How and when CRA refunds overpaid tax
Refunds
Section 164 requires CRA to refund amounts overpaid by taxpayers and to pay interest on refunds that are delayed beyond certain time limits — generally 45 days from when the return is filed for non-audit situations.
Plain-language explanation
Section 164 governs tax refunds — when CRA must issue them, how they are applied, and when CRA must pay interest on delayed refunds.
Entitlement to refund: If you have overpaid income tax (through excessive withholding at source, overestimated instalments, or over-assessment), CRA must refund the overpayment.
Timing of refund: CRA must issue a refund within reasonable time. If CRA takes more than 45 days after the later of the filing deadline or the date the return is received to issue the refund, CRA must pay refund interest at the prescribed rate (currently the Bank of Canada rate + 2%, which is lower than the arrears rate). Refund interest is taxable income in the year received.
Carrybacks: When you carry back a loss (capital loss, net capital loss, or non-capital loss) from a later year to an earlier year, s.164(2) requires CRA to refund any resulting overpayment of tax in the earlier year.
Set-off: CRA may apply your refund against other amounts you owe (other tax debts, overpaid credits, GST/HST debt) under s.164(2). If you have outstanding GST/HST or payroll remittances, your income tax refund may be applied to those balances rather than being paid out.
Direct deposit: CRA strongly encourages direct deposit enrollment through My Account to receive refunds faster.
Example
Ana's employer withheld $18,000 in taxes during 2025. Her actual tax for 2025 is $14,000. She is owed a $4,000 refund. She files her return on March 15, 2026. CRA must issue the refund within 45 days (by April 29, 2026). If CRA is late, they pay refund interest on the $4,000.
Amendment history
Significant changes to this provision. Older versions help you understand rules that applied in prior tax years.
Income Tax Act aligned refund interest provisions with assessments triggered by loss carrybacks — ensuring s.164(2) automatically processes refunds from carryback claims without requiring separate applications in most cases.
Common questions
Is my income tax refund taxable? +
The refund itself is not taxable — it is a return of your own money. However, if CRA pays you interest on a delayed refund, that interest is taxable income in the year you receive it.
My refund was applied to a GST debt I didn't know about — is that allowed? +
Yes. Under s.164(2), CRA can apply your income tax refund against other amounts you owe to the federal government, including GST/HST, payroll deductions, and other tax debts. You should receive a notice explaining the application. Contact CRA if you dispute the underlying debt.
Key terms
Related sections
Source: Income Tax Act, RSC 1985, c. 1 (5th Supp.), section 164. — Read the official text on Justice Canada
These summaries are for educational purposes only and do not constitute legal or tax advice. Speak with a CPA for advice on your specific situation.