Principal Issues: Whether the position enunciated in document 2005-0133411I7 reflects CRA”s current position.
Position: No.
Reasons: Wording of the Act and jurisprudence.
Mathieu Bourke-Landry Income Tax Rulings Directorate Legislative Support Section Simon Morin Technical Support and Policy Division Small and Medium Businesses Directorate Compliance Programs Branch 2024-103212 Canada Revenue Agency
December 30, 2024
Dear Mr. Bourke-Landry,
Subject: Penalty for repeated omissions
This is in response to your email of May 21, 2024 (your “Request”) in which you asked us for our view on the interpretation of subsection 163(1) of the Income Tax Act, R.S.C. 1985, c. 1, (5th Supp.), as amended (the “Act”). We apologize for the delay in responding to your Request.
More specifically, the question submitted is whether the position set out in Technical Interpretation 2005-0133411I7 with respect to multiple returns represents the current position of the CRA.
Unless otherwise indicated, all statutory references herein are to provisions of the Act.
OUR COMMENTS
In technical interpretation 2005-0133411I7, our Directorate was asked for its opinion on the application of the penalty provided for in subsection 163(1) in the context of multiple returns. The facts of that interpretation can be summarized as follows:
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. Under one assumption, 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. Under a second alternate assumption, 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 Directorate stated the following: [TaxInterpretations translation]:
“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.”
The factual situation submitted in technical interpretation 2005-0133411I7 has several similarities with the facts in Whissell v. R., 2016 TCC 133 (the “Whissell Decision”).
In the Whissell Decision, the Tax Court of Canada (the “TCC”) had to determine the validity of the penalties imposed on the taxpayer under subsection 163(1) in respect of simultaneously filed tax returns. The TCC stated that the change in tense in subsection 163(1) represents the temporal relationship between the year of the penalty and the three preceding taxation years and does not in any way concern the order in which the income tax returns for the taxation years in question are actually filed. Thus, the Court concluded that the fact that the returns for the taxation years in question were filed simultaneously is not relevant for the purposes of subsection 163(1).
In light of the reasoning adopted by the TCC in the Whissell Decision, we are of the view, with regard to the factual situations described in technical interpretation 2005-0133411I7, that subsection 163(1) is applicable with respect to the 2002 and 2003 taxation years in the context of the first assumption since all the conditions are satisfied for those two taxation years. With respect to the second assumption, our answer remains the same, i.e., that subsection 163(1) is applicable with respect to each of the 2001, 2002 and 2003 taxation years since all the conditions are satisfied for those three taxation years.
In view of these comments, the position set out in internal technical interpretation 2005-0133411I7 no longer represents the CRA”s position.
Unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency’s electronic library. After a 90-day waiting period, a severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. You may request an extension of this 90-day period. The severing process removes all content that is not subject to disclosure, including information that could reveal the identity of the taxpayer. The taxpayer may ask for a version that has been severed using the Privacy Act criteria, which does not remove taxpayer identity. You can request this by e-mailing us at: ITRACCESSG@cra-arc.gc.ca. A copy will be sent to you for delivery to the taxpayer.
We hope you find our comments useful.
Best regards,
Sophie Larochelle, LL.B., M. Fisc., MBA
Section Manager
Specialized Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch