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May 19, 2024

Tax Tips

Schedule 91- More Than Just a Treaty Based Return
Subject: Tax Exemption
Number: 11-19
Date: 9/12/2011
We have found that the CRA is using schedule 91 as a screening tool

All foreign corporations that carry on business in Canada are taxable in Canada on their income from the Canadian business.  Generally, where Canada has a tax treaty with the foreign jurisdiction, the foreign corporation is not taxable in Canada unless the business is operated through a permanent establishment.  Foreign corporations wishing to claim the treaty benefit with Canada must file a Canadian corporate tax return with accurate and complete Schedules 91 (Treaty-based exemption form) and 97 within six months of the corporation’s year end.

We have found that the CRA is using schedule 91 as a screening tool to ensure that timely, accurate and complete T4A and T4A-NR (and related summaries) are filed.  For example, the Schedule 91 asks for the number of, and the dollar amount paid, to non-resident and resident subcontractors.  The CRA has performed desk audits to determine if proper T4A-NR’s and T4A’s relating to these payments were timely filed.  If the schedule 91 information and the reporting slips do not tie in, you can expect a call from your friendly CRA representative.

Issues can arise with respect to non-resident employees as well.  The schedule 91 asks for the number of resident and non-resident employees as well as the wages paid to them. This question allows the CRA to determine if appropriate T4 slips were filed.  It should be noted that even if the employees are exempt from income tax by virtue of a tax treaty, T4 slips and summary must still be timely filed by the non-resident corporation.  For more information on these requirements refer to Tax Tip 11-12.

If the CRA determines that T4, T4A or T4A-NR’s were not filed on time, penalties may be assessed.  We have also found that the CRA is inclined to deny Regulation 102 and 105 waiver requests where the employer or payer has a history of not filing the appropriate T4, T4A or T4A-NR forms.

It is important for non-resident business operating in Canada to be aware of and comply with T4, T4A and T4A-NR filing requirements.  With schedule 91, the CRA has a powerful tool to find non-compliant taxpayers.

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The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.