If you are late filing your corporate tax return by more than three years, any overpayment is considered statute barred under the Canadian Income Tax Act (Section 164(1)).
This means that the Canada Revenue Agency (CRA) will not issue the refund to the corporation. In addition, the corporation cannot apply for tax payer relief to alleviate this situation. Even if the refund was generated due to an overpayment of installments or by a garnishee it will still be considered statute barred.
The Minister of National Revenue has provided an avenue to have these credits allocated to other established debt using the new form RC431 – Request for Re-appropriation of T2 Statute-barred Credits. If you are late filing your corporate tax return this form lets you request that the funds be re-appropriated (transferred) to other established debt. Established debt means any debt that is outstanding on any other program accounts within the corporation. This includes the following program accounts;
1) GST account
2) Payroll account
3) Corporate taxes of other years
4) Import/Export account
The request cannot be made to re-appropriate the credits to other businesses, the shareholder’s personal tax return, or debt still owed to CRA for years prior to the return that generated the statute barred credit.
To be eligible for this consideration, you must explain the circumstances that prevented you from being able to meet the tax filing obligation in a timely manner. This includes an explanation regarding what has happened during the years that passed between when the return should have been filed to when it was filed. You will also be required to explain why someone could not have aided you to meet your tax filing obligation. Finally, you must include any supporting documentation that may support your claim.
If the Minister of National Revenue approves the request for re-appropriation but the corporation has no established debt to apply the re-appropriation to, a request can be made to apply the credit to future debts in the corporation. On an annual basis, a request to have the re-appropriated funds applied to these years will need to be made until the re-appropriated funds are fully used.
Here is the link to the form RC 431 – Request for Re-appropriation of T2 Statute-barred Credits;
For more detailed information about the impact of late filing your corporate tax return please call KWB at 780-466-6204 or email us by clicking here.
Thanks to Sophie Duncan of KWB Chartered Accountants for providing this content.