Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.))

Offset of Refund Interest and Arrears Interest

Marginal note:Definitions

• 161.1 (1) The definitions in this subsection apply in this section.

  accumulated overpayment amount

  accumulated overpayment amount, of a corporation for a period, means the overpayment amount of the corporation for the period together with refund interest (including, for greater certainty, compound interest) that accrued with respect to the overpayment amount before the date specified under paragraph (3)(b) by the corporation in its application for the period. (trop-payé accumulé)

  accumulated underpayment amount

  accumulated underpayment amount, of a corporation for a period, means the underpayment amount of the corporation for the period together with arrears interest (including, for greater certainty, compound interest) that accrued with respect to the underpayment amount before the date specified under paragraph (3)(b) by the corporation in its application for the period. (moins-payé accumulé)

  arrears interest

  arrears interest means interest computed under paragraph (5)(b), 129(2.2)(b), 131(3.2)(b), 132(2.2)(b), 133(7.02)(b) or 160.1(1)(b), subsection 161(1) or (11), paragraph 164(3.1)(b) or (4)(b) or subsection 187(2). (intérêts débiteurs)

  overpayment amount

  overpayment amount, of a corporation for a period, means the amount referred to in subparagraph (2)(a)(i) that is refunded to the corporation, or the amount referred to in subparagraph (2)(a)(ii) to which the corporation is entitled. (trop-payé)

  refund interest

  refund interest means interest computed under subsection 129(2.1), 131(3.1), 132(2.1), 133(7.01) or 164(3) or (3.2). (intérêts créditeurs)

  underpayment amount

  underpayment amount, of a corporation for a period, means the amount referred to in paragraph (2)(b) payable by the corporation on which arrears interest is computed. (moins-payé)

• Marginal note:Concurrent refund interest and arrears interest

  (2) A corporation may apply in writing to the Minister for the reallocation of an accumulated overpayment amount for a period that begins after 1999 on account of an accumulated underpayment amount for the period if, in respect of tax paid or payable by the corporation under this Part or Part I.3, II, IV, IV.1, VI, VI.1 or XIV,

  • (a) refund interest for the period

    • (i) is computed on an amount refunded to the corporation, or

    • (ii) would be computed on an amount to which the corporation is entitled, if that amount were refunded to the corporation; and

  • (b) arrears interest for the period is computed on an amount payable by the corporation.

• Marginal note:Contents of application

  (3) A corporation’s application referred to in subsection (2) for a period is deemed not to have been made unless

  • (a) it specifies the amount to be reallocated, which shall not exceed the lesser of the corporation’s accumulated overpayment amount for the period and its accumulated underpayment amount for the period;

  • (b) it specifies the effective date for the reallocation, which shall not be earlier than the latest of

    • (i) the date from which refund interest is computed on the corporation’s overpayment amount for the period, or would be so computed if the overpayment amount were refunded to the corporation,

    • (ii) the date from which arrears interest is computed on the corporation’s underpayment amount for the period, and

    • (iii) January 1, 2000; and

  • (c) it is made on or before the day that is 90 days after the latest of

    • (i) the day of sending of the first notice of assessment giving rise to any portion of the corporation’s overpayment amount to which the application relates,

    • (ii) the day of sending of the first notice of assessment giving rise to any portion of the corporation’s underpayment amount to which the application relates,

    • (iii) if the corporation has served a notice of objection to an assessment referred to in subparagraph (i) or (ii), the day of sending of the notification under subsection 165(3) by the Minister in respect of the notice of objection,

    • (iv) if the corporation has appealed, or applied for leave to appeal, from an assessment referred to in subparagraph (i) or (ii) to a court of competent jurisdiction, the day on which the court dismisses the application, the application or appeal is discontinued or final judgment is pronounced in the appeal, and

    • (v) the day of sending of the first notice to the corporation indicating that the Minister has determined any portion of the corporation’s overpayment amount to which the application relates, if the overpayment amount has not been determined as a result of a notice of assessment sent before that day.

• Marginal note:Reallocation

  (4) The amount to be reallocated that is specified under paragraph (3)(a) by a corporation is deemed to have been refunded to the corporation and paid on account of the accumulated underpayment amount on the date specified under paragraph (3)(b) by the corporation.

• Marginal note:Repayment of refund

  (5) If an application in respect of a period is made under subsection (2) by a corporation and a portion of the amount to be reallocated has been refunded to the corporation, the following rules apply:

  • (a) a particular amount equal to the total of

    • (i) the portion of the amount to be reallocated that was refunded to the corporation, and

    • (ii) refund interest paid or credited to the corporation in respect of that portion

    is deemed to have become payable by the corporation on the day on which the portion was refunded; and

  • (b) the corporation shall pay to the Receiver General interest at the prescribed rate on the particular amount from the day referred to in paragraph (a) to the date of payment.

• Marginal note:Consequential reallocations

  (6) If a particular reallocation of an accumulated overpayment amount under subsection (4) results in a new accumulated overpayment amount of the corporation for a period, the new accumulated overpayment amount shall not be reallocated under this section unless the corporation so applies in its application for the particular reallocation.

• Marginal note:Assessments

  (7) Notwithstanding subsections 152(4), (4.01) and (5), the Minister shall assess or reassess interest and penalties payable by a corporation in respect of any taxation year as necessary in order to take into account a reallocation of amounts under this section.

Marginal note:Period where interest not payable

161.2 Notwithstanding any other provision of this Act, if the Minister notifies a taxpayer that the taxpayer is required to pay a specified amount under this Act and the taxpayer pays the specified amount in full before the end of the period that the Minister specifies with the notice, interest is not payable on the specified amount for the period.

Small Amounts Owing

Marginal note:Interest and penalty amounts of $25 or less

161.3 If, at any time, a person pays an amount not less than the total of all amounts, other than interest and penalty, owing at that time to Her Majesty in right of Canada under this Act for a taxation year of the person and the total amount of interest and penalty payable by the person under this Act for that year is not more than $25.00, the Minister may cancel the interest and penalty.

Marginal note:Taxpayer

• 161.4 (1) If the Minister determines, at any time, that the total of all amounts owing by a person to Her Majesty in right of Canada under this Act does not exceed two dollars, those amounts are deemed to be nil.

• Marginal note:Minister

  (2) If, at any time, the total of all amounts payable by the Minister to a person under this Act does not exceed two dollars, the Minister may apply those amounts against any amount owing, at that time, by the person to Her Majesty in right of Canada. However, if the person, at that time, does not owe any amount to Her Majesty in right of Canada, those amounts payable are deemed to be nil.

Penalties

Marginal note:Failure to file return of income

• 162 (1) Every person who fails to file a return of income for a taxation year as and when required by subsection 150(1) is liable to a penalty equal to the total of

  • (a) an amount equal to 5% of the person’s tax payable under this Part for the year that was unpaid when the return was required to be filed, and

  • (b) the product obtained when 1% of the person’s tax payable under this Part for the year that was unpaid when the return was required to be filed is multiplied by the number of complete months, not exceeding 12, from the date on which the return was required to be filed to the date on which the return was filed.

• Marginal note:Repeated failure to file

  (2) Every person

  • (a) who fails to file a return of income for a taxation year as and when required by subsection 150(1),

  • (b) to whom a demand for a return for the year has been sent under subsection 150(2), and

  • (c) by whom, before the time of failure, a penalty was payable under this subsection or subsection 162(1) in respect of a return of income for any of the 3 preceding taxation years

  is liable to a penalty equal to the total of

  • (d) an amount equal to 10% of the person’s tax payable under this Part for the year that was unpaid when the return was required to be filed, and

  • (e) the product obtained when 2% of the person’s tax payable under this Part for the year that was unpaid when the return was required to be filed is multiplied by the number of complete months, not exceeding 20, from the date on which the return was required to be filed to the date on which the return was filed.

• Marginal note:Failure to file - non-resident corporation

  (2.1) Notwithstanding subsections (1) and (2), if a non-resident corporation is liable to a penalty under subsection (1) or (2) for failure to file a return of income for a taxation year, the amount of the penalty is the greater of

  • (a) the amount computed under subsection (1) or (2), as the case may be, and

  • (b) an amount equal to the greater of

    • (i) $100, and

    • (ii) $25 times the number of days, not exceeding 100, from the day on which the return was required to be filed to the day on which the return is filed.

• Marginal note:Failure to file by trustee

  (3) Every person who fails to file a return as required by subsection 150(3) is liable to a penalty of $10 for each day of default but not exceeding $50.

• Marginal note:Ownership certificate

  (4) Every person who

  • (a) fails to complete an ownership certificate as required by section 234,

  • (b) fails to deliver an ownership certificate in the manner prescribed at the time prescribed and at the place prescribed by regulations made under that section, or

  • (c) cashes a coupon or warrant for which an ownership certificate has not been completed pursuant to that section,

  is liable to a penalty of $50.

• Marginal note:Failure to provide information on form

  (5) Every person who fails to provide any information required on a prescribed form made under this Act or a regulation is liable to a penalty of $100 for each such failure, unless

  • (a) in the case of information required in respect of another person or partnership, a reasonable effort was made by the person to obtain the information from the other person or partnership; or

  • (b) in the case of a failure to provide a Social Insurance Number on a return of income, the person had applied for the assignment of the Number and had not received it at the time the return was filed.

• Marginal note:Failure to provide claim preparer information

  (5.1) Every person or partnership who makes, or participates in, assents to or acquiesces in the making of, a false statement or omission in respect of claim preparer information required to be included in an SR&ED form is jointly and severally, or solidarily, liable, together with any claim preparer of the form, to a penalty equal to $1,000.

• Marginal note:Due diligence

  (5.2) A claim preparer of an SR&ED form is not liable for a penalty under subsection (5.1) in respect of a false statement or omission if the claim preparer has exercised the degree of care, diligence and skill to prevent the making of the false statement or omission that a reasonably prudent person would have exercised in comparable circumstances.

• Marginal note:Definitions

  (5.3) The following definitions apply in this subsection and subsections (5.1) and (5.2).

  claim preparer

  claim preparer, of an SR&ED form, means a person or partnership who agrees to accept consideration to prepare, or assist in the preparation of, the form but does not include an employee who prepares, or assists in the preparation of, the form in the course of performing their duties of employment. (préparateur)

  claim preparer information

  claim preparer information means prescribed information regarding

  • (a) the identity of the claim preparer, if any, of an SR&ED form, and

  • (b) the arrangement under which the claim preparer agrees to accept consideration in respect of the preparation of the form. (renseignements relatifs au préparateur)

  SR&ED form

  SR&ED form means a prescribed form required to be filed under subsection 37(11). (formulaire de RS&DE)

• Marginal note:Failure to provide identification number

  (6) Every person or partnership who fails to provide on request their business number, their Social Insurance Number, their trust account number or their U.S. federal taxpayer identifying number to a person required under this Act or the Regulations to make an information return requiring the number is liable to a penalty of $100 for each such failure, unless

  • (a) an application for the assignment of the number is made within 15 days (or, in the case of a U.S. federal taxpayer identifying number, 90 days) after the request was received; and

  • (b) the number is provided to the person who requested the number within 15 days after the person or partnership received it.

• Marginal note:Failure to comply

  (7) Every person (other than a registered charity) or partnership who fails

  • (a) to file an information return as and when required by this Act or the regulations, or

  • (b) to comply with a duty or obligation imposed by this Act or the regulations

  is liable in respect of each such failure, except where another provision of this Act (other than subsection 162(10) or 162(10.1) or 163(2.22)) sets out a penalty for the failure, to a penalty equal to the greater of $100 and the product obtained when $25 is multiplied by the number of days, not exceeding 100, during which the failure continues.

• Marginal note:Late filing penalty — prescribed information returns

  (7.01) Every person (other than a registered charity) or partnership who fails to file, when required by this Act or the regulations, one or more information returns of a type prescribed for the purpose of this subsection is liable to a penalty equal to the greater of $100 and

  • (a) where the number of those information returns is less than 51, $10 multiplied by the number of days, not exceeding 100, during which the failure continues;

  • (b) where the number of those information returns is greater than 50 and less than 501, $15 multiplied by the number of days, not exceeding 100, during which the failure continues;

  • (c) where the number of those information returns is greater than 500 and less than 2,501, $25 multiplied by the number of days, not exceeding 100, during which the failure continues;

  • (d) where the number of those information returns is greater than 2,500 and less than 10,001, $50 multiplied by the number of days, not exceeding 100, during which the failure continues; and

  • (e) where the number of those information returns is greater than 10,000, $75 multiplied by the number of days, not exceeding 100, during which the failure continues.

• Marginal note:Failure to file in appropriate manner — prescribed information returns

  (7.02) Every person (other than a registered charity) or partnership who fails to file, in the manner required by the regulations, one or more information returns of a type prescribed for the purpose of this subsection is liable to a penalty equal to

  • (a) where the number of those information returns is greater than 5 and less than 51, $125;

  • (a.1) where the number of those information returns is greater than 50 and less than 251, $250;

  • (b) where the number of those information returns is greater than 250 and less than 501, $500;

  • (c) where the number of those information returns is greater than 500 and less than 2,501, $1,500;

  • (d) where the number of those information returns is greater than 2,500, $2,500; and

  • (e) in any other case, nil.

• Marginal note:Failure to make partnership information return

  (7.1) Where a member of a partnership fails to file an information return as a member of the partnership for a fiscal period of the partnership as and when required by this Act or the regulations and subsection 162(10) does not set out a penalty for the failure, the partnership is liable to a penalty equal to the greater of $100 and the product obtained when $25 is multiplied by the number of days, not exceeding 100, during which the failure continues.

• Marginal note:Failure to file in appropriate manner — return of income

  (7.2) Every person who fails to file a return of income for a taxation year as required by subsection 150.1(2.1) is liable to a penalty equal to $1,000.

• Marginal note:Failure to file in appropriate manner — tax preparer

  (7.3) Every tax preparer who fails to file a return of income as required by subsection 150.1(2.3) is liable to a penalty equal to

  • (a) $25 for each such failure in respect of a return of an individual; and

  • (b) $100 for each such failure in respect of a return of a corporation.

• Marginal note:Penalty — electronic payments

  (7.4) Every person who fails to comply with subsection 160.5(2) is liable to a penalty equal to $100 for each such failure.

• Marginal note:Repeated failure to file

  (8) Where

  • (a) a penalty was payable under subsection 162(7.1) in respect of a failure by a member of a partnership to file an information return as a member of the partnership for a fiscal period of the partnership,

  • (b) a demand for the return or for information required to be contained in the return has been served under section 233 on the member, and

  • (c) a penalty was payable under subsection 162(7.1) in respect of the failure by a member of a partnership to file an information return as a member of the partnership for any of the 3 preceding fiscal periods,

  the partnership is liable, in addition to the penalty under subsection 162(7.1), to a penalty of $100 for each member of the partnership for each month or part of a month, not exceeding 24 months, during which the failure referred to in paragraph 162(8)(a) continues.

• Marginal note:Rules — partnership liable to a penalty

  (8.1) If a partnership is liable to a penalty under any of subsections (5) to (7.1), (7.3), (7.4), (8) and (10), then sections 152, 158 to 160.1, 161 and 164 to 167 and Division J apply, with any modifications that the circumstances require, to the penalty as if the partnership were a corporation.

• (9) [Repealed, 1998, c. 19, s. 188(4)]

• Marginal note:Failure to furnish foreign-based information

  (10) Every person or partnership who,

  • (a) knowingly or under circumstances amounting to gross negligence, fails to file an information return as and when required by any of sections 233.1 to 233.4 and 233.8, or

  • (b) where paragraph 162(10)(a) does not apply, knowingly or under circumstances amounting to gross negligence, fails to comply with a demand under section 233 to file a return

  is liable to a penalty equal to the amount determined by the formula

  ($500 × A × B) - C

  where

  A

  is

  • (c) where paragraph 162(10)(a) applies, the lesser of 24 and the number of months, beginning with the month in which the return was required to be filed, during any part of which the return has not been filed, and

  • (d) where paragraph 162(10)(b) applies, the lesser of 24 and the number of months, beginning with the month in which the demand was served, during any part of which the return has not been filed,

  B

  is

  • (e) where the person or partnership has failed to comply with a demand under section 233 to file a return, 2, and

  • (f) in any other case, 1, and

  C

  is the penalty to which the person or partnership is liable under subsection 162(7) in respect of the return.

• Marginal note:Additional penalty

  (10.1) Where

  • (a) a person or partnership is liable to a penalty under subsection 162(10) for the failure to file a return (other than an information return required to be filed under section 233.1),

  • (b) if paragraph 162(10)(a) applies, the number of months, beginning with the month in which the return was required to be filed, during any part of which the return has not been filed exceeds 24, and

  • (c) if paragraph 162(10)(b) applies, the number of months, beginning with the month in which the demand referred to in that paragraph was served, during any part of which the return has not been filed exceeds 24,

  the person or partnership is liable, in addition to the penalty determined under subsection 162(10), to a penalty equal to the amount determined by the formula

  A - B

  where

  A

  is

  • (d) if the return is required to be filed under section 233.2 in respect of a trust, 5% of the total of all amounts each of which is the fair market value, at the time it was made, of a contribution of the person or partnership made to the trust before the end of the last taxation year of the trust in respect of which the return is required,

  • (e) where the return is required to be filed under section 233.3 for a taxation year or fiscal period, 5% of the greatest of all amounts each of which is the total of the cost amounts to the person or partnership at any time in the year or period of a specified foreign property (as defined by subsection 233.3(1)) of the person or partnership, and

  • (f) where the return is required to be filed under section 233.4 for a taxation year or fiscal period in respect of a foreign affiliate of the person or partnership, 5% of the greatest of all amounts each of which is the total of the cost amounts to the person or partnership at any time in the year or period of a property of the person or partnership that is a share of the capital stock or indebtedness of the affiliate, and

  B

  is the total of the penalties to which the person or partnership is liable under subsections 162(7) and 162(10) in respect of the return.

• Marginal note:Application to trust contributions

  (10.11) In paragraph (d) of the description of A in subsection (10.1), subsections 94(1), (2) and (9) apply.

• Marginal note:Shares or debt owned by controlled foreign affiliate

  (10.2) For the purpose of paragraph (f) of the description of A in subsection 162(10.1),

  • (a) shares or indebtedness owned by a controlled foreign affiliate of a person or partnership are deemed to be owned by the person or partnership; and

  • (b) the cost amount at any time of such shares or indebtedness to the person or partnership is deemed to be equal to 20% of the cost amount at that time to the controlled foreign affiliate of the shares or indebtedness.

• Marginal note:Application to partnerships

  (10.3) For the purposes of paragraph (f) of the description of A in subsection 162(10.1) and subsection 162(10.2), in determining whether a non-resident corporation or trust is a foreign affiliate or a controlled foreign affiliate of a partnership,

  • (a) the definitions direct equity percentage and equity percentage in subsection 95(4) shall be read as if a partnership were a person; and

  • (b) the definitions controlled foreign affiliate and foreign affiliate in subsection 95(1) shall be read as if a partnership were a taxpayer resident in Canada.

• Marginal note:Application to non-resident trusts

  (10.4) For the purposes of this subsection, paragraph (f) of the description of A in subsection 162(10.1) and subsection 162(10.2),

  • (a) a non-resident trust is deemed to be a controlled foreign affiliate of each beneficiary of which the trust is a controlled foreign affiliate for the purpose of section 233.4;

  • (b) the trust is deemed to be a non-resident corporation having a capital stock of a single class divided into 100 issued shares;

  • (c) each beneficiary under the trust is deemed to own at any time the number of the issued shares of the corporation that is equal to the proportion of 100 that

    • (i) the fair market value at that time of the beneficiary’s beneficial interest in the trust

    is of

    • (ii) the fair market value at that time of all beneficial interests in the trust; and

  • (d) the cost amount to a beneficiary at any time of a share of the corporation is deemed to be equal to the amount determined by the formula

    A/B

    where

    A

    is the fair market value at that time of the beneficiary’s beneficial interest in the trust, and

    B

    is the number of shares deemed under paragraph 162(10.4)(c) to be owned at that time by the beneficiary in respect of the corporation.

• Marginal note:Effect of subsequent events

  (11) For the purpose of computing a penalty under subsection 162(1) or 162(2) in respect of a person’s return of income for a taxation year, the person’s tax payable under this Part for the year shall be determined before taking into consideration the specified future tax consequences for the year.