Donald Cherniawsky, in “Are Dividend Refund Claims by Dividend-Paying Corporations Elective?” 17:4 Tax for the Owner-Manager (October 2017), refers to CRA technical interpretation 2016-0649841E5. The TI states that a dividend payer could elect not to claim a dividend refund in a taxation year. This would be helpful in a butterfly where the dreaded circularity problem might otherwise arise. Mr Cherniawsky notes, however, that there are practical problems to the approach, not the least of which is CRA audit hostility to the “election” and T2 software, which won’t allow overriding the dividend refund claim.
A corporate payor doesn’t get a refund if it pays a dividend but fails to file its tax return for the year within three years. But at least RDTOH isn’t reduced either. See Dino Infanti, “FCA Agrees: Dividend Refund Timed Out and RDTOH Remains Intact” Tax for the Owner-Manager 16:1 (January 2016), commenting on 1057513 Ontario Inc. v R, 2015 FCA 207.
What happens when a corporation fails to claim refundable tax in a timely manner? Does the amount not refunded reduce RDTOH anyway (per the CRA)? Not according to the Court in Presidential MSH Corporation v R, 2015 TCC 61. (See also Tawa Developments Inc. v R, 2011 TCC 440.)
Update September 15, 2015—The Tax Court has released yet another decision contradicting the CRA position on this subject. See Nanica Holdings Limited v R, 2015 TCC 85.
Update January 27, 2016—The CRA, at the 2015 CTF Conference, stated that it will now follow the findings of the tax courts in the cases above.