T2 and GST/HST Never Filed: Catch-Up When the Owner Lives Abroad

I have not filed any T2 or GST/HST return: must a corporation with an owner abroad still file?

A corporation incorporated in Canada after April 26, 1965 is resident in Canada, so it files a T2 for every tax year, including an inactive year or a year with no tax payable. Where the owner or director lives does not change that, unless a tax treaty makes the corporation resident in another country (CRA: residency of a corporation; CRA: who files a T2). Each T2 is due six months after the tax year ends (CRA: when to file).

A corporation registered for GST/HST files a return for every reporting period, including a period with nothing to report (CRA: reporting requirements). A corporation that never registered owes no returns only if it was never required to register. It had to once it made taxable supplies in Canada and stopped being a small supplier, which happens when worldwide taxable sales of the corporation and its associates, zero-rated sales included, pass $30,000 in one calendar quarter or over four consecutive quarters (CRA: when to register; Excise Tax Act, subsection 240(1)). A service performed wholly outside Canada is treated as supplied outside Canada (Excise Tax Act, paragraph 142(2)(g)), so where the work was done matters.

This page covers GST/HST that the CRA administers. A business located in Québec generally files its GST/HST returns with Revenu Québec instead (CRA: RC4022); see filing GST/HST returns and claiming input tax credits.

Five things make these cases more than a filing job:

• Years, not weeks. Penalties and interest grow every month, and a CRA letter changes which voluntary-disclosure relief is open.
• Non-resident control. A corporation controlled by non-residents is not a Canadian-controlled private corporation (CCPC), which changes its tax rate, its payment date and its provincial filing duties.
• Records and mail abroad. The CRA expects records kept in Canada, and a non-resident business with no Canadian-resident owner or director online may still be sent paper mail.
• A second corporate return. Québec and Alberta each run their own.
• Someone is already asking. A bank, the CRA, a registry, an investor or a buyer wants proof of filing, or a CRA letter has arrived. Which years go first and whether a voluntary disclosure is still open then depend on the letter and the documents, which often call for a professional's review.

Gather these first:

• The business number, year-end date and incorporation papers.
• Access to the corporation's CRA account, or a representative the corporation has authorized (CRA: authorizing a representative).
• The share register, director list, loan agreements and a record of every payment to or from the owner.
• Bank, card and payment-account statements for every month since trading began.
• Customer contracts, invoices and platform reports that show where each customer is.
• Every CRA, provincial, registry or bank letter, with its date.

The residence test, the CCPC control tests and tax on payments to a non-resident owner (NR4 and Part XIII) are in owning a Canadian corporation from outside Canada.

Which returns are missing, and in what order do I file them?

List what the CRA shows as outstanding, prepare the T2 years from oldest to newest, and file the GST/HST periods alongside them, since both come from the same books. My Business Account lists outstanding returns and balances, expected and filed GST/HST returns, T2 return status and online mail (CRA: services in My Business Account).

For payroll catch-up, see catching up on unfiled corporate returns. For NR4 and Part XIII tax, see owning a Canadian corporation from outside Canada.

A working order:

1. Handle any demand to file, collection notice or bank freeze first.
2. Prepare the T2 years oldest first. Opening balances, losses and owner accounts carry from one year to the next. This is a working method, not a CRA rule.
3. File the GST/HST periods with them. If sales passed the threshold and the corporation never registered, the effective date of registration decides which periods are due (when to register for GST/HST). Sales on the GST/HST returns and revenue on the T2 should agree.
4. Add the Québec or Alberta return for each year.
5. Settle before filing whether the years go into a voluntary disclosure, because an application must include the missing returns. Each month of delay adds interest, and a CRA letter changes the relief, so this is a decision to take with the documents in hand.

The T2 duty in the Act applies to every tax year, and the CRA's page on unfiled returns gives no look-back period; a CRA letter names the returns it is asking for. The document periods a voluntary disclosure application carries are not a limit on which years are owed. For the general route, including bank freezes, see catching up on unfiled corporate returns.

What does waiting cost: late-filing penalties, interest and the repeat rate?

Each missing year adds a late-filing penalty on any unpaid tax plus daily interest. The two taxes use different penalty formulas.

Sources: CRA: avoiding penalties, corporations; CRA: GST/HST penalties and interest. The CRA can also charge penalties for missing or incomplete information returns.

Interest runs from the balance-due day, the date the unpaid tax was due, not the filing date. That day is 2 months after year-end for most corporations, and 3 months only for a CCPC that meets the CRA's conditions (CRA: due dates). Interest compounds daily at a prescribed rate that the CRA resets every three months (CRA: understanding interest).

Three further costs of waiting:

• The reassessment period starts only with a first notice of assessment. The normal time to reassess a year starts when the CRA sends the original notice of assessment or an original notification that no tax is payable: four years for a corporation that is not a CCPC at year-end, three years for a CCPC. It has not started for a year with neither. After it ends, the CRA has three years more for adjustments that follow from a transaction with a non-resident it does not deal with at arm's length, such as an owner abroad (subsection 152(4); see how far back the CRA can reassess). Liability for the tax does not depend on an assessment having been made (Income Tax Act, section 152). The CRA's non-filer process starts once the filing deadline has passed (CRA: unfiled tax returns).
• Refunds and credits can lapse. A T2 must be filed within three years after the year-end to receive a refund. A GST/HST input tax credit usually has a four years claim window, so a corporation with zero-rated sales and Canadian expenses can lose credits by waiting.
• A director can be personally liable for unremitted amounts. The CRA says directors in office when a corporation fails to remit source deductions or GST/HST may be liable with it, and must assess within two years after the person last ceased to be a director (CRA: directors' liability). The detail is in catching up on unfiled corporate returns.

For relief requests and the full penalty mechanics, see penalties, interest and relief and the GST/HST late-filing penalty.

Can a corporation still use the VDP (voluntary disclosure) for corporate taxes?

Yes, if the application is voluntary, complete, involves applicable penalties, interest or both, and includes payment of the estimated tax owing or a request for a payment arrangement. It must also include a tax year at least one year past its filing due date or, for GST/HST, a reporting period at least one period past (CRA: VDP eligibility). A return not filed is an eligible situation. The program covers income tax, GST/HST and withholding taxes (CRA: IC00-1R7).

What the CRA has already sent decides the relief:

The levels come from paragraphs 17 to 21 of IC00-1R7. The current GST/HST memorandum sets the same levels for GST/HST (CRA: GST/HST Memorandum 16-5-1). Relief has a time limit. Income-tax penalty relief covers tax years that ended within ten calendar years before the year of the application, so the oldest years may fall outside it. Interest relief covers interest that accrued in that window, even on an older tax debt. GST/HST penalty relief works the same way by reporting period (CRA: VDP review and decision; CRA: limitation period; Income Tax Act, subsection 220(3.1); Excise Tax Act, subsection 281.1(2)).

What the application must carry (CRA: how to apply):

• Every return, form and schedule needed to correct the non-compliance, so the missing T2 and GST/HST returns go in the application.
• Supporting documents for the last six years for Canadian-sourced income or assets, the last ten years for foreign-sourced income or assets, and the last four years for GST/HST. Which period applies to a Canadian corporation's sales to customers abroad is a point to settle before filing.
• All known errors and omissions, so list T2, GST/HST, payroll and non-resident withholding together. Where books do not exist, make reasonable efforts to estimate (IC00-1R7, paragraphs 26 and 29).

Relief covers penalties and interest, not the tax: the tax is still payable in full. An application that results in a refund, or in no tax or penalties owing, is not eligible, and neither is a request to relieve penalties the CRA has already assessed (IC00-1R7, paragraph 11).

If the CRA has already written, the letter decides which row above applies. A demand to file or a letter that names a return or sets a deadline is a specific contact, a letter that opens an audit of the information makes the application not voluntary, and an education letter with general guidance does not make it prompted.

For the full process, see reviews, audits and voluntary disclosure.

How do I rebuild the books when the records and the owner are abroad?

Rebuild year by year from sources a third party holds, starting with bank and payment-account statements, and match every deposit to a sale, loan, owner contribution or transfer. The CRA says records must be reliable, complete and supported by documents, and lists sales invoices, purchase receipts, bank statements and contracts among them (CRA: requirements for records; CRA: what records to keep).

1. Statements. Ask each bank, card issuer and payment platform for every month since the account opened. The account holder is the corporation, so the owner may need to sign the request.
2. Sales. Match deposits and payouts to invoices, contracts and platform reports. Record each customer's residence, where the work was done and where licensed rights can be used; these facts help decide the GST/HST treatment below.
3. Foreign currency. Convert each sale and cost to Canadian dollars. See US-dollar sales and marketplace payouts.
4. Owner accounts. Rebuild share capital, loans from and to the owner, and every payment to the owner. These drive withholding and shareholder-loan questions. Money or property paid to the owner for no return while the corporation owes tax can make the owner jointly liable for that tax, up to the value received, and the CRA can assess the owner at any time (Income Tax Act, section 160).
5. Costs. Keep what a document supports. The CRA says an assessment it makes without a return leaves out voluntary deductions the filer may have been eligible for (CRA: unfiled tax returns), so a cost with no document may be left out of an assessment the CRA makes without a return.

An inactive corporation still has to keep records (CRA: what records to keep). For the method in full, see rebuilding books from bank statements.

Which sales to customers outside Canada are zero-rated for GST/HST?

A service sold to a non-resident is generally zero-rated, as is a licence of intellectual property to a non-resident who is not registered for GST/HST, but several exclusions apply and the supplier must keep evidence that supports the zero-rating. Zero-rated means the sale is taxable at a zero rate, so no GST/HST is charged, and the sale still counts toward the registration threshold.

These rows summarize Excise Tax Act, Schedule VI, Part V, sections 7, 10, 10.1 and 12, and CRA GST/HST Memorandum 4.5.3. The proof a zero-rated sale needs is in charging GST/HST to US customers.

A sale made in Canada and taxable at a positive rate carries GST/HST from the effective date of registration; a zero-rated sale carries none. When sales passed the threshold in a single quarter, that date is no later than the day of the supply that took sales over it. When they passed it over four consecutive quarters, it is no later than the first supply made after small supplier status ended (CRA: when to register). For the CRA's letter on US sales, see the CRA asks why no GST/HST was charged. For an estimated assessment, see unfiled GST/HST returns and estimated assessments.

Does non-resident control change the T2 result (CCPC status)?

Yes. A corporation is a Canadian-controlled private corporation (CCPC) only if, at the end of the tax year, it is not controlled directly or indirectly by one or more non-residents, among other conditions (CRA: type of corporation). The CRA says the type determines the rates and deductions available, and that some calculations depend on status throughout the year, at any time in it or at its end. Each missing year therefore needs its own answer. When a corporation stops being a CCPC, its tax year generally ends immediately before that time and a new one starts, so the year of the change needs two T2s, with a narrow election in some cases and a different rule for an acquisition of control (Income Tax Act, section 249).

Sources: CRA: corporation tax rates; CRA: due dates; Income Tax Act, section 152. Provincial tax is on top of the federal rate. Income earned outside Canada is not eligible for the federal tax abatement behind the general rate, so it needs its own calculation (CRA: T2 guide, line 608; Income Tax Act, subsection 124(1)). The control tests are in owning a Canadian corporation from outside Canada, and a change of status partway through the history is in losing CCPC status to foreign investors.

Do Québec or Alberta need their own corporate return?

Yes, if the corporation had a permanent establishment in Québec or Alberta. Those two provinces administer their own corporation income tax and require separate provincial returns, while the CRA administers provincial corporate tax on the T2 for the other provinces (CRA: provincial and territorial corporation tax; CRA: T2 guide, Chapter 8).

• Québec. The return is Form CO-17, filed with Revenu Québec and due 6 months after year-end. A corporation can file its annual updating declaration in the enterprise register together with the CO-17 (Québec government).
• Alberta. The return is the AT1, due six months after year-end for a corporation with a permanent establishment in Alberta at any time in the year (Alberta: corporate income tax). A corporation is exempt only if it meets all seven conditions in the circular, which include being a CCPC, having no taxable income and having gross revenue of no more than $500,000, so a corporation controlled from abroad cannot use the exemption. Alberta may assess a late-filing penalty of 5% of the unpaid tax plus 1% of it for each complete month late, up to 12 months (Alberta CT-2, paragraphs 2 and 21).

Where must the records be kept, and for how long?

In Canada, at the place of business or the residence, unless the CRA gives written permission to keep them elsewhere. Records kept outside Canada and accessed electronically from Canada are not treated as kept in Canada (CRA: where to keep your records).

Keep records for six years from the end of the last tax year they relate to, counted from the filing date when a return is filed late. The longer rules and what changes after dissolution are in how long to keep business records. Books held only on an overseas device or server, or by an owner abroad, fall short unless the CRA agrees in writing.

What if the bank, the CRA or the corporate registry has already sent a letter?

Note the sender, the date and the deadline, because the type of letter decides the next step and the relief still open.

Provincially incorporated corporations follow their province's registry rules. The CRA sends most business mail online, but it still sends paper mail to a business with no online access, or to a non-resident business with no Canadian-resident owner or director online and no authorized representative online (CRA: online mail for business). A corporation with an owner abroad may therefore receive CRA letters on paper only.

Example

These examples are illustrative, in Canadian dollars. They are not tax advice.

Ontario corporation, sole director in Hong Kong, three years unfiled

A corporation sells software subscriptions to customers outside Canada. Sales are C$60,000 a year for three years, with C$40,000 of costs, so C$20,000 of profit. The Hong Kong director owns and controls it, so it is not a CCPC. Assume it stayed resident in Canada, carries on the business through a permanent establishment in Ontario and earns all its taxable income there, equal to its profit. Counting federal tax only, 15% of C$20,000 is C$3,000 a year; provincial tax comes on top. No tax was paid, nothing was filed, and all three T2s are more than 12 months late.

The penalties total C$1,530 before interest. Assume the subscriptions are taxable supplies made in Canada that qualify for zero-rating as exports, and the corporation has no associates. Sales of C$60,000 a year then pass the C$30,000 threshold within the first year, so it needed a GST/HST account and a return for every period since, and the returns show sales and charge no tax. If the supplies were made outside Canada, it would not have been required to register. With nothing owing, no GST/HST late-filing penalty applies. Input tax credits on Canadian costs have a four-year claim window, so the oldest periods are the first at risk. The books are rebuilt from the payment processor's payout statements, year by year.

Alberta corporation owned from Dubai

An Alberta corporation with a December 31 year-end is controlled by an owner in Dubai, so it is not a CCPC and the AT1 exemption does not apply. The T2 and the AT1 for each year are both due June 30 of the next year, and both are filed for every missing year. If C$1,000 of Alberta tax was unpaid on the deadline and the AT1 is filed three complete months late, the Alberta penalty is 5% plus 3 x 1%, or C$80.

The owner finds the gap before the CRA writes

For the Hong Kong example above, assume interest on the three years has reached C$1,200 on top of C$1,530 of penalties. The tax of C$9,000 is payable either way.

These are the normal levels in the CRA's policy. The CRA decides each application, and it can treat one as prompted if it already holds information about the non-compliance.

Different for you?

• Years are missing, records are scattered, the owner is abroad and a bank, the CRA or a buyer is asking: which years to file first, whether a disclosure can still be unprompted and what non-resident control does to the tax turn on your documents. Bring them to corporate tax help.
• The CRA has estimated your GST/HST: see unfiled GST/HST returns and estimated assessments.
• You are not sure which sales were zero-rated, or the CRA has asked about them: see the CRA asks why no GST/HST was charged.
• The books need rebuilding: see rebuilding books from bank statements and bookkeeping help.
• The corporation never earned anything: see a dormant corporation that never filed.
• You want to stop the corporation rather than catch it up: see closing a corporation.
• You pay the owner, or control may have passed to non-residents: see owning a Canadian corporation from outside Canada.
• Penalties and interest are already charged: see penalties, interest and relief.
• The CRA has opened a review or audit: see reviews, audits and voluntary disclosure.
• The corporation was struck off the register: see reviving a dissolved corporation.
• Investors or a buyer will check your filings: see tax clean-up before a Canadian startup raises.
• The corporation holds foreign property or trades with related non-residents: see foreign property and affiliate reporting.