IMPORTANT : CRA Provisional Tax Return Update
Negotiations between the Canada Revenue Agency (CRA) and the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) have resulted in a change in when taxpayers/insolvency practitioners will need to file a “provisional” tax return for the pre-proposal period in the year a notice of intention or a proposal is filed. In order to improve on the efficiency in administrating proposal files both within the CRA and for insolvency practitioners, the CRA has agreed (unless advised otherwise) that a provisional return will only be expected from those individuals who:
- received employment income from any source(s) which had little or no tax deductions at source
- received income from pension income with only legislated deductions taken at source and had, in the 2 years prior to filing the notice of intention (NOI) or proposal (if no NOI was filed), a net tax above the provincial threshold* requiring instalments to be paid.
- disposed of some or all of a registered retirement savings plan (or similar type) holdings during the year of the proposal
- disposed of any assets resulting in a capital gain during the year of the proposal
- had business assets seized by a third party in the year of the proposal
- received payments from a lawsuit or settlement (i.e. for lost wages) that are taxable
- had owed a tax liability in the 2 taxation years immediately prior to the year of the filing of the NOI or proposal (if no NOI was filed).
* Note: In Quebec, use a yearly limit of $1,800 of net tax owing. In any other province or territory, use a yearly limit of $3,000 of net tax owing.
The filing of a provisional return does not replace the requirement to file a tax return for the taxation year of the proposal and it is not formally assessed. Additionally, to properly allocate the actual results (debit or credit) of the proposal year tax return between the pre and post proposal periods, taxpayers are required to provide the CRA with a statement outlining the breakdown of the final assessment between those two periods. If a statement is not provided, the results will be prorated based on the number of calendar days occurring in the pre and post proposal periods.