Tax and Revenue Administration Alberta Corporate Tax Act Information Circular CT-2R2

CT-2R2/June 2003

Note: Due to the Government of Alberta reorganization in November 2004, where applicable, the web versions of our documents have been updated to change references from "Minister of Revenue" or "Provincial Treasurer" to "Minister of Finance". References to "Revenue Canada" or "Canada Customs and Revenue Agency" have been changed to "Canada Revenue Agency" to reflect that name change as well. The paper version of this document is available from Tax and Revenue Administration and if applicable, will be updated as time permits.

ALBERTA CORPORATE TAX ACT INFORMATION CIRCULAR:
FILING REQUIREMENTS

This information Circular is intended to assist corporations and their representatives in deciding whether the corporation is required to file an Alberta Corporate Income Tax Return (AT1 return).  The Circular also reviews various matters related to the filing of an AT1 return.  The topics discussed include:

• Who has to file an AT1 return?
• Who is exempt from filing?
• What is "permanent establishment"?
• When does the AT1 return have to be filed?
• When does a corporation have to file information under section 36.2 of the Act?
• What happens if the return is not filed on time?
• What happens if a return is required but is not filed?
• How is a taxation year established?
• Who has to file Alberta election form AT107, AT108 or AT109?

WHO HAS TO FILE AN AT1 RETURN?

1. Generally, a corporation must file an Alberta Corporate Income Tax Return for each taxation year during which at any time it has a "permanent establishment" in Alberta. (Permanent establishment is discussed in paragraphs 4 to 6.) However, some corporations are exempt from filing a return as discussed in paragraphs 2 and 3.

WHO IS EXEMPT FROM FILING?

2. For taxation years ending after June 30, 1994, a corporation is exempt from filing an AT1 return for a tax year if it meets all of the following criteria in the year:

1. it is a Canadian-controlled private corporation;
2. it has permanent establishments only in Alberta;
3. its taxable income is nil before applying losses carried back from a subsequent year and deducting any amount relating to the exercise of an option in a subsequent year;
4. it is not claiming a refund of tax instalments;
5. its gross revenue for the year does not exceed $500,000;
6. it has no amounts to report on Schedule 5, Royalty Tax Deduction;
7. it filed a federal return;
8. its discretionary tax account balances (e.g. undepreciated capital cost, reserves, losses) throughout the year were the same for Alberta purposes as they were for federal purposes; and,
9. it is not claiming the Royalty Tax Credit nor has it received Royalty Tax Credit instalments for the taxation year.

It is important to remember that a corporation exempt from filing an Alberta return under these rules is still required to file a federal return.

3. Under section 35 of the Alberta Corporate Tax Act (the "Act"), certain corporations are exempt from paying tax on their taxable incomes. Such a corporation is exempt from filing an AT1 return for a taxation year if, throughout the year, it was exempt from paying Alberta tax on its taxable income. Examples of tax-exempt corporations are crown corporations, pensions corporations and non-profit corporations. An exception will arise and an Alberta return will be required, if the corporation is claiming a Royalty Tax Credit.

WHAT IS "PERMANENT ESTABLISHMENT"?

4. The Act contains a lengthy definition of "permanent establishment". In summary, a corporation has a permanent establishment in Alberta if it meets any one of the following criteria:

• it has a fixed place of business in Alberta, including a branch, office, workshop, factory, warehouse, farm, mine, timber land or oil well;
• it has no fixed place of business but Alberta is the principal place in which the corporation's business is conducted;
• it carries on business in Alberta through an agent or employee who either has general authority to contract for the corporation, or who regularly fills orders from a stock of the corporation's merchandise in Alberta;
• it owns land in Alberta and has a permanent establishment elsewhere in Canada;
• it uses substantial machinery or equipment in Alberta; or,
• it is an insurance corporation registered or licensed to do business in Alberta.

5. In some cases, it may not be immediately evident if a corporation meets any of the above criteria. For instance, a corporation may question whether the authority granted to an agent constitutes "general authority to contract" or whether the equipment it uses in Alberta constitutes "substantial" equipment. Such questions can typically be answered only after an analysis of all of the relevant facts. Interpretation Bulletin CTIB-1, "Taxability of a Corporation in Alberta on the Basis of Permanent Establishment" discusses the criteria for permanent establishment in greater depth. Tax and Revenue Administration (TRA) will render an opinion on the question of permanent establishment if all the relevant facts are supplied. For further information, please contact TRA.

6. A corporation that ceases its normal business activity but continues to conduct financial transactions from a place in Alberta will normally be considered to be maintaining a permanent establishment in Alberta. This is true even if the level of activity is minimal (e.g. the payment of property taxes, periodic receipt of interest or other revenue, occasional dispositions of property, efforts to dispose of property). A corporation with even minimal business activity in Alberta in a year should file an AT1 return for the year unless it is exempt from filing a return as discussed in paragraph 2.

The balance of the Information Circular discusses the filing requirements of a corporation that is required to file an Alberta return.

WHEN DOES THE AT1 RETURN HAVE TO BE FILED?

7. A complete AT1 return must be received by Tax and Revenue Administration ("TRA") within six months from the end of the corporation's taxation year. The return may be sent by mail, by fax, via a courier service or hand delivered to TRA.

For taxation years ending prior to 1998, a complete return consists of the return itself, signed by a person authorized by the Board of Directors, all applicable schedules to the return, a copy of the federal T2 return and schedules and a copy of the financial statements for the year.

For taxation years ending in 1998, a complete return consists of:

• the AT1 and all applicable schedules or, the Alberta Return and Schedule Information ("AT1 RSI"),
• the federal T2 return and all applicable schedules or the federal T2 RSI, 

and

• the corporation's financial statements or the General Index of Financial Information ("GIFI").

Corporations are reminded that beginning with the 1998 taxation year, laser facsimile and computer generated forms are no longer accepted by TRA. A corporation that uses certified software to prepare its return is required to submit only the AT1 RSI, the T2 RSI, and either financial statements or the GIFI (whichever is filed with the Canada Revenue Agency - "CRA").

For the 1999 and subsequent taxation years, a complete Alberta return consists of either the AT1 and applicable schedules or the Alberta AT1 RSI. There will no longer be a requirement for a corporation to file a copy of its federal T2 return package and its financial statements or GIFI.

If the return submitted to TRA is not complete, the corporation will be asked to remedy the situation. Any refund interest to which a corporation may be entitled will not begin until the required information has been submitted. If the situation is not remedied as required, the corporation may be subject to prosecution.

WHEN DOES A CORPORATION HAVE TO FILE INFORMATION UNDER SECTION 36.2 OF THE ACT?

8. Under section 36.2 of the Act, a corporation is required to file information with TRA if it becomes aware that amended information needs to be filed or that its tax return contained errors. This includes all of the following situations.

1. The CRA, Ontario Ministry of Finance or Quebec Ministry of Revenue has (re)assessed the corporation's return or has issued a (re)determination of a loss. If this happens, the corporation must file a copy of the notice of (re)assessment or (re)determination issued by the other jurisdiction, and any supporting information, within 90 days from the later of the date of the (re)assessment or (re)determination and the required filing date of the AT1 return as noted in paragraph 7. For greater certainty, TRA does not require a copy of the notice of (re)assessment or (re)determination if the action taken by the other jurisdiction does not affect the calculation of Alberta tax or credits.
   
   
2. The corporation discovers within the normal reassessment period an error made on an AT1 return previously filed (see CT-6, "Reassessments", for additional discussion of reassessment periods). If this happens, the corporation must file an amended AT1 return or letter describing the error within 90 days from the later of the date the error was discovered and the required filing date of the AT1 return as noted in paragraph 7.
   
   
3. The corporation originally believed it was exempt from filing an AT1 return, but within the normal reassessment period determined that it was not exempt. If this happens, the corporation must file an AT1 return within 90 days from the later of the date of the determination of the requirement to file and the required filing date of the AT1 return as noted in paragraph 7.

If the corporation does not file the above information, the normal reassessment period is extended indefinitely until the corporation does so.

9. When a taxation year end falls on the last day of the month, the required filing date is the last day of the sixth month following that date. When the taxation year end falls on a date other than a month-end date, the required filing date is the same numeric date in the sixth month following that date. For example, a return for the year ending June 30 must be filed by December 31 of that year. A return for the year ending August 15 must be filed by February 15 of the next year.

If the required filing date falls on a week-end or a holiday, it is automatically deferred to the next day on which TRA's offices are open.

WHAT HAPPENS IF THE RETURN IS NOT FILED ON TIME?

10. At all times it remains the responsibility of the corporation to ensure that its return is filed on time. If a return is not filed on time, a late filing penalty may be assessed as discussed in paragraph 11. A corporation's tax return is considered to be filed on the day on which it is received by TRA.

Under certain circumstances, a late filing penalty will not be applied. Where a return is mailed on or before the required filing date and is received by TRA within five working days of the required filing date, a late filing penalty is not applied. As well, a return sent via a courier service on or before the required filing date will not attract a late filing penalty if it is received by TRA within one day of the required filing date.

11. If a corporation is not exempt from filing and its return is filed late, the corporation is liable to a penalty. The penalty is the sum of:

1. 5 percent of the aggregate of the tax unpaid at the required filing date and excess RTC instalments received during the taxation year and not repaid at the required filing date, less the amount of RTC entitlement that was not claimed as instalments; plus
   
2. 1 percent of the aggregate amount referred to in (a) above for each complete month, not exceeding 12, between the required and actual filing dates.

12. In all cases, interest will be charged from the date an amount is due until the date it is paid.

WHAT HAPPENS IF A RETURN IS REQUIRED BUT IS NOT FILED?

13. A corporation might fail to file a return in the belief that it was exempt from filing a return under the rules discussed above for taxation years ending after June 30, 1994 and later discover that it had taxable income. TRA will then use the corporation's filing date with CRA to determine whether a late-filing penalty should be charged in Alberta.

14. The Act permits the Minister of Revenue to make a demand for information, including a tax return, from the corporation itself or from other persons. If a demand for a tax return is made and the corporation does not comply, TRA may serve a demand on a director or officer of the corporation. Continued non-compliance may result in prosecution of either the corporation or a person to whom the demand for information was made, or both. A person found guilty is liable to a per diem fine for each day of default in an amount determined by a judge.

15. In assessing tax, the Minister of Revenue is not bound by a return or by the fact that no return has been filed. If circumstances warrant, TRA may issue an assessment that is at variance with a filed return or that reflects an estimate of tax payable without reference to a filed return. Ordinarily, the latter would be done only in circumstances where previous requests to file had been ignored. Such an assessment is valid and binding and payment will be enforced.

HOW IS A TAXATION YEAR ESTABLISHED?

16. A new corporation, whether formed by incorporation or amalgamation, may select any date as its fiscal year end. The first year end should normally be no later than 53 weeks from the date of incorporation or amalgamation. A corporation that is initially inactive for a period of time may select a date no later than 53 weeks from the date of commencement of business activity. Consecutive year ends can be no more than 53 weeks apart.

17. Once established and accepted, a year end cannot be changed without permission from CRA. If permission for a corporation to change its year end is granted by CRA, the change will be accepted for Alberta tax purposes as well.

18. Certain events as described in paragraphs 19 to 23 automatically trigger a year end. After a deemed year end, the corporation is free to select a new taxation year end within the guidelines discussed in paragraph 16.

Amalgamations

19. If two or more predecessor corporations are amalgamated to form a new corporation, each predecessor corporation is deemed to have a final taxation year ending immediately before the amalgamation. The date of amalgamation is the date given in the certificate of amalgamation. An AT1 return must be filed by each predecessor corporation, unless exempt from filing, for the period commencing on the day after its last usual tax year end and ending on the deemed year end.

20. A new corporation formed by amalgamation assumes the liability for the obligations of the predecessor corporations and therefore is responsible for the filing of the predecessor corporations' tax returns and the payment of their taxes.

Change of Control of a Corporation

21. When control of the corporation is acquired by a person or group of persons that did not previously control the corporation, the taxation year of the acquired corporation is deemed to end immediately before the acquisition of control. A return is required to be filed for this taxation year end unless the corporation is exempt from filing.

An exception to this rule occurs if control of a corporation is acquired within the seven days following the end of its last taxation year. In this case, the corporation will generally be allowed to elect to have its last taxation year continue up to the time control is acquired. However, this election is not available if, in the seven-day period, there was a prior acquisition of control, a corporate emigration, bankruptcy or the corporation became or ceased to be exempt from tax under paragraph 149(10)(a) of the federal Act.

22. The obligation of a corporation to file tax returns or to pay taxes due for past taxation years is in no way mitigated by a change in control of the corporation. Parties becoming directors or officers of the corporation after a change in control assume the responsibility of ensuring that the obligations of the corporation are fulfilled, even if those obligations relate to periods prior to the control change.

Corporations in Receivership, Liquidation, Bankruptcy

23. A corporation that becomes bankrupt is deemed to have a taxation year end on the day before it became bankrupt. Other than that, the taxation year end of a corporation is not affected by the business being placed in the hands of a receiver, liquidator or trustee.

24. A trustee, receiver, liquidator or other such person who is managing or winding-up a corporation is responsible for filing any returns that the corporation was required to file but did not.

WHO HAS TO FILE ALBERTA ELECTION FORM AT107, AT108 OR AT109?

25. For transfers of property after May 30, 2001, subsections 85(1), 85(2) and 97(2) of the federal Act will apply for the purposes of the Act only if a valid federal election has been made under the federal Act. The amounts elected under the federal Act will be deemed to apply for the purposes of the Act.

Exception for Qualified Parties

26. Where both the party acquiring the property and the party disposing of the property are "qualified parties", they can jointly elect an amount for purposes of the Act that is different than the amount elected under the federal Act.

27. A corporation is a "qualified party" if its Alberta allocation factor for the taxation year is at least 90%. A partnership is a "qualified party" if it would have an Alberta allocation factor for the taxation year of at least 90%, if it were treated as a corporation having a taxation year corresponding to its fiscal period.

28. In order to qualify, both the party disposing of the property and the party acquiring the property must be qualified parties for the taxation year or fiscal period in which the transaction occurred, and the party acquiring the property must continue to be a qualified party for all of its taxation years or fiscal periods beginning in the 36 months after the end of the taxation year or fiscal period in which the transaction occurred.

29. The qualified parties may jointly elect one of the following amounts:

• The amount deemed to be the proceeds of disposition and the cost of the property under the federal Act;
• The amount equal to the above amount less the cost of the property under the federal Act plus the cost amount of the property for the purposes of the Alberta Act, both determined immediately before the disposition; and
• Any amount that is greater than or equal to the lesser of the above amounts, but less than or equal to the greater of the above amounts.

Filing of Alberta Election Forms (AT107, AT108 and AT109)

30. Where the parties elect an amount different from the federal amount, one of the applicable Alberta election forms must be filed by the party acquiring the property:

• AT107 - Alberta Election on Disposition of Property by a Taxpayer to a Taxable Canadian Corporation
• AT108 - Alberta Election on Disposition of Property by a Partnership to a Taxable Canadian Corporation
• AT109 - Alberta Election on Disposition of Property by a Taxpayer to a Canadian Partnership.

31. If the party is a corporation, Alberta election form AT107 or AT108 must be filed by the time the corporation's Alberta corporate income tax return is due for the last taxation year beginning in the 36-month period after the end of the taxation year in which the corporation acquired the property.

32. If the party is a partnership, all members of the partnership must file Alberta election form AT109 by the time the Alberta corporate income tax return is first due for a corporate member of the partnership for the member's taxation year that includes the last fiscal period of the partnership beginning in the 36-month period after the end of the fiscal period in which the partnership acquired the property.

33. Unlike federal elections, no late filed Alberta elections are permitted.