Principal Issues: 1. Whether s. 152(4) applies to a s. 162(7) penalty for a first-time late-filed Form T106.
2. How interest is calculated on a s. 162(7) penalty.
3. Whether the position in E2009-031252 correct that s. 162(7) operates only where the Minister demands a person to file an information return.
4. If a person files a Form T106 late, what is the Minister's authority to assess a late filing penalty under s. 162(7), if a gross negligence penalty has not been assessed?
Position: 1. This would depend on whether a prior assessment has been raised in respect of that particular year.
2. Interest is calculated as the greater of $100 and 25 times the number of days that the information is filed late to a maximum of $2,500. The interest is payable on any unpaid penalty from the day following that on which the information return is required to be filed.
3. No.
4. There is no authority.
Reasons: 1. Under s. 152(4), the Minister may assess at any time, but consideration to the normal reassessment rules in s. 152(3.1).
2. S. 161(11)(a).
3. The position in E2009-031252 that s. 162(7) applies only where the Minister serves a reporting person with a demand to file is inaccurate. Rather, s. 162(7) applies where there has been a breach of an obligation under the Act or the Regulations.
4. Construing the filing of an information return ten years late as gross negligence may not be sustainable; accordingly, an assessment of a gross negligence penalty under s. 163(2) may not apply. If there is no s. 163(2) penalty, there is no s. 162(7) penalty.
September 22, 2010
International Tax Division HEADQUARTERS Income Tax Rulings Attention: Michael Chun, Manager International Policy Section Lindsay Frank (613) 948-2227
2009-033358
Information Return - Form T106
This is in reply to an email from Lata Agarwal, in which she posed the following questions related to information return ("Form T106"). In addition, we revisit technical interpretation document 2009-031252 to revise the answer to question #4 therein.
Under subsection 233.1(2) of the Income Tax Act, a reporting person is required to file Form T106 to report its activities with certain non-resident persons. Subsection 233.1(1) defines a reporting person for a taxation year as a person who, at any time in the year, is a resident in Canada, or who is a non-resident and carries on a business in Canada (other than a business carried on as a member of a partnership). The questions and answers follow.
Question No. 1: Does subsection 152(4) of the Income Tax Act bar the assessment of a late filing penalty when Form T106 is filed late?
Subsection 152(4) enables the Minister to assess a late filing penalty under 162(7) at any time. However, the assessment must be raised inside the normal reassessment period, unless paragraphs 152(4) (a) to (d) apply. The normal reassessment period begins when an initial assessment is raised on any amount under Part I. Therefore, any prior assessment would be the deciding factor in determining the time-frame for assessing the subsection 162(7) penalty in this situation. If an assessment has already been issued (in respect of a T1, for instance), the time-frame as stated in subsection 152(3.1) would be within three years of that assessment. On the other hand, if no Part 1 assessment has ever been raised in respect of the taxpayer for that year, then there is no time restriction on assessing the late filing penalty.
Question No. 2: How is interest calculated on a late filing penalty imposed under subsection 162(7)? For instance, if Form T106 is filed 5 days late, what would be the amount of penalty assessed, and when would interest become payable?
Answer: This question involves two separate issues. Under subsection 162(7) the penalty is equal to the greater of $100.00 and $25.00 times the number of days that Form T106 is filed late to a maximum of $2,500.00. Interest is payable pursuant to paragraph 161(11)(a) on any unpaid penalty from the day following that on which the information return is required to be filed. Therefore, if Form T106 is filed 5 days late, the penalty will amount to $125.00 ($25 x 5) plus interest thereon from the day following that on which the information return was due to the date the penalty is paid.
Question No. 3: Is the position stated in Document E2009-031252 correct in that subsection 162(7) is operative only where the Minister serves a reporting person with a demand for the Form T106 information return?
Answer: The position stated in Document E2009-031252 does not reflect the extent to which subsection 162(7) applies. To clarify, subsection 162(7) applies if there has been a breach of an obligation under the Act or the Regulations. The breach arises where a reporting person has failed to file an information return, or where a reporting person has failed to comply with a duty or obligation imposed. Therefore, the position stated in Document E2009-031252, that subsection 162(7) is operative only where the Minister serves a reporting person with a demand to file Form T106, is inaccurate. The Minister's prior demand would only be a factor if the taxpayer was being penalised for failure to respond to such a demand.
Technical Document E2009-031252 revisited
Question No. 4: If a person files a Form T106 ten years late, what is the Minister's authority to assess a late filing penalty under s. 162(7), if a gross negligence penalty has not been assessed?
Answer: The gross negligence penalty, assessed under subsection 163(2), is one that involves neglect that is greater than simply a failure to use reasonable care. If the person did not use reasonable care in ensuring that the Form was filed, it would be open to the Minister to reassess the person under subparagraph 152(4)(a)(i). However, construing the filing of an information return ten years late to be gross negligence may be difficult to sustain, and may not override the normal reassessment period in subsection 152(3.1). In this regard, the degree of negligence required to open a year is less than is required to assess penalties.
If a gross negligence penalty has not been assessed, a penalty under subsection 162(7) would also be subject to subsection 152(3.1). Hence, if a person files a Form T106 ten years late, and subsection 163(2) does not apply; neither would a penalty under subsection 162(7).
Should you have any questions or require clarification, please do not hesitate to contact Lindsay Frank at the number provided above.
Yours truly,
B.J. Skulski
Manager
Insolvency and Administrative Law Section
Ontario Corporate Tax Division
Income Tax Rulings Directorate
c.c. Lata Agarwal
International Policy Section
International Tax Division