30 October 2012 Ontario CTF Roundtable, 2012-0462951C6 - Ontario CTF - Penalty Relief

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. Whether a taxpayer who makes a voluntary disclosure that involves taxation years that end more than 10 years before the year in which the disclosure is made will be assessed a penalty for late-filing. 2. Whether a taxpayer who makes a voluntary disclosure that involves taxation years that end more than 10 years before the year in which the disclosure is made will be assessed a gross negligence penalty. 3. What criteria, if any, does CRA use for deciding whether to provide partial relief of interest for a period with respect to a voluntary disclosure?

Position: 1. Yes. 2. No, if CRA accepts the disclosure as valid. 3. Partial interest is waived within the 10 year limitation period for all voluntary disclosures that are considered valid.

Reasons: 1. Mandatory penalties such as the late filing penalty provided by subsection 162(7) of the Act cannot be waived in a taxation year that ends more than 10 years before the disclosure. 2. Discretionary penalties such as the gross negligence penalty provided by subsection 163(2) of the Act will not be applied if the CRA accepts the disclosure. 3. The waiving of partial interest within the 10 year limitation period is part of Voluntary Disclosure Program policy.

Ontario CTF Conference – October 30, 2012

Question 15

Part 1

In IC00-1R2, at paragraph 11, the CRA states that a taxpayer who makes a valid voluntary disclosure will not be assessed any penalties or prosecuted. Does this statement apply to a taxpayer who makes a voluntary disclosure that involves taxation years that end more than 10 years before the year in which the disclosure is made? Does this apply to some penalties and not others? For example, will late-filing penalties under subsection 162(7) of the Income Tax Act (Canada) (the "Act") be assessed but gross negligence penalties under 163(2) of the Act be waived?

Answer

The statement in IC 00-1R2 at paragraph 11 will apply to all taxpayers subject to the statutory limitations contained in the various Acts. Where a penalty, such as any of the late filing penalties under section 162 of the Act is waived pursuant to a taxpayer relief provision that contains a ten year limitation period then the VDP is limited to waiving the penalty within the ten year limitation period. With a penalty, such as the gross negligence penalty under subsection 163(2), the CRA has some discretion as to whether it is levied in the first instance. If these penalties are not levied then the taxpayer relief provisions are not invoked. Consequently, mandatory penalties such as the late filing penalty provided by subsection 162(7) cannot be waived in a taxation year that ends more than 10 years before the disclosure, while the discretionary penalties such as the gross negligence penalty provided by subsection 163(2) will not be applied if the CRA accepts the disclosure.

Part 2

In IC00-1R2, the CRA states the following:

12. In addition to penalty relief, if a disclosure is accepted as valid by the CRA, the Minister may grant partial relief in the application of interest against a taxpayer in respect of assessments for years or reporting periods preceding the three most recent years of returns required to be filed.

What criteria, if any, does the CRA use for deciding whether to waive interest for this period in accordance with the policy described above?

Answer

The waiving of partial interest within the 10 year limitation period is part of VDP policy and is applied to all disclosures that are considered valid by the CRA as a means of encouraging disclosures for older years.

*Note: Answers were provided by Kurt Laporte, Manager, Voluntary Disclosure, October 4th, 2012

Gillian Godson
2012-046295