the required information per the refund application form. Sufficient information to support the refund items claimed must be provided without unnecessarily delaying the audit.

Verify the refund and enter the refund items into the tax credits / refunds working paper within the audit. Attach the supporting documents to the audit according to the guidelines in the Retention of all documentation related to refund applications section above.

If the refund application is incomplete, lacks supporting documentation, or does not have a clear basis for the refund, return the application to the taxpayer with a letter outlining the requirements to complete the application. Instructions for completing the application are included on the form. Because the incomplete application is returned to the taxpayer and the refund claim is not accepted, the date that this form was originally submitted cannot be used as the date the refund claim is received for calculating the limitation period. This is not a “closed” or “rejected” refund that the taxpayer can then appeal. Use the appropriate letter (ML 0282) to return a refund claim in this situation.

If a complete refund application is submitted to the auditor with all supporting documentation, then the date that the auditor received it in the field is used for the purposes of calculating the limitation period.

If any part of the refund is denied, a refund adjustment or denial letter must be issued. This is critical as the adjustment / denial letter provides the taxpayer the ability to appeal the decision. The Audit conclusion letter and Notice of assessment are separate documents.

When refunds and audits are completed in conjunction with each other, they are eligible for penalty and interest netting. The penalty and interest netting calculations are performed automatically in TACS. However, penalty and interest netting does not apply to penalty equivalent errors. 

The Tobacco Tax Act (TTA) has no interest netting provisions. Penalty netting in TTA audits (netting underpayments of security against overpayments of security prior to calculating a penalty) is required when underpayments and overpayments are found to occur within a single reporting period. However, the TACS system does not perform this netting automatically as it does for audits under the other statutes. Should an underpayment of security and an overpayment of security be encountered within a single reporting period, penalty netting calculation will need to be done manually in TACS.

Option 2 – Refund Processed Separately from the Audit

If the taxpayer does not want the refund to be processed in conjunction with the audit, the taxpayer can file a refund application with the ministry at their discretion. The refund will go through the standard refund process.

Refund cases and net refund audits $1 million or more

Standalone refunds $1 million or more

If a refund is approved and the amount being refunded to the taxpayer is $1 Million or more, specific processes must be followed to ensure that the refund is managed correctly by the Provincial Treasury Cash Management Team. Please refer to the specific procedures in the TACS Training Materials – Chapter 24: Refund Case Management handout.

Net refund audits $1 million or more

If an audit with an in-conjunction refund creates a net refund assessment that has an approved assessment credit amount of $1 Million or more, specific processes must be followed to ensure that this is managed correctly by the Provincial Treasury Cash Management Team. Please refer to the specific procedures in the TACS Training Materials – Chapter 11: Working Paper Tabs & Tables handout.

Refund claim related to an audit assessment

A taxpayer who disagrees with an assessment may try to recover the assessed amount via a refund application if an appeal was not filed within the 90 day time limit.

Amounts assessed in an audit cannot be returned to a taxpayer under any of the refund authorities in the consumption tax statutes. Taxpayers can appeal audit results at any point within 90 days from the date a Notice of Assessment is issued.

While there is no authority to refund amounts paid in an audit, a taxpayer might nevertheless attempt to recover such amounts through the submission of a refund application. If this occurs, the submission should not be given consideration as a refund claim. In such cases, take care not to issue a refund decision letter because the matter was decided in the audit process and no subsequent decision is being made. The auditor should return the refund application to the claimant in all cases and use the Refund related to audit assessment letter (ML 0294).

However, evidence provided by a taxpayer may be used to support an audit adjustment if an adjustment is warranted. For details on this procedure, see Section 2K, Post Audit Adjustments.

Refund application appeals process

If the ministry disallows or reduces a refund application, the taxpayer has the right to appeal the ministry’s decision to the Minister of Finance. The taxpayer may also provide additional information to the Appeals Branch in support of the refund application previously denied or reduced. The Appeals Branch is responsible for reviewing the taxpayer’s appeal and may contact the audit manager and / or auditor who verified the application for clarification of any adjustments made on the original refund application. Refer to Chapter 4, Appeal process after audit conclusion of this manual for more details on the appeals process.

Refunds to retail dealers who sell fuel to First Nations and farmers

Retail dealers may apply for a motor fuel tax refund on the difference between the security they paid on the fuel, and the tax they collected when they sold the fuel to eligible First Nation purchasers and to eligible farmers. The director is required to issue a refund of security to a retail dealer if the director is satisfied that the fuel was sold to a purchaser who is not liable to pay tax on that fuel (Motor Fuel Tax Act, Section 20.11 (2)).

1. First Nations

Under Section 87 of the Indian Act, eligible First Nations are not subject to taxation as long as they meet the criteria in that act. For example, the purchaser must be an eligible First Nation individual or band, not a corporation, and the sale must take place on reserve land.

A retail dealer that is physically located on reserve land may be authorized to purchase fuel exempt from security if the fuel will be re‑sold to customers that are eligible to purchase fuel exempt from tax. 

A retail dealer that is located off reserve land is not authorized to purchase fuel exempt from security. 

Retail dealers selling fuel to eligible purchasers, by way of delivery, on reserve land, must verify that the purchaser is eligible to purchase fuel tax exempt by viewing their Certificate of Indian Status card. A fuel retailer located off First Nation land can sell fuel exempt from tax if the sale occurs on First Nation land and the retailer obtains the required exemption documentation, and the retailer can claim a refund of security the retailer paid on the fuel.

An auditor who discovers that the retailer granted exemption without obtaining the required exemption documentation can nevertheless issue a refund and opt not to apply a penalty if the retailer obtains the required documentation before the audit is finalized.

2. Farmers

Persons who qualify as farmers may purchase coloured fuel or propane for a farm purpose exempt from tax when certain criteria are met. Retail dealers need to obtain supporting documentation, such as a current BC Farmer Identity Card, or a Certificate of Exemption – Farmer, to show why tax was not charged. 

However, for the purpose of refunds or audits, if the retail dealer obtains supporting documentation, such as a new exemption certificate, after the date of sale, and they had an old certificate on file prior to the sale, that is enough to satisfy the director that the purchaser was a farmer at the time of the sale. We must be satisfied that the fuel was sold to a person who is a farmer and the delivery requirements are met. Under these circumstances a refund is issued or alternately, a penalty for failing to collect is not imposed.

The above is different from the Provincial Sales Tax Act (PSTA), which imposes very clear obligations on collectors to nevertheless levy the PST if the required documentation is not provided at or before the time of sale. However, the Motor Fuel Tax Act (MFTA) and Carbon Tax Act (CTA) do not have the same requirements.

Denied refunds re‑submitted

If a taxpayer re-applies for a refund that was previously denied, the director has no authority to reconsider the application unless it includes substantial evidence or information that was not included in the first application. If an application comes in without new information, send it back with a letter explaining that the application cannot be reconsidered. Do not state the refund is denied as this creates an opportunity for an appeal.

In addition, a taxpayer cannot re‑apply for a refund based on another taxpayer’s appeal. Every taxpayer has the right to appeal a denied refund if they believe the legislation and policy is not appropriately applied. If that right is not exercised, they cannot re‑apply the same items for consideration at a later point if the only new information is another taxpayer’s successful appeal. This type of scenario may arise when a consultant is involved and has access to information from numerous clients. Never re‑open refunds that were previously denied. If the same refund application is submitted, return it to the taxpayer as there is no new information to consider (for example, it is not denied as this would open up another appeal period).

The Appeals Branch will advise us of policy changes resulting from successful appeals. We will process all future refund applications based on the new policy. A taxpayer can submit a new refund application for similar items that may have been missed in the original denied claim (and still within the four year limitation period), and those will be reviewed based on the revised policy.

Miscellaneous items

1. Assignment of refunds

Assigning refunds to a third party / assignee is not allowed by the Consumer Taxation Programs Branch (CTPB) Refund Section and it is not supported by legislation. For consistency, the Consumer Taxation Audit Branch (CTAB) should not allow the assignment of refunds.

2. Exchange rate on refund transactions

Under PSTA 179, a collector must collect PST that applies to the collector's sale or lease when the PST becomes payable under PSTA 28. In most cases, PST becomes payable when consideration is paid or becomes due, and consideration becomes due when the invoice is issued. Unless there is an indication that tax was payable on another date, the exchange rate on the invoice date would be the appropriate rate to use. This is consistent with the CTPB Refund Section.

3. Assessment of excess refunds (Refund clawback)

As required by Section 199 (3) of the PSTA, if the director finds that a person has received a refund of tax or has deducted an amount under Section 159 (3) (Refund or deduction for bad debts), or 160 (2) (Refund to collector), that was in excess of the refund amount that was due to the person, the director must make an assessment. The amount of the assessment would be the excess amount refunded including any interest that was paid on the refund. Interest may be charged on the excess amount refunded effective the date of incorrect payment to the taxpayer. Any decision to waive interest requires CTAB Director approval.

Similarly, under the MFTA, Section 43 (2.1), and the CTA, Section 45(2), where a person has received a refund of an amount under the respective acts or has deducted an amount under Section 25 (3) of the MFTA or 41(3) of the CTA that was in excess of the refund amount that was due to the person, the director must assess the person an amount equal to the excess amount refunded or deducted plus interest calculated at the rate and in the manner prescribed. Under the Tobacco Tax Act (TTA) 22 (2.1), if it appears that a person has received a refund of tax under the act that was in excess of the refund amount that was due to the person, the director must assess the person an amount equal to the excess amount refunded plus interest calculated at the rate and in the manner prescribed.

Relevant bulletins

Bulletin PST 400 - PST Refunds (PDF, 504KB)

Bulletin MFT-CT 002 - Sales to First Nations, and the Fuel Tax Exemption Program (PDF, 330KB)

Bulletin MFT-CT 007 - Refunds for Deputy Collectors and Retail Dealers (PDF, 171KB)

Bulletin MFT-CT 003 - Coloured Fuel and Other Substances (PDF, 253KB)