Principal Issues: Proper application of Subsection 162(2.1) where no amount is computed under subsection 162(1).
Position: Penalty still applies.
Reasons: The law.
XXXXXXXXXX 2006-019553 Michael Cooke October 3, 2006
Dear XXXXXXXXXX:
Re: Application of Subsection 162(2.1)
This is in reply to your email of July 5, 2006 wherein you requested our comments with respect to the imposition of a penalty under subsection 162(2.1) of the Income Tax Act ("Act") where a non-resident corporation fails to file a return in accordance with paragraph 150(1)(a) of the Act.
In your fact situation you indicate that the particular non-resident corporation (the "taxpayer") did not file a return of income in accordance with paragraph 150(1)(a) of the Act because there was no tax owing by the taxpayer on the balance due date on which to apply the penalty under subsection 162(1). However, you indicate that CRA assessed the taxpayer with a penalty under subsection 162(2.1).
You maintain that there should be no penalty imposed under subsection 162(2.1) because the preamble of subsection 162(2.1) states that it will apply, inter alia, where the non-resident corporation is liable to a penalty under subsection 162(1). Since the amount of the penalty under subsection 162(1) was nil, the taxpayer should not be considered to have been liable to a penalty under that subsection.
Our Comments
In your letter, you have outlined what appears to be an actual fact situation related to a particular taxpayer. The review of such situations is the responsibility of the local Tax Services Office that is responsible for administering the tax affairs of the taxpayers in question. Furthermore, it is the practise of the Canada Revenue Agency ("CRA") not to comment on such situations when the identities of the taxpayers are not known. We can, however, provide you with the following general comments, which we hope will be of assistance.
It is CRA's view that a non-resident corporation would still be considered to be liable to a penalty under subsection 162(1) even though the calculated amount of the penalty under that subsection may be "nil".
Yours truly,
David Palamar
Manager
Corporate Reorganizations Section II
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch