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: 1. What is the Minister's authority to assess a penalty when a person has late filed Form T106?
2. What is the Minister's authority to assess a penalty after the late filing of T106 when the person's T2 return is statute-barred?
3. If a person files a Form T106 ten years late, what is the Minister's authority to assess a late filing penalty under s. 162(7) of the Act, if there is no gross negligence penalty?
4. How should the Minister calculate interest on a penalty assessed on a late filed T106?
Position: 1. s. 162(7) and (10).
2. There is no relationship between the filing of a T2 return and an information return.
3. S. 220(1).
4. Compound interest is charged from the day on or before which Form T106 was required to be filed.
Reasons: 1. S. 162(7) and (10).
2. The only relationship between the two requirements is that each return has the same due date for filing.
3. S. 162(7) and (10).
4. S. 161(11) and s. 248(11)
July 3, 2009
Compliance Programs Branch HEADQUARTERS
International & Large Business Directorate Income Tax Rulings
Attention: Michael Chun, Manager Directorate
International Policy Section Lindsay Frank
(613) 948-2227
2009-031252
Form T106 - Information Return on Non-Arm's Length Transactions with Non- Residents
This is in reply to an email from Lata Agarwal, in which she posed questions on assessing penalty and interest in respect of the above-referenced form.
In the interest of facilitating this reply, we have edited and recomposed Ms. Agarwal's questions into 4, namely:
1. What is the Minister's authority to assess a penalty when a person has late filed the Information Return on Non-Arm's Length Transactions with Non-Residents ("Form T106")?
2. What is the Minister's authority to assess a penalty after the late filing of Form T106 when the person's T2 return is statute-barred?
3. If a person files a Form T106 ten years late, what is the Minister's authority to assess a late filing penalty under s. 162(7) of the Income Tax Act ("the Act"), if a gross negligence penalty has not been assessed?
4. How should the Minister calculate interest on a penalty assessed on a late-filed Form T106?
Form T106 is an annual information return on which a reporting person is required, pursuant to section 233.1 of the Act, to report its activities with certain non-resident persons. A reporting person for a taxation year means a person who, at any time in the year, is a resident in Canada, or who is a non-resident and carries on a business in Canada (other than a business carried on as a member of a partnership): s. 233.1(1).
Question 1.
Section 162 of the Act contains provisions for assessing penalties in various situations. With respect to the late filing of Form T106, subsections 162(7) and (10) apply.
Subsection 162(7) is operative only where the Minister serves a reporting person with a demand for the information return, and that person does not comply with the demand within 90 days of service. The penalty under subsection 162(10) applies in two mutually exclusive situations, which are described in paragraphs 162(10)(a) and (b).
Question 2
There is no relationship between the filing of a T2 return and an information return under subsections 233.1(2) and (3) other than the due date for each is the same.
Question 3
Under subsection 220(1) of the Act, the Minister is charged with the responsibility to administer and enforce the Act.
Where a person files a Form T106 10 years late, the Minister has, depending on the circumstances, the choice of imposing a penalty amounting to gross negligence under subsection 162(10) or the general late filing penalty under subsection 162(7).
It should be noted that were the Minister to impose penalties under both provisions, the penalty payable under subsection 162(10) reduces the penalty payable under subsection 162(7).
Question 4
Subsection 161(11) of the Act requires a taxpayer to pay interest on penalties imposed under the Act. The interest charged on a penalty under section 162 is payable at the prescribed rate, computed from the day on or before which the T106 was required to be made: subsection 161(11)(a)(ii). Such interest is compounded daily: subsection 248(11).
Should you have any questions or require clarification, please do not hesitate to contact Lindsay Frank at the number provided above.
B.J. Skulski
Manager
Insolvency and Administrative Law Section
Business and Partnerships Division
Income Tax Rulings Directorate
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