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 a penalty under paragraph 162(7)(b) of the Act would apply to a corporation resident in Canada that has no taxable income or a loss for tax purposes.
Position: It is possible.
Reasons: A strict interpretation of the relevant provisions, read in conjunction with the decision reached in Exida.com Limited Liability Company v The Queen [2010 FCA 159] would suggest that a corporation resident in Canada that did not file a T2 income tax return could be subject to the penalty described in subsection 162(7) of the Act.
CTF 2010 November 28, 2010
Penalties for Late-Filed T2 Returns
Question 4
In Exida.Com Limited Liability Company v. Canada,(note 1) the Federal Court of Appeal (FCA) ruled that non-compliance with paragraph 150(1)(a) of the Act was sufficient to trigger a penalty under paragraph 162(7)(b), even in situations where there was no corporate tax payable. Exida.Com was a non-resident taxpayer.
What is the CRA's position on assessing a penalty pursuant to paragraph 162(7)(b) where a resident corporation reports either nil taxable income or a loss for tax purposes?
Response 4
Subsection 150(1) requires that all resident corporations, except registered charities, file a T2 income tax return for every tax year even if there is no tax payable. Subsection 162(1) applies a penalty where an income tax return has not been filed, or where it has not been filed on time. The penalty is based on a formula that takes into account the amount of unpaid tax at the time of the filing deadline. However, if there is no tax payable, no penalty is applied.
Paragraph 162(7)(b) has been described as a catch-all provision that imposes a penalty on any person or partnership, other than a registered charity, that fails to comply with an obligation imposed by the Act or the Income Tax Regulations for which no other penalty is provided. In Exida.Com, the FCA concluded that the conditions for the application of paragraph 162(7)(b) were metnamely,
1) the taxpayer failed to file its tax returns on time (paragraph 150(1)(a)), and
2) no other provision of the Act set out a penalty for that failure.
It is our view that where a corporation that is resident in Canada has not complied with subsection 150(1), and no penalties can be applied under another provision of the Act, subsection 162(7) may apply. Although this is the result of a strict interpretation of the relevant provisions, it has not been our practice to apply subsection 162(7) penalties on resident corporations that are late in filing their returns because there is nil taxable income or a loss for tax purposes. Although the FCA decision in Exida.Com stands, there are no plans to change our practice in this regard.
Notes:
(1) 2010 FCA 159.
Tom Posadovsky
2010-038634
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