Principal Issues: Whether subsection 163(1) can apply when an individual file his returns for 2001, 2002 and 2003 taxation years simultaneously, and previous returns have been filed correctly?
Position: No
Reasons: Wording of the provision
October 18, 2005
| Laval TSO | Income Tax Rulings Directorate |
| Attention: Sylvie Paquette | Reorganizations Division |
| (Technical Services), and Industrial Resources Corporations |
Robert Gagnon |
| Nathalie Archambault (Non-filers/non- registrants) |
(613) 957-2108 |
| 2005-013341 |
Request for an opinion on section 163(1) of the Act
This is in response to your email of May 26, 2005, in which you asked whether subsection 163(1) applies when tax returns are filed simultaneously, and how subsection 163(1) would apply in a situation as described below.
Unless otherwise indicated, all statutory references herein are to provisions of the Income Tax Act (the "Act").
Facts
1. Mr. Y is an individual who is resident in Canada for the purposes of the Act.
2. Mr. Y filed his T1 income tax returns for the 2001, 2002, and 2003 taxation years in the 2004 calendar year. The three tax returns were filed simultaneously by Mr. Y.
3. In his T1 income tax returns for the 2001, 2002 and 2003 taxation years, Mr. Y failed to report income of $18,000, $500 and $1,000, respectively.
4. Subsection 163(2) does not apply in this case.
5. It appears that Mr. Y filed his T1 income tax returns for the 2000 and prior taxation years in accordance with the provisions of the Act. Under this first assumption, Mr. Y's income tax returns for the 1998, 1999 and 2000 taxation years were not subject to any audit adjustments.
6. A second assumption is that Mr. Y failed to report an amount of income during one of the 1998, 1999 or 2000 taxation years and was reassessed for that amount.
Our Comments
Although the wording of subsection 163(1) is not entirely clear, it seems to us that the better position is that this provision 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, and without failure to report income in those earlier years.
It seems to us that the wording of subsection 163(1) has been drafted to reflect the usual situations where taxpayers file their income tax returns annually.
In a situation as described above, the CRA should not apply subsection 163(1) respecting Mr. Y's unreported income under the first scenario described above.
Under the second assumption, if 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).
We hope that our comments will be of assistance, and best regards.
Maurice Bisson, CGA
for the Director
Corporate Reorganizations and Resource Industries Division
Income Tax Rulings Directorate
Directorate General for Policy and Planning