Income Tax Severed Letters - 2023-11-08

Technical Interpretation - External

20 July 2023 External T.I. 2022-0954801E5 - Interaction of subsections 227(8), (8.3) and (8.5)

Unedited CRA Tags
227(8), (8.3), (8.5)

Principal Issues: Whether a corporation resident in Canada (CRIC) that has late-filed the form required by subparagraph 212.3(7)(d)(i) could be:
• assessed interest on the late remittance of any Part XIII tax required by subsection 212(2) to be withheld from a subparagraph 212.3(7)(d)(ii) deemed dividend, and
• assessed a penalty under subsection 227(8) for failing to withhold Part XIII tax on such a dividend.

Position: Where a CRIC has late-filed the form required by subparagraph 212.3(7)(d)(i), the Minister may assess interest on the late remittance of any Part XIII tax required by subsection 212(2) to be withheld from any resulting subparagraph 212.3(7)(d)(ii) deemed dividend. However, the CRIC would not be assessed a penalty under subsection 227(8) for failing to withhold Part XIII tax on such a dividend.

Reasons: Paragraph 227(8.3)(b) authorizes the Minister to assess interest on an amount required by section 215 to be withheld, beginning on the day on which the amount was required to be withheld and ending on the day that it is paid, or deemed paid by paragraph 227(6.2)(c), to the Receiver General.
Paragraph 227(8.5)(b) states that a subsection 227(8) penalty will not apply to a CRIC in respect of Part XIII tax in respect of a dividend it has been deemed to have paid under subparagraph 212.3(7)(d)(ii).

13 March 2023 External T.I. 2021-0895261E5 - Application of subsection 162(7) to a T3 return

Unedited CRA Tags
162(1), (2) and (7); 150(1)(c); 204(1) of the Regulations

Principal Issues: Whether a penalty for the failure to file an information return as and when required under subsection 162(7) can be applied when a trust, that has taxes payable for the taxation year but no unpaid balance owing on its due date because of instalments paid throughout the year, has filed its T3 Income Tax and Information Return (T3 return) late.

Position: Yes.

Reasons: The T3 return is both a return of income and an information return. The failure to file a return of income is subject to a penalty under subsection 162(1) or (2). The failure to file an information return is generally subject to a penalty under section 162(7) unless another provision sets out a penalty for the failure. Therefore, if a penalty amount is calculated and assessed under subsection 162(1) or (2) for a failure to file a T3 return, no penalty in subsection 162(7) can apply for that same failure. If the penalties in subsections 162(1) and (2) do not apply (because there is no unpaid tax when the T3 return was required to be filed), the penalty in subsection 162(7) can apply.

Technical Interpretation - Internal

26 May 2023 Internal T.I. 2023-0962611I7 - Paragraph 60(v.2) deduction for a bankrupt

Unedited CRA Tags
60(v.2), 8(2) of the CRB Act

Principal Issues: 1. Can a Canada Recovery Benefit (CRB) repayment under section 8 of the Canada Recovery Benefits Act (CRB Act) be deducted on a pre-bankruptcy return, given that its calculation must be made after the end of the calendar year (taking into account income earned in the post-bankruptcy taxation year)?
2. Does the wording “the amount was not deductible in computing the taxpayer’s income for any preceding taxation year” in paragraph 60(v.2) mean that if the CRB repayment amount is deductible in a pre-bankruptcy taxation year, it must be claimed in that taxation year even if this does not match the income inclusion with respect to the CRB received in the calendar year?

Position: 1. Yes.
2. Yes.

Reasons: 1. The text of paragraph 60(v.2) requires that the deduction of a CRB repayment calculated under section 8 of the CRB Act and payable on or before the balance-due day for the taxation year may be deducted provided that it was not deductible in a preceding taxation year. Any repayment required by section 8 of the CRB Act is considered payable on the balance-due day for the year. Therefore, income in a pre-bankruptcy taxation year may be reduced by a deduction under paragraph 60(v.2).
2. The text of paragraph 60(v.2) is clear that the deduction of a CRB repayment calculated under section 8 of the CRB Act and payable on or before the balance-due day for the taxation year may be deducted provided that it was not deductible in a preceding taxation year. There is no requirement that the CRB income be (or have been) included in income in order for a CRB repayment to be deductible. Therefore, it is our view that a deduction under paragraph 60(v.2) for a CRB repayment should always be claimed in the pre-bankruptcy taxation year.

10 May 2023 Internal T.I. 2021-0918031I7 - Ontario CMT - corrected adjusted net loss balance

Unedited CRA Tags
57(1) and (3), 58(1) and (2) of the Taxation Act, 2007

Principal Issues: Can adjustments be made to a taxpayer’s reported Ontario CMT balances (adjusted net loss and eligible losses) when the taxation year that the balances relate to is statute barred?

Position: Yes, provided that the future taxation year's normal reassessment period has not ended, or is the subject of an appeal.

Reasons: Note that any CMT credit or CMT payable balance for the taxation year cannot be changed if the taxation year is statute barred. This would include any amount of eligible losses that were deducted from adjusted net income for the taxation year when calculating any CMT liability of the taxpayer.
However, it is our view that any adjusted net loss balance for the taxation year could be corrected in a future taxation year if it was not correctly reported because an error has been made by the taxpayer.