20 November 2009 External T.I. 2009-0335321E5 - Interest on Late-Filing Form T106

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: 1. When interest should cease to be charged when T106 is filed late.

2. Objections are filed and relief under the fairness provision sought in instances when such interest is charged.

Position: 1. Interest is charged to the day that the penalty is paid.

2. A due diligence defence may apply in respect of such a penalty.

Reasons: 1. S. 161(11)(a)(ii).

2. Case law

								2009-033532
XXXXXXXXXX  						Lindsay Frank
(613) 948-2227
November 20, 2009

Dear XXXXXXXXXX :

This is in reply to your email of August 5, 2009. At issue is when interest assessed on the penalty for late filing an information return ("Form T106") should cease to be applied.

You are of the view that interest should not be charged beyond the day that the Form was actually filed. You also state that objections have been filed, and requests for relief have been sought under the fairness provision of the Income Tax Act (the "Act") when such interest is charged beyond the date of the actual filing.

Subsection 233.1(2) provides that a reporting person must file Form T106 for a taxation year in respect of reportable transactions in which the reporting person and a non-resident non-arm's length person participated in the year. The reporting person must file Form T106 by its filing due-date for the year. Subsection 162(7) of the Act imposes a penalty on a reporting person who files Form T106 late. That penalty attracts interest, which, pursuant to subparagraph 161(11)(a)(ii), is payable from the day on which the person was required to file form T106 until payment. Accordingly, we are unable to share your view concerning the cessation of interest charged when Form 106 is late-filed.

In Bennett v. Canada, [1995] 2 C.T.C. 2308 (T.C.C.), it was held that the wording of section 162 of the Act, specifically subsection 162(2), did not have the clarity necessary to make it an absolute liability; accordingly, a defence of due diligence existed. However, in order to establish such a defence, a taxpayer would be expected to comply with the requirements of the Act with a high degree of diligence. See also Consolidated Canadian Contractors v. R., [1998] G.S.T.C. 91 (F.C.A.), Pillar Oilfield Projects Ltd. v. Canada, [1993] G.S.T.C. 49 (T.C.C.), Carlisi v. R., [2001] 1 C.T.C. 2734 (T.C.C.), and Quantz v. R., [2003] 1 C.T.C. 2714 (T.C.C.) where the courts have stated that there is no valid basis for maintaining absolute liability on administrative penalties such as those levied under section 162 of the Act and section 280 of the Excise Tax Act. In light of the foregoing, a taxpayer may avoid having to pay the penalty, provided the taxpayer can show that due diligence had been exercised.

Should you have any questions or require additional information on the foregoing, please do not hesitate to contact Lindsay Frank at the telephone number provided above.

B.J. Skulski
Manager
Insolvency and Administrative Law Section
Business and Partnerships Division
Income Tax Rulings Directorate