No Taxable Income, No Rush to File – Think Again About Information Returns

Mew & Company, Vancouver Corporate Tax Accountants 

Penalties for Filing Late with the Canada Revenue Agency

Sophisticated Canadian small corporations have good knowledge of the tax filing requirements and deadlines for their corporate tax return. Corporate tax returns are due six months after the business year end. The penalty for late filing is based on the amount of taxes owing on the date the corporate tax return is due. If the corporation had a bad year or is in an exploratory stage of its business cycle, often the management and the tax advisor have good reason to believe that no taxes will be owing for the year and therefore there is no rush to file the return. However, for your corporate tax planning, care should be taken in jumping to this “obvious” conclusion.

Canadian Corporations with Foreign Property

For one, Canadian corporations that hold specified foreign property with an adjusted cost base in excess of $100,000 Canadian dollar are required to file a T1135 form which is due on the same date as the corporate tax return. T1135 is called an information return and the penalty for late filing is $25 per day for up to 100 days (minimum $100 and maximum $2,500). This penalty is not crippling in itself but if CRA can prove gross negligence or if a demand to file this form is ignored, the penalties would be significant.

Read blog “Canadian Holding Corporations and Individuals: Avoid Costly Foreign Asset Reporting Pitfalls” for details.

Transactions With Non-arm’s Length Non-residents

Similarly, Canadian corporations that have transactions with non-arm’s length non-residents are required to file a T106 form which is due on the same date as the corporate tax return. Form T106 is also an information return and the penalty for late filing is identical to the T1135 late filing mentioned in the above paragraph. Filing of T106 is required when the total reportable transactions with all the non-residents combined is more than CAN $1,000,000 for the reporting year. Note that reportable transactions include advances made to and from the non-arm’s length non-residents.

US Bank Accounts & Stocks

A Canadian corporation can have a bad year but if it owns more than $100,000 in specified foreign property, T1135 filing is required. Something simple as a bank account in the U.S. (which many online retailers have), or Apple stocks in the company’s investment portfolio qualify as specified foreign property. Similarly, Canadian subsidiaries, controlled and funded by non-resident corporations, at the start-up phase may not have income taxes to pay but may have a T106 filing requirement. The point is filing late with CRA is not a good idea at all under any circumstances.

Our Business Accountants in Vancouver B.C.

Mew and Company is an independent firm of Chartered Accountants, located in Downtown Vancouver B.C. If you have any questions about corporate tax returns or would like to know more about how we can help you, call us at 604 688 9198 or contact us online.

Disclaimer: All Rights Reserved for Mew & Company. This blog post is designed for personal use only. Please consult your professional tax advisor for further information. Mew & Company is not responsible for any legal disputes resulting from the content of this blog post.