15 August 2018 Internal T.I. 2018-0748441I7 - Subsection 162(7.01) penalty calculation

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 subsection 162(7.01) applies cumulatively such that the total penalty is calculated based on the cumulative number of information slips that were not filed when required by the Income Tax Act, and the cumulative number of days during which the failure continues.

Position: Yes.

Reasons: Subsection 162(7.01) of the Act imposes a graduated penalty where information returns are filed late. Each information slip is a prescribed information return and is required to be filed according to the Act. The graduated penalty is based on the total number of information slips that were filed late, regardless of whether they were filed at different dates. The calculation is then made based on the number of days during which the failure continues, i.e., the number of days after the filing due date until all the required information slips of the same type are filed.

									August 15, 2018

Individual Income Tax Legislative Amendments 	      HEADQUARTERS
  Section								Income Tax Rulings
Legislative Amendments Division	  			Directorate
Legislative Policy Directorate				G. Godson

Attention: Vyjayanthi Srikanth
									2018-074844

Subsection 162(7.01) – Penalty calculation

We are writing in reply to your enquiry of March 13, 2018, requesting clarification of the calculation of the penalty provided by subsection 162(7.01) of the Income Tax Act (the “Act”) for the failure to file a prescribed information return when required by the Act.

In the hypothetical example you provided in your enquiry, a person is required to file T5 information slips. The person files 73 T5 slips 8 days after the required filing deadline. The taxpayer also files a single T5 slip, 56 days after the required filing deadline.

You have requested clarification of the calculation of the late filing penalty provided by subsection 162(7.01) of the Act in this circumstance.

Our comments

Subsection 162(7.01) of the Act provides that every person (other than a registered charity) or partnership who fails to file, when required by this Act or the Income Tax Regulations (the “Regulations”), one or more information returns of a type prescribed by subsection 205(3) of the Regulations for the purpose of this subsection is liable to a penalty. The penalty is equal to the greater of $100 and

(a) where the number of those information returns is less than 51, $10 multiplied by the number of days, not exceeding 100, during which the failure continues;

(b) where the number of those information returns is greater than 50 and less than 501, $15 multiplied by the number of days, not exceeding 100, during which the failure continues;

(c) where the number of those information returns is greater than 500 and less than 2,501, $25 multiplied by the number of days, not exceeding 100, during which the failure continues;

(d) where the number of those information returns is greater than 2,500 and less than 10,001, $50 multiplied by the number of days, not exceeding 100, during which the failure continues; and

(e) where the number of those information returns is greater than 10,000, $75 multiplied by the number of days, not exceeding 100, during which the failure continues.

The penalty in subsection 162(7.01) is based on the number of information returns the person is required to file, but are filed after the required filing deadline. Each information slip is a prescribed information return. As noted in our document 2013-051512, the reference to “the number of those information returns” refers to the phrase “of a type” used in the preamble. The wording indicates that a taxpayer is liable to a separate penalty based on the number of each particular type of information return prescribed by subsection 205(3) of the Regulations.

Subsection 162(7.01) provides that the penalty is based on the total number of information slips that are filed late, regardless of whether they were filed at different dates. The calculation of the penalty is then made based on the number of days “during which the failure continues”, i.e., the number of days after the filing deadline until all the required information slips of the same type are filed. In other words, the failure to file continues until all the required information slips have been filed. The result is that a person who files the same type of information slips late, but at different times, will be liable to a penalty based on the total number of each type of information slip filed late, and based on the number of days until the last slip has been filed.

In the example that you provided, the total number of T5 information slips filed beyond the filing deadline is 74. Therefore, the applicable penalty provided by paragraph 162(7.01)(b), where the number of those information returns is greater than 50 and less than 501, is $15, multiplied by the number of days, not exceeding 100, during which the failure continued. The total number of days the failure continued was 56 days. As a result, the penalty would be $15 times 56 days, for a total penalty of $840.

For your information, unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency’s electronic library. A severed copy will also be distributed to the commercial tax publishers, following a 90-day waiting period (unless advised otherwise), for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should the taxpayer request a copy of this memorandum, they may request a severed copy using the Privacy Act criteria, which does not remove taxpayer identity. Requests for this version should be e-mailed to: ITRACCESSG@cra-arc.gc.ca.

We trust these comments will be of assistance.

Terry Young, CPA, CA
Manager, Administrative Law Section
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch