On March 27, 2020, the Government of Canada announced additional relief to support Canadian business during the COVID-19 pandemic. The added measures provide for extended tax reporting and remittance deadlines, deferred payment of customs duties, and significant adjustments to the government’s current administrative policies to help taxpayers meet their obligations. This supplemental assistance, which includes further economic initiatives for small and medium businesses, builds on the extensive COVID-19 related support measures previously announced.
Shortly after the federal government’s statement, Québec followed suit, announcing that the GST/HST measures will be adopted for QST purposes, to both harmonize with the federal government’s position and recognize the economic impact of the pandemic on its provincial economy.
Ryan’s analysis of the most significant tax measures included in the announcement can be found below.
GST/HST and QST Filing and Remittance Deferral
GST/HST registrants are required to file their returns and remit any net tax owing by the end of the month following the end of their reporting period. Net tax is essentially GST/HST collected on taxable supplies made by an organization, less any input tax credits claimed for tax paid on inputs to those activities. For larger taxpayers, returns are filed monthly, but smaller and certain other entities file quarterly or annually.
To assist Canadian businesses dealing with the economic impact of the COVID-19 pandemic, GST/HST remittance deadlines have been extended to June 30, 2020. Specifically, the extension applies to the:
- February, March, and April 2020 reporting periods of monthly filers;
- Reporting period from January 1 to March 31, 2020 for quarterly filers; and
- GST/HST return or any instalments becoming due in March, April, or May of 2020 for annual filers.
The GST/HST remittance deferral is intended to provide widespread cashflow relief for organizations struggling with the sudden change in our global economy. For example, a taxpayer about to file its February GST/HST return (normally due March 31, 2020) and remit $5 million in net tax can now defer that payment until June 30, 2020.
Unfortunately, the wording used by the Department of Finance in its news release is silent on the actual filing of GST/HST returns and somewhat unclear as to whether the remittance deferral is intended to apply to net tax or simply tax amounts collected. For this reason, we recommend that taxpayers file their February returns by the normal deadline of March 31, 2020 and avail themselves of the cashflow relief by deferring any net tax payable until June 30, 2020. Ryan will issue further guidance once it has been confirmed whether the GST/HST deferral extends beyond net tax payable and/or postpones the due date for filing returns. In any event, the deferral is optional relief, and taxpayers in negative net tax positions—where a GST/HST refund will be received from the Canada Revenue Agency (CRA)—should continue to file returns in accordance with the usual due dates.
As noted above, Québec has clearly confirmed that both the QST filing and remittance deadlines will be extended to June 30, 2020 for all returns due between March 27 and June 1, 2020, inclusive. Finances Québec Information Bulletin 2020-5 provides further information on the QST deferral.
Deferral of Customs Duties on Imports
Goods imported into Canada by businesses are generally subject to GST, and certain goods are also subject to customs duties (i.e., tariffs), which vary by type of good and country of origin. Generally, payment of any customs duties and GST owing on imports is required before the first day of the month following the month in which the Statement of Account (SOA) is issued.
Under the authority of the Customs Act, the due date for payment of customs duties and GST owing on imports has been extended to June 30, 2020 for SOAs for the months of March, April, and May 2020.
Additional Income Tax Relief
Several new initiatives have been announced to help taxpayers that might be struggling to meet their income tax obligations, as outlined below.
Administrative Relief
Except where otherwise noted, most administrative income tax requirements of taxpayers originally due after March 18, 2020, such as filing returns, elections, designations, and information requests, are now due on June 1, 2020. Examples of compliance activities that are expected to be eligible for the extension include:
- Form T2 – Corporate Income Tax Return;
- Form T106 – Information Return of Non-Arm’s Length Transactions with Non-Residents;
- Form T1134 – Information Return Relating to Controlled and Not-Controlled Foreign Affiliates;
- Form T1135 – Foreign Income Verification Statement;
- Form T1141 – Information Return in Respect of Contributions to Non-Resident Trusts, Arrangements or Entities;
- Form T1142 – Information Return in Respect of Distributions from and Indebtedness to a Non-Resident Trust; and
- Form RC4649 – Country-by-Country Report.
However, payroll deduction payments and any related activities are excluded from this extension. In addition, certain prescribed compliance requirements are not eligible for the extended filing deadline, making it important to validate the due date for any form or filing requirement under the Income Tax Act. It is not safe to assume that the relief applies automatically to all compliance activities. For example, withholding taxes should continue to be paid in accordance with the usual deadlines to avoid penalties and interest.
Objection Deadline Extended
The deadline for filing any objection request due on March 18 or later has been extended to June 30, 2020. In addition, the CRA has indicated that all objections not related to the entitlement of an individual to benefits and credits are currently on hold, and no collection action will be taken in relation to such objections during this time.
Charity, Trust, Partnership, and NR4 Returns
The deadline for Form T3010 – Registered Charity Information Return has been extended to December 31, 2020 for all charities with a return due date between March 18 and the end of year.
To account for certain administrative requirements due in advance of the June 1, 2020 deadline for individuals to file their personal income tax returns, the deadlines for filing trust, partnership, and NR4 (non-resident withholding tax) information returns have all been extended to May 1, 2020.
Audit and Enforcement Activities
During the COVID-19 crisis, the CRA has indicated that it will not initiate contact with taxpayers in relation to audits. Accordingly, subject to certain exceptions, taxpayers should not expect to receive notification about the start of a new audit, information requests related to an ongoing audit, or any reassessments. Unfortunately, this also means that no audits will be finalized during this period.
The CRA is also suspending collection action on any new debts until further notice and making flexible payment arrangements available to taxpayers. The cancellation of penalty and interest can be requested if a taxpayer is unable to file a return or make a payment on time due to the COVID-19 pandemic.
This further relief is in addition to previously announced measures regarding payment deferral of income tax amounts owing until August 31, 2020. See Ryan Tax Alert | COVID-19 Economic Response Plans for further information.
Scientific Research and Experimental Development Investment Tax Credit Implications
Filing Deadline Extension
Scientific Research and Experimental Development (SR&ED) forms part of the federal T2 – Corporate Income Tax Return and, as such, is due six months after the taxation year-end. The announced federal income tax administrative relief extends to returns that fall due after March 18, 2020, providing an extension to June 1, 2020. This will provide immediate short-term relief to SR&ED claimants with taxation year-ends up to November 30, 2019. The length of the extension will vary, depending upon the year-end of the taxpayer. For example, taxpayers with a September 30 taxation year-end will effectively receive a two-month filing extension from March 31 to June 1, while taxpayers with an October 31 year-end will only receive a one-month extension.
Unfortunately, the administrative relief specifically excludes the 18-month hard deadline for filing or amending a SR&ED investment tax credit claim. Claimants approaching their 18-month deadline must still submit their claims on time to maintain eligibility for a SR&ED investment tax credit for that taxation year.
Claim Reviews by CRA
Response deadlines for CRA information requests that would otherwise fall between March 19 and May 31 are similarly extended to June 1, 2020. However, the CRA is currently not conducting site visits and file review timelines are, in general, expected to be extended due to the COVID-19 situation. This extension will provide claimants with additional time to prepare responses to any CRA requests at a time when both the claimants’ and CRA’s ability to conduct reviews is severely compromised.
Further Economic Relief
In addition to the tax relief measures discussed above, the federal government announced several economic relief initiatives, including:
- Limiting current Canada Pension Plan (CPP) and Employment Insurance (EI) appeals to situations where benefits are pending;
- Launching a new $25 billion Canada Emergency Business Account interest-free loan program for small businesses and not-for-profit organizations;
- Introducing a $20 billion program to guarantee operating credit and cashflow loans, as well as a separate $20 billion co-lending program for small and medium enterprises; and
- Increasing the previously announced wage subsidy for qualifying businesses to 75% for up to three months, retroactive to March 15, 2020 (with further details to follow).
More Information
Further information on the new COVID-19 relief measures announced by the federal government is available on the Department of Finance website at:
https://www.canada.ca/en/department-finance/news/2020/03/additional-support-for-canadian-businesses-from-the-economic-impact-of-covid-19.html
For a summary of all significant relief initiatives announced by North American tax authorities, including the latest information on filing and payment deadline extensions by jurisdiction, please visit the Ryan COVID-19 Tax Information Hub.
If you have any questions about how these changes might impact your organization, please do not hesitate to contact the Ryan TaxDirect® line at info@ryanco.ca or 1.800.667.1600.