13 January 2005 Internal T.I. 2004-0103291I7 - NRO penalty for failure to file

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether subsection 162(2.1) applies to non-resident corporations reporting income from a permanent establishment in Canada or a disposition of taxable Canadian property.

Position: Yes

Reasons: Legislation

January 13, 2005

	Tim Matte, Team Leader	Income Tax Rulings
	Appeals Division	Directorate
	Ottawa TSO	Karen Cooper, LL.B.
(613) 957-2094

2004-010329

ITA subsection 162(2.1)

This is in reply to your memorandum of November 10, 2004 wherein you requested our comments with respect to the computation in subsection 162(2.1) of the Income Tax Act ("Act") of the penalty imposed on a non-resident corporation reporting income from a permanent establishment in Canada or a disposition of taxable Canadian property. Specifically, you are seeking confirmation that the comments in our previous document (2000-0055775) in respect of treaty-exempt corporations also apply to those non-resident corporations not claiming a treaty exemption.

As explained in the earlier document, the obligation to file a return of income for a year is imposed upon a non-resident corporation pursuant to paragraph 150(1)(a) if, in the year, (i) the non-resident corporation carried on business in Canada (assuming for the purposes of this letter that the exception relating to subsection 212(5.1) does not apply), had a taxable capital gain, or disposed of a taxable Canadian property, or (ii) tax under Part I is payable by the corporation or would be payable but for a tax treaty. A non-resident corporation that fails to file a return in accordance with paragraph 150(1)(a) of the Act and upon which a penalty may be imposed pursuant to subsections 162(1) or 162(2), will be liable to a penalty computed in accordance with subsection 162(2.1). In our view, the unambiguous language of subsection 162(2.1) clearly indicates that it will apply to all non-resident corporations under an obligation to file a return pursuant to either of subparagraphs 150(1)(a)(i) and (ii), including non-resident corporations that carry on business in Canada during the year or that dispose of taxable Canadian property.

During our review of this question, we were asked to consider whether subsection 162(2.1) would apply in circumstances where a non-resident corporation did not initially file a return and was served with a demand for a return pursuant to subsection 150(2). If the return was not required to be filed by virtue of subsection 150(1) but was only required to be filed because of the issuance of the demand pursuant to subsection 150(2), subsection 162(2.1) will not apply. This is because penalties under subsections 162(1) and (2) can only be imposed on a corporation if it fails to file a return as and when required by subsection 150(1).

We trust the above comments will be of assistance.

If you have any questions, or wish to discuss these issues in further detail, please do not hesitate to contact Karen Cooper directly.

David Palamar
Manager
Corporate Reorganizations Section III
Income Tax Rulings Directorate