Principal Issues: What is the status of the review mentioned by CRA in the 2015 APFF round table with respect to the automatic application of the subsection 162(7) penalty for years that can’t be subject to the Minister's discretion pursuant to subsection 220(3.1)?
Position: The conclusion remains that the penalty is to be applied automatically if all of the conditions are met and that the Minister may not waive the penalty for taxation years that end more than 10 years before the voluntary disclosure is made. However, the assessment of a subsection 162(7) penalty is subject to the normal reassessment period, unless paragraph 152(4)(a) applies.
Reasons: A penalty under subsection 162(7) is assessed under Part I and is subject to the same limitations as any other assessment under that Part. Whether a penalty under subsection 162(7) may be assessed pursuant to paragraph 152(4)(a) is a question of fact that must be determined on a case-by case basis. Subsection 220(3.1) does not allow the Minister to waive a late filing penalty under subsection 162(7) for taxation years that end more than 10 years before the voluntary disclosure is made.
Financial Strategies and Financial Instruments Roundtable, 6 October 2017
2017 APFF Conference
Question 14
Form T1135 and follow-up from a response given in 2015
At the 2015 APFF Conference, the CRA was asked about the potential application of the late filing penalty for Form T1135 (footnote 1) where it is filed as part of a voluntary disclosure, but the non-filing period covers more than 10 years (footnote 2). In the submitted question, all income from foreign property covered by Form T1135 was reported by the taxpayer, with the only omission in the record being the lack of filing Form T1135.
In its response, the CRA stated:
“Subsection 220(3.1) does not allow the CRA to waive a penalty or interest for years that exceed this 10-year threshold (2000 to 2004 in your example). The current position of the CRA is that the late filing penalty of $2,500 under subsection 162(7) applies automatically. However, this position is currently under study.”
Question to the CRA
Can the CRA clarify what is the current status of this 2015 statement of position?
CRA response
Having reviewed the question of the automatic application of the $2,500 late filing penalty under subsection 162(7), we are still of the opinion that it applies automatically where all the conditions of that subsection are satisfied.
Furthermore, subsection 220(3.1) does not permit the CRA to waive or cancel a penalty otherwise payable by a taxpayer for a taxation year of a taxpayer beyond the day that is 10 calendar years after the end of that taxation year.
In addition, pursuant to subsection 152(4), the Minister may make an assessment, reassessment or additional assessment of tax for a taxation year, as well as of interest or penalties, payable by a taxpayer within the "normal reassessment period" applicable to the taxpayer for the year. For an individual, the normal reassessment period for a taxation year is set out in paragraph 152(3.1)(b) and generally corresponds to three years after the day of sending a notice of an original assessment. However, pursuant to paragraph 152(4)(b.2), the normal reassessment period is extended by 3 years where a Form T1135 (which is prescribed under subsection 233.3(3)) was not filed on time and an amount for a specified foreign property was not included in the taxpayer's return of income. An assessment imposing a penalty under subsection 162(7) for failure to file Form T1135 within the required time period must generally be made during the normal reassessment period.
Notwithstanding the normal reassessment period, under paragraph 152(4)(a) the Minister of National Revenue may at any time issue an assessment where the taxpayer or person filing the return has made a misrepresentation that is attributable to neglect, carelessness or wilful default or has committed any fraud in filing the return or in supplying any information under the Income Tax Act. Failure to file Form T1135 when required by subsection 233.3(3) constitutes, in the CRA's view, a misrepresentation. However, whether this misrepresentation is due to neglect, carelessness, or willful default or to any fraud committed by the taxpayer or person filing the return is a question of fact determinable on a case-by-case basis.
Thus, although automatic, the penalty provided for under subsection 162(7) will not be assessed outside the normal reassessment period unless the Minister of National Revenue determines that the exception in paragraph 152(4)(a) is applicable.
Sophie Larochelle
Nicolas Bilodeau
October 6, 2017
2017-070851
FOOTNOTES
Due to our system requirements, footnotes contained in the original document are reproduced below:
1 CANADA REVENUE AGENCY, Form T1135, Foreign Income Verification Statement, 2016.
2 Question 4 of the Financial Strategies and Financial Instruments Roundtable, 2017 APFF Conference