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 the start date for the calculation of interest under paragraph 161(11)(a), on the penalty for a failure to file a T2 return of income, is the statutory filing-due date or an extended filing-due date.
Position: The start date for interest on the penalty for a failure to file a T2 Return is the extended filing-due date rather than the statutory filing-due date.
Reasons: The amendment to subsection 220(3) in the 2006 Federal Budget. When the Minister extends the deadline to file a T2 Return, late-filing penalties and interest thereon will not apply until the extension expires. Further, section 26 of the Interpretation Act applies to paragraph 150(1)(a) of the Income Tax Act, where a due date falls on a holiday or weekend.
October 1, 2021
Assessment, Benefit, and Service Branch HEADQUARTERS
Business Returns Directorate Income Tax Rulings
Business Accounting Division Directorate
Kathryn McCarthy
Attention: Michelle Steele
2021-088557
Application of 161(11) - Interest on the failure to file penalty
We are writing in reply to your e-mail dated March 17, 2021, concerning the start date for the calculation of interest under paragraph 161(11)(a) of the Income Tax Act (the “Act”) on the penalty for a failure to file a T2, Corporation Income Tax Return, (“T2 Return”).
Specifically, you requested clarification of the interest start date on a penalty for a failure to file (or a repeated failure to file) a T2 Return under subsection 162(1) (or subsection 162(2)) of the Act. You enquired whether the interest start date is the statutory filing-due date (the fiscal year end of the corporation, plus 6 months), or an extended filing-due date (due to weekends/holidays, or subsection 220(3) of the Act).
Subsection 161(11) of the Act provides that a
“Where a taxpayer is required to pay a penalty, the taxpayer shall pay the penalty to the Receiver General together with interest thereon at the prescribed rate computed,
(a) in the case of a penalty payable under section 162, 163 or 235, from the day on or before which
(i) the taxpayer’s return of income for a taxation year in respect of which the penalty is payable was required to be filed, or would have been required to be filed if tax under this Part were payable by the taxpayer for the year
. . . to the day of payment”
T2 Return filing-due date falls on a holiday
Paragraph 150(1)(a) of the Act provides the time limit for filing a T2 Return. Generally, a corporation must file a T2 Return within 6 months of the end of its tax year. This is the statutory filing-due date.
If the return is not filed within the 6-month period, the corporation is subject to a late-filing penalty under subsection 162(1) of the Act. The corporation may also be subject to a repeated failure to file penalty under subsection 162(2) of the Act. Further, a non-resident corporation may be subject to a failure to file penalty under subsection 162(2.1) of the Act. The amount of the late-filing penalties are calculated based on the amount of tax that was unpaid when the return was required to be filed.
It is the view of the CRA that the phrase “when the return was required to be filed” refers to the filing-due date for T2 Returns in paragraph 150(1)(a) of the Act, modified by the Interpretation Act (“IA”). The 6-month deadline for filing a T2 Return may fall on a weekend or holiday. In such a case, the deadline is subject to section 26 of the IA. Section 26 says “Where the time limited for the doing of a thing expires or falls on a holiday, the thing may be done on the day next following that is not a holiday.” As a result, the filing-due date will be the following day that is not a holiday. This is the IA-extended filing-due date.
Therefore, if the statutory filing-due date for a T2 Return falls on a weekend or statutory holiday, the CRA will consider the T2 Return filed on time if it is either received or post marked on the following business day. For example where a corporation’s statutory filing-due date for its T2 Return falls on a Sunday, the T2 Return will be considered filed on time if it is received on the following day, the Monday.
Similarly, for the purpose of calculating late-filing penalties and interest under subsection 161(11) on late-filing penalties, the start date of the calculation is based on the IA-extended filing-due date. If the IA-extended filing-due date is missed, any penalty or interest is calculated based on the IA-extended filing-due date and does not revert back to the statutory filing-due date. To calculate the late-filing penalty and interest, the due date is the following day that is not a holiday, where the filing-due date and balance-due day fall on a holiday.
Extension of a return filing-due date under subsection 220(3) of the Act
Subsection 220(3) of the Act authorizes the Minister to extend the time for filing any return required under the Act, and was amended in 2006. Annex 3 to the 2006 Federal Budget addressed penalties and interest thereon, when due dates are extended under subsection 220(3) of the Act. The goal of the amendment was to provide consistency. Prior to the amendment, each statute (the Income Tax Act, the Excise Tax Act, 2001 and the Air Travellers Security Charge Act) allowed the Minister of National Revenue to extend the deadline for filing a return. The treatment of penalties and interest thereon, when an extension was given, varied across the Acts.
The 2006 Budget proposed that when the Minister extended, under any of the Acts, the deadline to file a return, late-filing penalties and interest thereon would not apply in respect of the return until after the extension expired. The Annex stated that late-filing penalties and interest thereon would apply only in respect of the period after the extension.
For example, under subsections 162(1) and (2) of the Act, the calculation of the late-filing penalty is based on the filing-due date. The extension of the time to file a return of income also impacts the calculation of the interest on the late-filing penalty, since it is based on the filing-due date. Therefore, where the Minister has exercised discretion under subsection 220(3) to extend the time to file a T2 Return, the interest on the late-filing penalty is calculated based on the extended filing-due date.
We trust these comments will be of assistance.
Gillian Godson
Acting Manager, Administrative Law Section
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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