This extension applies to tax-exempt incorporated municipalities, universities, schools, hospitals, non-profit organizations (NPO), federal Crown corporations and Indian band councils (e.g., MUSH entities).
Standardized accounting measures that became effective in April 1, 2007 allows the CRA to withhold a taxpayer's refund until the taxpayer has filed all returns required at that time, under the Income Tax Act, Excise Tax Act, Excise Tax Act 2001 and Air Travellers Security Charge Act.
Traditionally, many income tax-exempt corporations, such as Crown corporations (e.g., lottery corporations) and non-profit organizations, have been able to avoid the administrative burden of filing corporate income tax returns without any adverse result because the penalty for not filing the return was based on the amount of tax owing, which was nil.
CRA's administrative position
The CRA's fact sheet, dated April 25, 2012 states that the CRA recently concluded its review and has determined that refunds or rebates will not be withheld from tax-exempt MUSH entities when they have outstanding T2 returns. The CRA says that this decision effectively adopts its 2008 administrative position indefinitely. The CRA also notes that while refunds and rebates will not be withheld because of outstanding T2 returns, its administrative position does not remove the legislative responsibility of a tax-exempt corporation to file an annual T2 return.
For more information, contact your KPMG adviser.