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) Whether a corporation owned by Her Majesty in right of Canada or a province or both is exempt by the Act from filing T2 returns. 2) Whether any exemption would extend to wholly-owned subsidiaries of a corporation owned by the Crown.
Position: 1) No. However, the requirement to file can be waived. 2) Unable to comment.
Reasons: 1) Subsection 220(2.1) provides the authority for the Minister to waive the requirement to file a T2 return under subsection 150(1). 2) Administration of this authority is primarily the responsibility of the Assessment and Benefit Services Branch, including any decision to extend its application.
April 25, 2014
Assessment and Benefit Services Branch HEADQUARTERS
Business Returns Directorate Income Tax Rulings
750 Heron Road, 8th Floor Directorate
Ottawa ON K1A 0L5 J. Ouimet
Attention: Olga Dufresne
Requirement for corporations owned by the Crown to file T2 returns
We are writing in reply to your email of February 12, 2014, concerning the Canada Revenue Agency's (the "CRA") policy that exempts corporations owned by the Crown from the requirement to file income tax returns under subsection 150(1) of the Income Tax Act (the "Act").
Specifically, you asked us to provide the legislative basis for the exemption so that your Branch could ensure that the exemption is described correctly in CRA publications and on its website. Further, you asked whether the exemption described would extend to wholly-owned subsidiaries of a corporation owned by the Crown.
You referred us to two CRA resources that describe the exemption for a corporation owned by the Crown from filing a T2 return. The webpage, Corporation income tax return, found at http://www.cra-arc.gc.ca/tx/bsnss/tpcs/crprtns/rtrn/menu-eng.html, states,
"All resident corporations (except Crown corporations, Hutterite colonies and registered charities) have to file a corporation income tax (T2) return every tax year even if there is no tax payable."
Similarly, the T2 Guide states,
"All corporations including non-profit organizations, tax-exempt corporations, and inactive corporations have to file a T2 return for every tax year, even if there is no tax payable. The only exceptions to this rule are provincial Crown corporations, Hutterite colonies, and corporations that were registered charities throughout the year."
We note that of the two references provided, one refers to all Crown corporations while the other refers only to provincial Crown corporations.
In general, subsection 150(1) requires taxpayers to file a return of income for each taxation year on or before specified dates. Paragraph 150(1.1)(a) provides an exception to the filing requirement in subsection 150(1) if the taxpayer is a corporation that was a registered charity throughout the year.
Where all (or in some instances not less than 90%) of the shares or capital of a corporation are owned by Her Majesty in right of Canada or a province or a combination of these persons, and no other restriction within section 149 of the Act applies, no tax is payable under Part I of the Act on the taxable income of the corporation by virtue of paragraphs 149(1)(d) or (d.1) of the Act. Paragraphs 149(1)(d.2) and (d.3) of the Act extend the exemption to certain subsidiaries of these corporations. Paragraph 149(1)(d.4) extends the exemption from Part I tax to corporations, all of the shares or capital of which are owned by corporations that are exempt under paragraphs 149(1)(d) to (d.3).
We note that subsection 27(2) of the Act provides that the tax exemption provided in paragraphs 149(1)(d) to (d.4) does not apply to a prescribed federal Crown corporation pursuant to section 7100 of the Income Tax Regulations or any corporation controlled by such a corporation.
Notwithstanding that subsection 149(1) exempts a person from Part I tax, it does not provide an exemption from the requirement to file a return of income. However, the Minister may waive this requirement pursuant to subsection 220(2.1) of the Act. We understand that the exemption from filing the T2 return described on the CRA webpage and in the T2 Guide (other than the exemption for registered charities) is provided under this authority.
It is also our understanding that the administration of this authority is primarily the responsibility of your Branch. This would include any decision to extend the exemption to wholly-owned subsidiaries of a corporation owned by the Crown.
We trust our comments will be of assistance.
Terry Young, CPA, CA
Manager, Administrative Law Section
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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