Subsection 162(2.1) of the Income Tax Act provides for a penalty for a non-resident corporation that fails to file a return and that it is liable to a penalty under subsections 162(1) or (2). The penalties provided by the latter subsections are computed as a percentage of tax payable. What happens if no tax is payable and so no penalty is applicable under the latter subsections? Does the 162(2.1) penalty still apply?
The CRA took the position that the penalty does apply. According to the CRA, if a non-resident corporation fails to file a return, it is subject to a penalty under subsection 162(1), even if its income is nil, because in that case the penalty is nil as well (see CRA technical interpretation 2006-0195531).
One of David Bazar’s clients fell afoul of this position: the client was assessed a penalty under 162(2.1) even though it did not have any taxable income. David took the case to Tax Court and won. See Goar, Allison & Associates Inc. v. The Queen, 2007-3173(IT)I.
David is attempting to obtain a copy of the Judge’s reasons, which were delivered from the bench yesterday. I will see whether I can publish them here.
I should have mentioned that David Bazar is an accountant with Bazar McBean LLP, Chartered Accountants, in Oakville.