Section 150

One of the exceptions to the s. 150 requirement for a non-resident to file a Canadian tax return is the exception for an “excluded disposition” in s. 150(5). Where a s. 116 certificate is issued respecting a disposition of taxable Canadian property (that is not treaty-protected property) by a partnership with numerous non-resident partners, and all Canadian taxes owing on the resulting taxable capital gain have been paid, is no Part I tax considered to be payable by the non-residents for the purposes of s. 150(5)(b), such that the disposition will be an “excluded disposition”?

CRA indicated that non-resident taxpayers are required under s. 150 to file a Canadian tax return if inter alia Part 1 “tax is payable” for the year, being the amount payable before deducting any amounts paid on account of tax, such as instalments or withholding. This interpretation applies to “tax is payable” in ss. 150(1), 150(1.1), and (respecting the definition of “excluded disposition”) 150(5)(b). Therefore, even if a s. 116 certificate has been issued indicating that all Part 1 tax has been paid, there would be no excluded disposition.

Under the proposed Interchange Agreement with a non-resident corporation (“NRCo”) and a non-resident employee of NRCo, the employee will provide services to the Department for one year while staying at temporary accommodation in Canada, but will remain a non-resident, as well as remaining on the NRCo payroll as an NRCo employee. The Department will reimburse NRCo for the employee’s salary and benefits (with no mark-up thereof).

In finding that NRCo would be required to file a T2 return, CRA stated:

[A] non-resident employer that sends an employee to Canada to exercise employment duties for the employer for one year would generally be rendering services in Canada. As such … NRCo would be carrying on business in Canada.

Under paragraph 150(1)(a) … a non-resident corporation that carries on business in Canada is required to file a T2 … . We are not aware of any exceptions to the requirement to file a T2 where the non-resident corporation has no profit from the business carried on in Canada.

What was the CRA position on: (a) the obligation of an inactive Canadian corporation to file a T2 return for each of the years in which there is no business activity and, thus, no tax payable; and (b) the application of late-filing penalties? CRA considered that the reasoning in Exida.com indicates that a Canadian corporation with no taxable income (or a loss) for a year is subject to a s. 162(7) penalty for failure to file a nil return. However, it affirmed its policy that it nonetheless will not assess the penalty in these circumstances.

(e) Will CRA accept an estimate of the percentage of revenue generated in Sched. 88?

(f) Is Schedule 88 required to be completed by a financial institution that allows clients to access their bank account via the Internet?

CRA responded (TaxInterpretations translation):

…(e)…[W]here after making reasonable efforts, the taxpayer is not in a position to provide the exact percentage of its revenue derived from all its internet business activities, a reasonable estimate of these will be acceptable.

…(f)…[I]n general, a taxpayer will not have to declare a website which does not directly generate income. For example, the following types of websites are not included:

• Telephone directory sites which list the web or site page of the business
• Web pages or sites which only provide information.

Generally, banks generate income through their websites, for example, from transaction, fund transfer and cheque order charges. Accordingly,…these sites must be declared.

A US partnership (USFirm) subcontracts part of its contract, to perform consulting services to an arm's length Canadian customer (Canco), to an arm's-length Canadian professional firm (CanFirm) and Reg. 105 witholding is deducted by Canco on payments made to USFirm. In response to queries as to whether CRA require every partner of USFirm that is allocated income pertaining to the activities in Canada to file a Canadian tax return to claim its share of the withholding, and whether CRA requires every partner that is a corporation to file a Canadian corporate income tax return under the "carrying on business in Canada" criteria, CRA stated:

There is currently no administrative procedure whereby a refund can be issued in respect of a particular non-resident partner's share of the Regulation 105 withholding without that partner filing a tax return. However, where a partnership can demonstrate, based on treaty protection, that the normally required withholding is in excess of the ultimate tax liability, the partnership can make an application for a treaty-based waiver of Regulation 105 withholding on behalf of the partnership.

Corporate members of a partnership must file an income tax return pursuant to paragraph clause 150(1)(a)(i)(B) if they carry on business in Canada (i.e. including through a partnership).

In indicating that a provincial Crown corporation was not required to file a T2 return, CRA stated:

This position also applies to the forms that must be filed with the T2 return, including Form T106: Information Return of Non-Arm's Length Transactions with Non-Residents. … With respect to wholly-owned subsidiaries of XXXXXXXXXX, we are of the view that it must be determined whether such subsidiaries for the Quebec public administration purposes are Crown corporations.

To obtain confirmation that a wholly-owned subsidiary XXXXXXXXXX is a Crown corporation, we suggest that you contact the Ministère des Ressources naturelles et de la Faune du Québec, which is responsible for XXXXXXXXXX.

S. 94(3)(f) and the s. 94(1) definition of “electing trust” contemplate that a trust which is deemed under s. 94(3)(a) to be resident may elect, with its return for its first taxation year in which it is subject to the s. 94 rules, to exclude its “non-resident portion” from taxation under those rules. If a trust did not file a schedule of assets as requested in Question 1 of the T3 income tax return for that year, would an election made by it under s. 94(3)(f) be invalid?

CRA noted that, having regard to s. 32 of the Interpretation Act, the question was whether the missing information could be referred to as being substantial to the T3 return, i.e., impacting the substance of that prescribed form. Although this was a question of fact, CRA indicated that it was reasonable to conclude that a schedule of assets supporting the amount of income subject to Canadian tax (or the non-resident portion that was not subject to Canadian tax) may be viewed as substantive to the T3 return, so that failure to provide the Schedule would cause the T3 return to be considered to be invalidly filed.

CRA noted that its:

EFILE web service is now accepting transmissions of T3 returns (currently limited to only 2021 and subsequent tax years T3RET, T3S, T3M, T3RCA & T3ATH-IND return types) and T1135 Foreign Income Verification Statements.

Where a trust does not satisfy any of the conditions for exemption listed in the Trust Guide for a taxation year, will it be subject to any penalty for failure to file a tax return or information return? CRA responded:

Generally, the CRA does not intend to impose a penalty for failure to file an income or information return on a person who has not filed a T3 return for a particular taxation year where none of the situations listed in the T3 Trust Guide (T4013) under the heading "Who has to file a return?" applied to that person for that particular taxation year.

Of course, the filing of a T3 Return can still be requested by the CRA under subsection 150(2).

A T3 return must be filed where a taxpayer has died, even where no trust is created by the deceased's will, the estate is liquidated within six or seven months and the beneficiaries are instructed by the executor to report their respective shares of the only income of the trust.

CRA indicated that it is working on providing further guidance on preparing tax returns for crypto asset dispositions by updating the T1 form, the Federal Income Tax Guide, the T1 Schedule 3, and the T4037 Capital Gains Guide, for the 2022 taxation year.

CRA indicated that a GIC issued by a Canadian bank or trust company did not constitute one of the assets listed in s. 150(1.2)(b), such as money, or a government issued or guaranteed debt obligation described in s. 212(3) – fully exempt interest – (a). Accordingly, the holding of a GIC by a trust would preclude it from qualifying under the s. 150(1.2)(b) exemption.

Where a s. 116 certificate is issued respecting a disposition of taxable Canadian property (that is not treaty-protected property) by a partnership with numerous non-resident partners, and all Canadian taxes owing on the resulting taxable capital gain have been paid, is no Part I tax considered to be payable by the non-residents for the purposes of s. 150(5)(b), such that the disposition will be an “excluded disposition”?

CRA indicated that non-resident taxpayers are required under s. 150 to file a Canadian tax return if inter alia Part 1 “tax is payable” for the year, being the amount payable before deducting any amounts paid on account of tax, such as instalments or withholding. This interpretation applies to “tax is payable” in ss. 150(1), 150(1.1), and (respecting the definition of “excluded disposition”) 150(5)(b). Therefore, even if a s. 116 certificate has been issued indicating that all Part 1 tax has been paid, there would be no excluded disposition.