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 penalty could be reassessed when the initial assessment was raised more than three years prior?
Reasons: Subsection 152(4) applies whereby the reassessment has to be issued within three years (four years for a public corporation and a mutual fund trust company) of the initial assessment.
May 24, 2011
Information Returns Division HEADQUARTERS
Income Tax Rulings
Attention: Cathy Chorniawy, Manager (613) 948-2227
Information Returns Programmes
Reassessing Under Subsections 162(7.01) and (7.02)
This is in reply to an inquiry from Robert Dubord, who is seeking a technical interpretation on the operation of subsections 162(7.01) and (7.02) of the Income Tax Act, which respectively impose a penalty on a person where information returns are either not filed in the manner prescribed or are late filed..
Mr. Dubord provided an example where a taxpayer manually filed 50 T5 information returns for Year 1. The taxpayer not only failed to file the returns electronically, but the returns were filed 100 days late. The penalty under paragraph 162(7.02)(a) for failing to file the returns in the prescribed manner did not apply as the number of non-compliant returns fell below the statutory threshold. However, a late filing penalty in the amount of $1,000 was assessed pursuant to paragraph 162(7.01)(a). The situation became further complicated in Year 5 when a further two non-electronic T5 returns for Year 1 were filed, thereby increasing to 52 the cumulative number of non-compliant returns that have been late filed.
Since the cumulative total of non-compliant returns now exceeds the statutory threshold, the provisions of paragraph 162(7.02)(a), which impose a penalty for failing to file the returns in the manner prescribed, come into play. There is also an impact on the provisions of subsection 162(7.01). The cumulative total of returns late filed now exceeds the threshold in paragraph 162(7.01)(a) with the result that the graduated penalty under paragraph 162(7.01)(b) would apply, unless otherwise barred. Under that provision, the penalty would increase to $1,500 from the $1,000 that was initially assessed under paragraph 162(7.01)(a). At issue is whether the Minister is time-barred from reassessing Year 1.
The Minister's authority to make an assessment, reassessment, or additional assessment is governed by the limitation provision of subsection 152(4). But for certain exceptions, assessments and reassessments are barred following the expiry of the normal reassessment period defined in subsection 152(3.1). In this respect, under paragraph 152(3.1)(a), the normal reassessment period for mutual fund trusts and public corporations is within four years of the initial assessment of a taxation year; under paragraph 152(3.1)(b), the period for Canadian-controlled corporations and other taxpayers is within three years.
In the instant case, Year 1 has already been assessed, and more than three years have elapsed since that assessment. Assuming that the taxpayer is a Canadian-controlled private corporation, it follows then that subsection 152(4) would apply to bar the reassessment of that year. Accordingly, neither the increased penalty under paragraph 162(7.01)(b) nor a penalty under paragraph 162(7.02)(a) can be assessed. Should you have any questions or require additional clarification, please do not hesitate to contact Lindsay Frank at the outset of this memorandum.
Insolvency and Administrative Law Section
International and Trusts Division
Income Tax Rulings Directorate
c.c. Cornelis Rystenbil
Legislative Policy Directorate
Information Returns Programmes Section
Information Returns Division
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