Taxpayers with foreign affiliates currently have 15 months after the end of their taxation year to file information returns to show their compliance with Canadian taxation of foreign-based income. In the 2018 budget, the federal government announced its intention to shorten that filing deadline to six months beginning in 2019, to bring it in line with the corporate income tax return deadline.
In a submission to the Department of Finance, the Joint Committee on Taxation of the Canadian Bar Association and Chartered Professional Accountants of Canada lays out its argument against this proposed move.
“While not specifically stated in the budget papers, we understand the rationale for aligning the information return deadline with the corporate income tax return deadline is the belief that it will result in more accurate income tax returns on the basis that a taxpayer will be required to collect, assess and report information for all foreign affiliates in advance of filing its income tax return,” the Committee says.
Far from increasing accuracy, it argues, a shorter reporting deadline is more likely affect the quality of both the information returns and the corporate income tax returns. The amount of information available six months after year-end is different from that available 15 months later. “Filing incomplete information returns within six months and then refiling them later when the information becomes available would result in significant costs to taxpayers as well as the CRA. Similar issues will arise when information returns are filed based on preliminary information that changes as local financial statements and tax returns are finalized.”
Even when the foreign affiliate is controlled by the taxpayer, which is not always the case, a six-month deadline will compress the global tax compliance process into a shorter period that may be beyond the capability of the group to handle.
As well, changing the deadline from 15 months to six also creates an incongruity with new rules recently introduced in Canada that require a multi-national enterprise to file a country-by-country report within 12 months of year-end. “Given that there is some overlap between the information required for the country-by-country report and the information required for the information returns, it is unclear why the deadline for the information returns would be in advance of the deadline for the country-by-country report.”
If greater accuracy is indeed the government’s goal, the Committee believes that a shorter deadline is not the appropriate way to reach it. It recommends the government leave the deadline at 15 months or, if it must be shortened, it would be more appropriate to cut it to 12 months instead of six. While this would still create challenges, a 12-month-deadline would at least align it with the country-by-country reports.