Principal Issues: a) Whether late-filing penalties apply when the requirement to file T5013 or T3 returns has been waived by the Minister, but such forms are filed anyway, but late. b) Whether a taxpayer meets the requirements of subsection 230(1) if the taxpayer takes an electronic image of relevant documents and destroys the originals thereafter. c) Whether the CRA has the intention of permitting non-resident taxpayers to file their tax returns electronically. d) Whether the CRA has the intention of permitting individual taxpayers to file amended tax returns electronically. e) Whether the CRA would accept an estimate of the taxpayer's percentage of gross revenues for the purposes of Schedule 88. f) Whether financial institutions have to file Schedule 88 with respect to websites on which their clients can access their bank accounts in order to carry out their transactions.
Position: a) Generally, no, unless the Minister issues a specific requirement to file; b) yes, if certain conditions are met; c) & d) at the moment, it is not possible; e) yes, in certain circumstances; f) yes.
Reasons: a) Given that the Minister waived the requirement to file, no deadlines exist for the purposes of 162(7.1).; b) The conditions set out in IC78-10R5 must be adhered to. If not, the taxpayer must be able to demonstrate that the requirements of 230(1) are met.; c) & d) It is currently not possible, but the situation is being studied, although no specific timeline has been set out.; e) If after having made reasonable efforts, it is impossible to determine the exact amount of income, a reasonable estimate will be acceptable; f) Given that banks generate income from those websites, they have to file Schedule 88 with respect to those sites.
FEDERAL TAXATION ROUNDTABLE 10 OCTOBER 2014
2014 APFF CONFERENCE
Question 27
Administrative questions
We have identified a number of tax compliance issues on which practitioners would like to hear from the CRA. Here are the various questions in quick succession:
a) If the filing of Form T5013 for Partnerships or Form T3 for Trusts are waived under the CRA administrative policies but the taxpayer nevertheless decides to file them, would the late-filing penalties apply in the event of them being filed after the time limit set out in the ITA?
b) Can a taxpayer take a digital image of its paper documents (invoices, expense accounts, contracts) and destroy the original documents? In practice, has the position of the CRA set out in Information Circular 78-10R5 been relaxed - or can it be in the current digital environment?
c) Does the CRA intend to permit electronic transmission for non-resident taxpayers?
d) Does the CRA intend to permit individuals to file amended returns electronically (since May 2014, the filing of amended returns for corporations has been accepted)?
e) Will the CRA accept an estimate of the percentage of gross revenue generated by the Internet for the new Schedule 88 "Internet Business Activities", given that in many cases the information would not be available in business’s accounting systems?
f) Is Schedule 88 required to be completed by a financial institution that allows clients to access their bank account via the Internet to carry out financial transactions (such as RRSP contributions) and administrative transactions (for example, ordering cheques)?
CRA response to question 27(a)
The penalty under subsection 162(7.1) respecting the (T5013) partnership information returns to be filed under ITA paragraph 221(1)(d) and ITR section 229 has, as a condition for its application, a failure in the filing thereof, in accordance with the terms and within the time limit provided for by the Act or the Regulations, by the person required to file them.
The Minister has, by virtue of subsection 220(2.1), the discretion to waive the requirement that a person file, inter alia, a prescribed form or other document. However, the person is still required to file the document at the request of the Minister. The Minister has exercised this authority with respect to T5013 returns in Guide T4068, Guide for the Partnership Information Return (T5013 Forms) 2013 to exempt, in certain situations, partnerships from filing such a return.
Thus, in the event that a person, notwithstanding having been exempted under the above provisions, nevertheless files a return, but beyond the time otherwise provided, the penalty under subsection 162(7.1) would not be applicable in view of the fact that the such time limitations and requirements provided for in ITR section 229 ITR do not apply to that filing. This, however, is subject to there having been no filing demand made by the Minister.
We are of the view that such reasoning could be applicable to other similar situations, including situations involving trusts (T3) income tax returns, to be filed in accordance with the time limitations and requirements set out in ITA paragraph 150(1)(c) and ITR subsection 204(1).
CRA response to question 27(b)
The CRA's policy on the destruction of paper documents following their digitization remains, to date, as described in paragraph 22 of Information Circular 78-10R5, Books and Records Retention/Destruction, June 2010 and in paragraph 28 of Information Circular 05-1R1, Electronic Recordkeeping, June 2010, whereby supporting documents in paper format that have been imaged in accordance with the latest national standard of Canada, as described in each of these Circulars, may be disposed of and their images kept as permanent records. It is important to note that these requirements are not specifically set out in ITA subsection 230(1), which only requires that the records be kept in such form and containing such information as will enable the taxes payable by the taxpayer under the Income Tax Act or the taxes or other amounts that should have been deducted, withheld or collected to be determined under the Act. Thus, to the extent that a taxpayer does not follow the standards referred to above, the taxpayer may not meet the requirements of subsection 230(1) and could potentially be denied the right to certain deductions in computing the taxpayer’s income.
CRA response to questions 27(c) and (d)
The CRA's objective is to do everything in its power to reduce taxpayers' tax compliance burden, including its ongoing efforts to modernize to adapt to new technologies. To date, it is still not possible for non-residents to file their tax returns electronically or for individuals to file amended returns in this way. The situation is under study, but no timetable has been established.
CRA response to question 27(e)
The CRA is of the view that where, after making reasonable efforts, a taxpayer is not in a position to provide the exact percentage of its revenue derived from all its internet business activities, a reasonable estimate thereof will be acceptable.
CRA response to question 27(f)
As noted on our website at http://www.cra-arc.gc.ca/tx/bsnss/tpcs/cmm/ncm/wbncm-eng.html, in 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.
These are similar to a list or a telephone directory or to a print advertisement, and are primarily intended to provide basic information, such as the company name, address, and telephone number, and general information on the type of products or services provided.
Generally, banks generate income through their websites, for example, from fees for transactions, money transfers or cheque orders. Accordingly, we are of the view that these sites must be declared.
Hugo Gravel
(613) 957-2058
2014-053821