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: If, after filing a treaty-based exemption, it is determined by the CRA that the non-resident was unable to claim treaty protection (e.g., on the basis that it did have a permanent establishment in Canada), would the CRA seek to impose late-filing penalties, such as for not timely filing T106 forms, and/or penalties for failing to complete contemporaneous documentation under section 247 of the Act?
Position: The CRA will consider, on a case-by-case basis, requests for relief under subsections 220(3) and (3.1) in the form of extensions and waivers of penalties as outlined in Information Circular IC07-1R1, Taxpayer Relief Provisions.
IFA 2018 International Tax Conference
Canada Revenue Agency Roundtable
Question 4 - Penalties for Non-Residents
According to current CRA publications, non-resident persons that earn income from carrying on business in Canada during a year are subject to the same rules as residents regarding the filing of income tax returns. However, for tax years after 1998, non-resident corporations that carry on a “treaty-protected business” as defined in subsection 248(1) of the Income Tax Act (the “Act”), during a tax year are required to attach a completed Form T2SCH91, Schedule 91, Information concerning claims for treaty-based exemptions, to their T2 Corporation Income Tax Return to support claims for treaty exemption.
Assume a non-resident files a treaty-based return, as described above, based on a reasonable belief that the non-resident was not taxable in Canada as it did not have a permanent establishment in Canada. If it is later determined by the CRA that the non-resident was unable to claim treaty protection (e.g., on the basis that it did have a permanent establishment in Canada), would the CRA seek to impose late-filing penalties, such as for not timely filing T106 forms, and/or penalties for failing to complete contemporaneous documentation under section 247 of the Act? Would the CRA consider providing relief under subsections 220(3) and (3.1) of the Act?
CRA Response
The Act requires the filing of tax returns, forms, documents and elections in a timely manner. Where the CRA has determined that a non-resident taxpayer had carried on business in Canada through a permanent establishment, those deadlines and any non-filing or late-filing penalties, resulting from the failure to meet those deadlines, remain applicable to all relevant information returns (e.g. T106 form) and transfer pricing contemporaneous documentation.
The CRA will consider, on a case-by-case basis, requests for relief under subsections 220(3) and (3.1) in the form of extensions and waivers of penalties as outlined in Information Circular IC07-1R1, Taxpayer Relief Provisions.
Lori M. Carruthers
2018-074817
May 16, 2018
Response provided by:
Alex Ho
International Tax Division
International, Large Business and Investigations Branch
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