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: What are the time limitations for assessing a penalty on foreign asset reporting?
Position: 1. If liable to a penalty under subsection 162(7), the assessment must be made within the normal reassessment period, unless one of the exceptions in subsection 152(4) is applicable. If that taxation year has never been assessed, the penalty may be assessed at any time.
2. If liable to a penalty under subsection 162(10) or (10.1), the penalty may be assessed at any time.
Reasons: The penalties are assessed under Part I and are subject to the same limitations as any other assessment under that Part.
December 12, 2013
Compliance Programs Branch HEADQUARTERS
Income Tax Rulings
Directorate
Attention: Jyoti Lal Lindsay Frank
Technical Applications Officer (613) 960-7919
2013-049723
Penalties on Foreign Asset Reporting
We are writing in reply to your inquiry of July 11, 2013, concerning the time limitations for assessing late-filing penalties in respect of the foreign asset reporting requirements in the Income Tax Act (the "Act").
Sections 233.1 to 233.6 of the Act require persons and partnerships to file information returns in respect of foreign property ownership and transactions with non-residents. Those who file such a return late or do not file one on demand are liable to a penalty or penalties. You have asked us if there are any time limitations that would preclude the Minister from assessing these penalties.
While the reporting requirements in sections 233.1 to 233.6 are contained in Part XV of the Act, the provisions for assessing the penalties are in subsections 162(7), (10) and (10.1) of Part I. Therefore, the limitations in section 152 on issuing assessments, reassessments and additional assessments under Part I apply to the assessment of these penalties.
Subsection 152(4) prohibits the Minister from assessing or reassessing a taxation year beyond the normal reassessment period unless one of the exceptions in that subsection applies. For a mutual fund trust or a corporation other than a Canadian-controlled private corporation, subsection 152(3.1) defines the normal reassessment period as the period that ends four years after the earlier of the day of sending a notice of an original assessment for the year, and the day of sending an original notification that no tax is payable; in any other case, the period ends after three years. However, if the taxation year has not been assessed (for example, the taxpayer has not filed a return for the year), the normal reassessment period would not have begun, and the Minister would be able to assess at any time.
With respect to the specific penalties, we offer the following comments:
Subsection 162(7) Failure to comply
A person or a partnership that has failed to file an information return as and when required by the Act or the Income Tax Regulations, or has failed to comply with a duty or obligation under either, is liable to a penalty under subsection 162(7). However, the Minister may not assess this penalty beyond the normal reassessment period unless one of the exceptions in subsection 152(4) applies. For example, subparagraph 152(4)(a)(i) allows the Minister to reassess beyond the normal reassessment period if the person or partnership "has made any 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 Act".
We also note that proposed paragraph 152(4)(b.2) would allow the Minister to reassess three years beyond the normal reassessment period where a taxpayer has failed to file a prescribed form under subsection 233.3(3) or to provide the required information in respect of specified foreign property on the form, and has failed to report in the return of income an amount in respect of specified foreign property that is required to be included in the taxpayer' income.
In addition to the subsection 162(7) penalty, a person or a partnership that knowingly, or under circumstances amounting to gross negligence, fails to file an information return as and when required by sections 233.1 to 233.4, or fails to comply with a demand under section 233 to file a return the Minister is liable to a penalty under subsection 162(10). This penalty is reduced by any penalty to which the person or partnership is liable under subsection 162(7). The subsection 162(10) penalty may be assessed beyond the normal reassessment period because, in order for the penalty to be applicable, the person or partnership must have exceeded the conditions described in subparagraph 152(4)(a)(i).
In addition, a person or a partnership is liable to a penalty under subsection 162(10.1) if the person or partnership is liable to a penalty under subsection 162(10) and is more than 24 months late in filing an information return as and when required by any of sections 233.2 to 233.4. This penalty is reduced by the amount of the penalties in subsections 162(7) and (10). As with the subsection 162(10) penalty, this penalty may be assessed beyond the normal reassessment period because the person or the partnership would have exceeded the conditions described in subparagraph 152(4)(a)(i).
Summary
A person or partnership, who fails to file an information return as and when required by sections 233.1 to 233.6, is liable for up to three penalties set out in subsections 162(7), (10) and (10.1). However, the amount of each additional penalty is reduced by the previous penalty or penalties so that the total of the penalties does not exceed the gross amount of the largest penalty.
If you have any questions, please do not hesitate to contact Lindsay Frank at the above number.
Terry Young, CA, CPA
Manager, Administrative Law Section
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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