MANDATORY ELECTRONIC FILING
As the Canada Revenue Agency (CRA) moves more of its tax services on-line, certain taxpayers and filers are now required to file their tax information electronically to the CRA. This will reduce costs, and allow for faster and more accurate processing of returns. Beginning in 2010, mandatory electronic filing requirements apply for T2 corporate tax returns and changes have been made which will require more information returns to be filed electronically. Further to these changes, in January the federal government announced new electronic filing requirements for GST/HST registrants. We have provided details of all of these new electronic filing requirements below.
T2 Corporate Tax Returns – Effective for taxation years ending after 2009, corporations with annual gross revenue in excess of $1 million for a taxation year are required to file their T2 corporate tax returns over the internet. This is done through the CRA’s Corporation Internet Filing service or My Business Account service, and CRA approved commercial software must be used to prepare the returns. Note that certain corporations are not required to file electronically and these include insurance corporations, non-resident corporations, corporations reporting in functional currency and corporations that are exempt from tax payable under section 149 of the Income Tax Act (for example, non-profit organizations). As an aside, an administrative concession was made with respect to return filing requirements for certain tax-exempt entities which apply to all taxation years up to and including 2010. For more information on this concession, read our Tax Factor 2009-03 article titled “CRA to Continue to Pay Rebates and Refunds to Tax-Exempt Entities”.
Although electronic filing will be required for corporate tax returns as noted above, penalties for not filing electronically when required will not apply until 2011. This penalty will gradually increase from $250 for taxation years that end in 2011, to $500 for taxation years that end in 2012 and finally to $1,000 for taxation years that end after 2012.
Information Returns – Beginning in 2010, filers of certain information returns that are submitting more than 50 information slips are required to internet file their returns. Prior to 2010, electronic filing (through the internet or on electronic media) was required where more than 500 information slips were submitted. The new filing requirement applies to most of the common information returns, such as the T4 Statement of Remuneration Paid, the T5 Statement of Investment Income, and the T3 Statement of Trust Income Allocations and Designations. For a complete list of information returns where internet filing is required, go to the CRA’s website.
To internet file information returns, filers can use the CRA’s Internet File Transfer (XML) service. For T4 slips, other options for filing include using the CRA’s T4 Web Forms (1 to 3 slips) or T4 Desktop Application (1 to 70 slips) or My Business Account.
Mandatory electronic filing relates to the date of filing and not the tax year of the returns being filed. Therefore, if you are filing returns for prior years, these must also be filed over the internet.
There will be a penalty for failing to comply with the mandatory internet filing requirement which will be assessed starting next year on January 1, 2011. The penalty will be calculated based on the number of information returns (i.e. slips) that should have been filed electronically as follows:
GST Returns – Effective for reporting periods beginning on or after July 1, 2010, new electronic filing requirements will apply to GST/HST registrants. Currently, only GST/HST registrants meeting certain criteria have the option to file electronically. This will change as all registrants, including those registrants required to file a return with Revenu Québec, will be able to file electronically. Further to this change, the following registrants will be required to file their GST/HST returns electronically as of the effective date noted above:
- GST/HST registrants with greater than $1.5 million in annual taxable supplies (including those supplies of associated persons), with an exception for charities.
- Registrants required to recapture input tax credits (ITCs) for the provincial portion of the HST on certain inputs in Ontario or British Columbia.
- Certain builders that are affected by the transitional housing measures announced by Ontario or British Columbia.
Note that the new electronic filing requirements will apply to GST/HST registrants that file with Revenu Québec and information on the appropriate filing options will be released in the near future.
Those registrants that will be required to electronically file for their first reporting period that ends on or after July 1, 2010, but fail to do so, will be subject to penalties. Further information is expected from the government with respect to these penalties.
The CRA will provide four electronic filing options to GST/HST registrants, however, certain registrants will be required to use a specific option. The four options available are GST/HST NETFILE, GST/HST TELEFILE, EDI (Electronic Data Interchange) and GIFT (GST/HST Internet File Transfer using third party CRA certified accounting software). For details on the specific filing requirements, refer to the chart below.
If you have questions about the new electronic filing requirements for any of the above noted returns, contact your BDO advisor.
Notes:
(1) Registrants required to recapture ITCs for the provincial portion of the HST on certain inputs in Ontario or British Columbia.
(2) Builders that meet one of the following conditions will be required to use GST/HST NETFILE:
- Sell “grandparented” housing where the purchaser is not entitled to claim a GST/HST new housing rebate or new residential rental property rebate,
- Sell housing subject to the HST where the builder purchased that housing on a “grandparented” basis,
- Report the transitional tax adjustment on housing in their net tax calculation for the reporting period, or
- Report provincial transitional new housing rebates claimed for the reporting period.
Note that “grandparented” housing generally refers to the sale or possession of a newly constructed or substantially renovated house that transfers on or after July 1, 2010, but where no HST applies due to the fact that the written purchase and sale agreement was entered into on or before June 18, 2009 (for Ontario) or November 18, 2009 (for British Columbia).
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