Mr. Y filed his T1 income tax returns for the 2001, 2002, and 2003 taxation years at the same time in the 2004 calendar year. In his 2001, 2002 and 2003 taxation years, he failed to report income of $18,000, $500 and $1,000, respectively. On the first assumption, his returns for the 1998, 1999 and 2000 taxation years were not subject to any audit adjustments; whereas, on the second assumption, he failed to report an amount of income during one of the 1998, 1999 or 2000 taxation years and was reassessed for that amount.
Regarding the first assumption, CRA stated:
[T]he better position is that [s. 163(1)] does not apply where a taxpayer files T1 income tax returns simultaneously for a number of consecutive taxation years and the taxpayer's income tax returns for the earlier taxation years were filed in accordance with the provisions of the Act … .
… [T]he CRA should not apply subsection 163(1) respecting Mr. Y's unreported income under the first scenario … .
Regarding the second assumption, CRA stated:
[I]f the failure to report an amount to be included in Mr. Y's income occurred in the 2000 taxation year, then the subsection 163(1) penalty could be applied to the unreported income in the concurrently filed returns for each of the 2001, 2002 and 2003 taxation years. If such an omission had occurred for the 1998 taxation year, only the amount of income omitted for the 2001 taxation year could be subject to a penalty under subsection 163(1).