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: Whether a taxpayer can be assessed after the normal reassessment period if gross negligence penalties have not been assessed.
Position: Yes.
Reasons: The level of culpability required to assess beyond the normal reassessment period pursuant to subparagraph 152(4)(a)(i) (i.e., "neglect, carelessness or wilful default") to apply is lower than that required to assess a penalty for gross negligence such as subsection 163(2) or 162(10) (i.e., "knowingly, or under circumstances amounting to gross negligence").
June 5, 2014
Legislative Policy Directorate HEADQUARTERS
Income Tax Rulings
Directorate
Attention: Robert Greene Lindsay Frank
Manager (613) 960-7919
Individual Income Tax Legislation
2013-050905
Penalties Assessed beyond the Normal Reassessment Period in Respect of Form T106
We are writing in reply to your inquiry in which you requested clarification of our views, expressed in technical interpretation 2009-0333581I7, concerning the relationship between subparagraph 152(4)(a)(i) and subsection 163(2) of the Income Tax Act (the "Act").
In that letter, Question 4 asked:
"If a person files a Form T106 ten years late, what is the Minister's authority to assess a late filing penalty under s. 162(7), if a gross negligence penalty has not been assessed?"
Our response stated, in part:
"If a gross negligence penalty has not been assessed, a penalty under subsection 162(7) would also be subject to subsection 152(3.1). Hence, if a person files a Form T106 ten years late, and subsection 163(2) does not apply, neither would a penalty under subsection 162(7)."
You expressed your concern that the letter has stated that the level of misconduct required for subparagraph 152(4)(a)(i) to apply is as high, or higher, than that required for subsection 163(2) to apply. You stated that this is contrary to your understanding of these provisions.
Our Comments
As explained below, we have reconsidered our comments in 2009-0333581I7 in response to Question No. 4, and we are of the opinion that they were incorrect.
The Minister may only assess a taxpayer after the end of the normal reassessment period if one of the exceptions in subsection 152(4) is applicable. For example, subparagraph 152(4)(a)(i) states, in part:
The Minister may at any time make an assessment of
penalties
payable under this Part by a taxpayer
except that an assessment, reassessment
may be made after the taxpayer's normal reassessment period in respect of the year only if
(a) the taxpayer
(i) 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 this Act
In contrast, the "gross negligence" penalties, such as subsection 163(2) or 162(10), apply where the person "knowingly, or under circumstances amounting to gross negligence" makes a false statement, omission, or fails to file an information return, as the case may be.
It is the CRA's longstanding position that the level of culpability required for subparagraph 152(4)(a)(i) to apply is lower than that required for the gross negligence penalties. This position has been supported by numerous court decisions.
For example, in Venne v The Queen, 84 DTC 6247, ("Venne") the Federal Court held that subparagraph 152(4)(a)(i) can apply where a taxpayer has been negligent (i.e., had not exercised reasonable care). The court went on to describe the standard contained in subsection 163(2) as follows:
"Gross negligence' must be taken to involve greater neglect than simply a failure to use reasonable care. It must involve a high degree of negligence tantamount to intentional acting, an indifference as to whether the law is complied with or not."
In Venne, the Court decided that the taxpayer had been sufficiently negligent to permit the Minister to reassess the tax payable after the normal reassessment period, but had not been sufficiently negligent for the penalty in subsection 163(2) to apply.
In summary, the complete answer to Question 4 in 2009-0333581I7 should have been:
"The level of culpability required to assess beyond the normal reassessment period using subparagraph 152(4)(a)(i) is lower than the level required for a gross negligence penalty to apply. Therefore, there may be circumstances where a person's misconduct has been sufficient that subparagraph 152(4)(a)(i) could apply permitting the Minister to assess a penalty under subsection 162(7), but not sufficient for a gross negligence penalty to apply."
Should you have any questions, please do not hesitate to contact Lindsay Frank at the number provided above.
Terry Young CA, CPA
Manager, Administrative Law Section
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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