Section 162

Subsection 162(1) - Failure to file return of income

Cases

Carlson v. The Queen, 73 DTC 5192, [1973] CTC 360 (FCTD)

"temporary" return lacked prescribed information

When the taxpayer's accountant was advised that the taxpayer would be away on business in April, he filed an unsigned return on April 30 marked as a "temporary return" and not containing all the prescribed information. A proper return was filed after April 30. The late-filing penalty was exigible because the temporary return would not have been binding on the taxpayer. "I know of no principle which entitles a taxpayer to avoid the penalty for late filing by sending in a document which is not intended to be the taxpayer's income tax return but merely an intimation that a return will be filed at some later date."

See Also

Levatte Estate v. The Queen, 2019 TCC 177

penalty waived based on personal stress and the near miss

The final return for a spousal trust was a assessed a late-filing penalty under s. 162(1) of 5% as a result of the return being filed one day late. In vacating the penalty, Russell J stated (at paras. 43-44):

The Appellant/Estate cites the fact that Ms. Warner [the trustee] was under great personal stress at that time, principally because her husband was dying of cancer and in fact passed away only days later, on July 16, 2007 leaving her as sole parent of three children.

… I do not require specific details to appreciate what a difficult time this would have been for Ms. Warner. The fact that the return was late by only one day does indicate reasonable efforts most probably were made to file the return on a timely basis, although unsuccessful.

Klopak v. Canada (Attorney General), 2019 FC 235

voluntary disclosure of FTC adjustment resulted in penalty

Although the facts are quite unclear, what may have happened is that the Canadian-resident individual, who worked in the U.S. as a subcontractor to a rock band, originally filed late Canadian tax returns on the basis that his Canadian tax liability was offset by foreign tax credits for the U.S. taxes payable on his income. However, on getting advice, he later determined that he was Treaty-exempt on that income, sought a refund of the U.S. taxes, and filed amendments to his Canadian returns, showing Canadian taxes payable. CRA (in addition to assessing the Canadian income taxes payable and interest) also assessed him penalties since it now appeared that at the time of the original filing of his “nil” returns, Canadian taxes in fact had been owing.

The taxpayer argued inter alia (at para. 30) that as he “came forward with a voluntary disclosure in a timely fashion … it was unreasonable for the [CRA] Delegate to not exercise discretion in waiving the penalties.”

McVeigh J denied penalty relief essentially on the basis that the taxpayer did not fall within the conventional narrow criteria of CRA in IC-07 for penalty relief, e.g., no extraordinary circumstances justifying the late filing of the returns, such as natural disaster, had been established, and that this situation also did not fall within the four corners of CRA’s published voluntary disclosure program.

Rousseau v. Agence du revenu du Québec, 2018 QCCQ 7340

taxpayer established that failure to file Quebec returns was based on good faith reliance on his accountant’s view of his Alberta residency

The taxpayer, who performed his work for various employers at pipeline sites outside Quebec for most of the taxation years at issue (2003 to 2011), but kept his house in Quebec, where his wife and children stayed and where he stayed as well on vacation or longer leave periods. Allen JCQ found that the taxpayer continued to reside in Quebec for those taxation years.

However, in finding that Mr. Rousseau had made out a due diligence defence to the imposition of penalties under the Quebec equivalent of ITA s. 162(1) for failure to file Quebec income tax returns for those years, Allen JCQ stated (at para. 60, TaxInterpretations translation), in accepting oral testimony of the taxpayer to this effect, that the taxpayer “relying on the independent opinion provided by his accountant, believed sincerely and in good faith that he was resident in Alberta.”

Chiang v. The Queen, 2017 TCC 165 (Informal Procedure)

no penalty where reasonable error of fact

The taxpayer made contributions to his RRSP for the years 1995 to 2005 (except 1998). In preparing his 1995 and 1999 returns, he reported his contributions, but failed to deduct them – but thought that he had. Furthermore, in 1997, he overcontributed based on an incorrect impression that he had unused RRSP deduction room. As a result of these errors, he had a cumulative excess amount as calculated under s. 204.2(1.1). CRA assessed him Part X.1 tax under s. 204.1(2.1) and assessed penalties under s. 162(1) for his failure to file returns as required under s. 204.3(1) reporting his Part X.1 tax liabilities.

After confirming the taxpayer’s Part X.1 tax liability and after quoting (at para. 26) a statement in Corporation de l’École Polytechnique v The Queen, 2004 FCA 127 that a due diligence defence is established if “the person believed on reasonable grounds in a non-existent state of facts which, if it had existed, would have made his or her act or omission innocent,” Sommerfeldt J went on to find that the s. 162(1) penalties should be cancelled, stating (at paras 11, and 27):

… I am of the view that his failure to deduct the contributed amounts, which was unbeknown to him, was due to innocent and reasonable inadvertence.

Mr. Chiang genuinely and reasonably believed that he had deducted the contributions that he had made to his RRSP for 1995 and 1999 and that he had unused RRSP deduction room in respect of 1997. Thus, it is my view that Mr. Chiang reasonably believed in, and was operating under, a mistaken set of facts that, if true, would have resulted in there not having been a cumulative excess amount. Therefore, his failure to file tax returns (Form T1-OVP) for 2004 to 2013 resulted from a reasonable error of fact, so as to be excused by the due diligence defence.

Words and Phrases
due diligence

Friedlander v. The Queen, 2012 DTC 1165 [at at 3405], 2012 TCC 163 (Informal Procedure)

After referring to the finding in Les Résidences Majeau v. The Queen, 2010 FCA 28, para. 8 that the due diligence defence extended to situations where the taxpayer "made a reasonable mistake of fact," Paris J. found that the taxpayer should not incur penalties under s. 162(1), in respect of a failure to file the required forms (T1-OVP) on excess contributions made to an RRSP account he held. It was clear that the taxpayer, who had little familiarity with the English language or Canadian investment products, had intended to set up an investment account rather than an RRSP. The bank employee who set up the account had misunderstood the taxpayer's request, and the taxpayer misunderstood the nature of the account he had created and had no reason to believe that excess contributions would ever be an issue.

Jay v. The Queen, 2010 DTC 1101 [at at 3031], 2010 TCC 122 (Informal Procedure)

The taxpayer, a high school student at a private school, had established a due diligence defence to liability under s. 162(1) for failure to report bursary income. Woods J. found that, given the taxpayer's age, it was reasonable to rely on his mother's remarks that an accountant had advised her that bursaries were not taxable.

Ford v. The Queen, 95 D.T.C 848, [1994] 2 CTC 2395 (TCC)

The taxpayer did not file a 1991 return on or before April 30, 1992 because she had no income tax payable for that year. When a subsequent court judgment retroactively gave rise to a 1991 tax liability pursuant to s. 56.1(3), she filed her 1991 return within 90 days thereafter.

Bell TCJ. found that no penalty was payable because the taxpayer had used due diligence in filing on this basis, and because, if she had filed a 1991 income tax return on April 30, 1992 there would have been no requirement for the filing of a second return by her following the court's judgment.

Feuiltault v. The Queen, 94 DTC 1657 (TCC)

Before finding the taxpayer liable for late-filing penalties, Lamarre Proulx TCJ. stated (p. 1659):

"I do not have to decide in the instant appeal whether the offence under subs. 162(1) of the Act is in the nature of an offence of strict liability or absolute liability since the appellant did not prove that he had taken all reasonable precautions in carrying out the prescribed act."

Reemark Chelsea Terraces Project Ltd. v. The Queen, 93 DTC 469, [1993] 1 CTC 2727 (TCC)

Because the penalty under s. 162(1) was to be calculated at the time the return was required to be filed, the penalty in this case was not eliminated by the subsequent carrying back to the taxation year in question of a non-capital loss arising in the subsequent taxation year.

Administrative Policy

11 June 2014 Internal T.I. 2014-0519701I7 - Filing a NIL return to avoid late-filing penalties

return with substantive missing elements

Can CRA refuse to accept either a NIL tax return (which does not report any of the transactions on which tax is payable) or a substantially incomplete tax return? CRA stated:

[W]here all or some of the necessary and substantive elements on the prescribed form are missing, or incorrectly stated…CRA may refuse to accept the return, and may assess any applicable penalties. Further, even if the CRA has accepted the initial return of income and issued a notice that no tax is payable, late-filing penalties, such as subsection 162(1) or (2) may be assessed at the time the taxpayer files the amended tax return and it is identified that the initial return of income was not a valid return.

93 C.R. - Q. 51

Although a return of income is required where a non-resident corporation is subject to tax under Part I but is exempt under a treaty, penalties will not be applied provided that no tax is payable.

Subsection 162(2) - Repeated failure to file

See Also

Hughes v. The Queen, 2017 TCC 95 (Informal Procedure)

no penalty if return filed within period demanded

The taxpayer filed his return more than eight months after the filing due date for the year in question and had previously been subject to a late-filing penalty. A federal penalty of $29,225.45 was assessed for the year under s. 162(2).

Jorré J found (at paras 61, 62, 63 and 64):

The English language version of the text of subsection 162(2) seems to simply require that the demand be sent and nothing more; the French language version requires that the person fail to file the return within the time limit set out in the demand.

It is hard to see what purpose is served if all that is required is that the Minister send the demand and nothing more. … If failing to respond to the demand does not matter, why is the condition in paragraph 162(2)(b) needed at all?

When one considers the scheme and purpose of these provisions, as well as their history, the French language text which focuses on compliance with the demand, rather than the mere sending, is clearly more consistent with the scheme.

As a result…[s]ubsection 162(2) cannot apply unless the taxpayer has failed to file within the time period set out in the demand.

Before vacating the penalty (subject to the $25,000 informal procedure limit) notwithstanding that the taxpayer had not established a due diligence defence, Jorré J stated (at para. 75):

… [G]iven that the Respondent did not plead that it made an assumption or finding of fact that the Appellant failed to comply with the time limit in the demand, there was no onus on the Appellant to prove that he did. …

Kreuz v. The Queen, 2012 DTC 1201 [at at 3514], 2012 TCC 238 (Informal Procedure)

D'Auray J. accepted the taxpayer's argument that the Minister could not impose s. 162(2) penalties in respect of the making of a demand to file returns for the taxpayer's 2006 and 2007 taxation years because the Minister had failed to serve the required notice under s. 150(2). There was no reason to question the taxpayer's credibility, and the Minister had filed no evidence to the contrary.

Ottawa Ritz Hotel Company Limited v. The Queen, 2012 DTC 1172 [at at 3427], 2012 TCC 166 (Informal Procedure)

Webb J. took the position that, as a due diligence defence was available for s. 162(1), it should also be available for s. 162(2). In the present case, however, the taxpayer could not make out a due diligence defence in respect of the death of the taxpayer's president's wife, as the death occurred more than a year after the relevant return was required to be filed. The taxpayer's accountant suffered a similar personal loss more than a year and a half after the deadline.

Bennett v. The Queen, 96 DTC 1630, [1995] 2 CTC 2308 (TCC)

Although the wording of s. 162(2) allowed a defence of due diligence, it was found (at p. 1634) that such a defence was not established in this instance: "complexity of the fiscal situation, moving and one's own financial situation are not elements of excuse for not filing on time an income tax return."

Farm Business Consultants Inc. v. The Queen, 95 DTC 200, [1994] 2 CTC 2450 (TCC), briefly aff'd 96 DTC 6085 (FCA)

The taxpayer was found to have committed "gross negligence" (which Bowman TCJ. stated (at p. 205) "implies conduct characterized by so high a degree of negligence that it borders on recklessness"), or to have knowingly made a false statement, when it deducted "management fees" in its tax returns pursuant to a consulting agreement whose legal substance was the provision of consideration for the purchase by the taxpayer of goodwill. Bowman J. also stated (at p. 205) that in a case entailing the application of s. 163(2):

"A court must, even in applying a civil standard of proof, scrutinize the evidence with great care and look for a higher degree of probability that would be expected where allegations of a less serious nature are sought to be established."

Subsection 162(2.1) - Failure to file - non-resident corporation

Cases

Cogesco Sevices Ltd. v. Attorney General of Canada, 2013 FC 1238

relief from penalty

The taxpayer, which was a non-resident corporation that had no liability for tax as a result of losses, was assessed for $15,000 of penalties under s. 162(2.1) (plus interest) for its failure to file returns for its 2005 to 2010 taxation years. The taxpayer sought relief under s. 220(3.1) for $12,500 of these penalties (conceding that there should be no relief for 2010 given the Federal Court of Appeal decision in that year in Exida.com establishing that a penalty of $2,500 was payable for that year under s. 162(7) (rather than under s. 162(2.1).)

The taxpayer sought relief on the basis of the conflict between the Goare and Exida.com Tax Court decisions as to the application in these circumstances of s. 162(2.1), and the finding at the Federal Court of Appeal that this provision did not apply (but, rather, was supplanted by s. 162(7) (paras. 10, 20)).

CRA did not grant relief, on the basis that the Federal Court of Appeal had established that the penalty was payable. In granting the application for judicial review, Roy J stated (at para. 21) (TaxInterpretations translation) "quite simply, the reasons given for refusing the request for relief did not correspond in any way with the argument advanced by the applicant."

Exida.Com Limited Liability Company v. Canada, 2010 DTC 5101, 2010 FCA 159

no substantive tax liability

A non-resident corporation which failed to file corporate income tax returns but which had no income taxes payable in Canada was not subject to the penalty under s. 162(2.1) as it was not potentially subject to any penalty under s. 162(1) or (2) and therefore was not "liable to" a penalty under such provisions. However, it was subject to a penalty in the same amount under s. 162(7).

Words and Phrases
liable

See Also

Kokanee Placer Ltd. v. The Queen, 2016 TCC 63 (Informal Procedure)

Goar overruled

Before finding the taxpayer liable for a s. 162(7.2) penalty, Paris J stated (at para. 10) that s. 162(2.1) "was a different penalty provision" and (at para. 12) noted that Goar "was effectively overturned" by Exida.com.

Exida.Com Limited Liability Company v. The Queen, 2009 DTC 1278, 2009 TCC 373 (Informal Procedure), rev'd above.

The taxpayer, which was a non-resident corporation that filed tax returns for the relevant taxation years late but with no tax owing, was liable to a penalty under s. 162(2.1). The ordinary meaning of the word "liable" ("responsible at law"), the contrasting use of the terms "liable" and "payable" in the relevant provisions and the fact that this interpretation was consistent with an interpretation that the enactment of s. 162(2.1) was intended by Parliament to put some teeth into the filing requirements for non-resident corporations, suggested that a corporation would be considered to be "liable to a penalty" under s. 162(1) even if such penalty was nil.

Words and Phrases
liable

Goar, Allison & Associates Inc. v. The Queen, 2009 DTC 653, 2009 TCC 174 (Informal Procedure)

The taxpayer would not have been liable for a penalty under s. 162(1) because it had no income. Accordingly, s. 162(2.1) could not apply to it.

Administrative Policy

13 January 2005 Internal T.I. 2004-0103291I7 - NRO penalty for failure to file

"The unambiguous language of subsection 162(2.1) clearly indicates that it will apply to all non-resident corporations under an obligation to file a return pursuant to either of subparagraphs 150(1)(a)(i) and (ii), including non-resident corporations that carry on business in Canada during the year or that dispose of taxable Canadian property."

Subsection 162(5)

Paragraph 162(5)(a)

Administrative Policy

27 June 2019 Internal T.I. 2019-0791541I7 - Interaction of 162(5) and (7)

a late-filed T1135 with minor missing information could generate double penalties under ss. 162(7) and (5)

A T1135 form was filed late and with missing information, that did not affect the substance of the form. Should penalties be applied under both ss. 162(5) and (7)? CRA responded:

[T]his would constitute two failures: the return was not filed on time and the return was missing information. This would permit (but not require) the Minister to assess a penalty for each of the failures.

… If the[re] is considered to be one failure, the taxpayer would only be liable to a maximum penalty of $100 under subsection 162(5) for failing to provide information. In comparison, a taxpayer that late-filed a complete Form T1135 would be liable to the higher maximum penalty of $2,500 under subsection 162(7) for failing to file a return by its due date. In our view, such an approach would “discourage taxpayers from being diligent and taking reasonable care in the preparation of their returns.” …

[W]e suggest that care be taken to ensure that assessing penalties under subsections 162(5) and (7) is both appropriate based on the relevant facts of a situation and equitable to the tax community as a whole.

25 January 2010 Internal T.I. 2009-0338601I7 F - Déclaration de renseignements électronique

electronic filer must certify accuracy of filings before allowed access

Is a corporation or business required to file information returns electronically also required to declare that the information provided is accurate and complete? After summarizing ss. 162(7), 162(7.01), 162(7.02), and 162(5), the Directorate stated:

[T]the CRA website informs the filers that before filing online, they must agree to certain terms and conditions. One of these terms and conditions requires the filer to certify that the electronic return submitted is accurate and complete. No electronic transmission of any return can be made without this formal acknowledgement by the filer. Our system is designed so that the declarant cannot override this commitment.

Subsection 162(6) - Failure to provide identification number

Administrative Policy

30 May 1990 T.I. (October 1990 Access Letter, ¶1481)

Individuals under 18 are not required to provide a social insurance number if their total income for the year is $2,500 or less.

Subsection 162(7) - Failure to comply

Cases

Chen v. Canada (Attorney General), 2019 FC 1435

acceptance of CRA suggestion of filing a T1135 with estimates to avoid late-filing penalty

After finding that it was reasonable for CRA to decline penalty relief to the taxpayer for filing a T1135 form seven weeks late (along with her regular return, which did not attract a penalty because there was no tax owing) given that she had done the same thing a year previously, McVeigh J turned to one of the taxpayer’s excuses, which was that she had been in another city from February to May 2016, and essentially accepted CRA’s comment (at para. 9) that the taxpayer “could have instead filed an estimated 2015 Form T1135 and then amended it once she had her documents.”

Takenaka v. Canada (Attorney General), 2018 FC 347

CRA delegate failed to consider that, as there was no obligation to file a nil Part I tax return, it was reasonable not to timely file a T1135

The taxpayer, who had no Part I tax payable for her 2011 and 2012 years, decided in 2014 to file returns for those years in order to make Canada child tax benefit claims. With her returns she also filed the T1135s for those years reporting her co-ownership interest in a Florida property (with the other interest already having been timely reported by her husband). CRA assessed late filing penalties under s. 162(7)(a) respecting the late T1135s – and then, on a second-level review, cancelled the penalty for 2012 but not for 2011. This could be viewed as the taxpayer being penalized for not feeling guilty and, therefore, not using voluntary disclosure proceedings.

Rather than appealing the penalty (see Douglas), she went to the Federal Court. Mosley J sent the file back for a redetermination on the issue of the penalty for 2011, partly on the basis that the CRA delegate had incorrectly considered the 2011 and 2012 income tax returns to be overdue (so that there was little excuse for not also timely filing the related T1135s), whereas in his view she was under no obligation to file such returns.

Exida.Com Limited Liability Company v. Canada, 2010 DTC 5101, 2010 FCA 159

"penalty" does not include nil penalty

A non-resident corporation which failed to file corporate income tax returns but which had no income taxes payable in Canada was not subject to the penalty under s. 162(2.1) as it was not potentially subject to any penalty under s. 162(1) or (2) and therefore was not "liable to" a penalty under such provisions. However, it was subject to a penalty in the same amount under s. 162(7) given that it would not be a proper construction of the word "penalty" to find that it had been subjected to a nil penalty under s. 162(1).

Words and Phrases
penalty

See Also

Chan v. The Queen, 2022 TCC 87 (Informal Procedure)

due diligence defence where taxpayer reasonably believed that he was not the beneficial owner of a Bank account in China

The taxpayer was assessed a penalty under s. 162(7)(a) for failure to file (as required under s. 233.3(3)) T1135 forms regarding a bank account with the Bank of China (BofC), which he had assisted his father (Joseph) to open up in his name and which contained over $2 million at the time of Joseph’s death, as well as a gross negligence penalty under s. 162(10)(a). In finding that the taxpayer was not required to file T1135s, Russell J stated (at para. 45):

[A]s Joseph sourced the funding of the account at all times and he alone exercised control and usage of the account, it appears reasonably clear that he alone utilized and thus enjoyed the benefit of the account. Thus I conclude that Joseph was the beneficial owner of the account, while his son the appellant merely held legal title, as his father’s nominee. Accordingly, Joseph rather than the appellant had the obligation, as beneficial owner of the BofC account assets, to file the required form T1135s for the three years in issue.

Furthermore, if this conclusion were incorrect, the taxpayer “had reasonable cause to believe that his father, and not he himself, held the beneficial interest in the account assets” (para. 49). Accordingly (para. 50):

Having reasonable cause to so believe should suffice to absolve the appellant of liability for the three gross negligence penalties per paragraph 162(10)(a). Holding such reasonable belief would be incompatible with conduct or intention indicative of gross negligence. Likewise there should not be liability for the three paragraph 162(7)(a) failure to file penalties, as the defence of due diligence has been established – that is, the appellant reasonably believed in a mistaken set of facts that if true would have made his act or omission to act innocent.

Moore v. The Queen, 2019 TCC 141 (Informal Procedure)

penalty for late-filing a T1135 vacated given careful approach of taxpayer and inappropriateness of a penalty

Shortly after his 2016 return filing due date, the taxpayer (Mr. Moore) realized that he should have been filing T1135 reporting forms as a result of the cost amount of his shares of a former foreign parent of his employer exceeding the $100,000 threshold, and wrote to CRA informing them of this and filing completed T1135 forms for both 2015 and 2016.

In allowing Mr. Moore’s appeal of the $2,500 penalty imposed for the late-filing of the 2015 form, Boyle J intimated that most reasonable Canadians would find the disclosure in the CRA Guide as to T1135 reporting requirements to be opaque, noted that Mr. Moore was unaware that he should have disclosed under the Voluntary Disclosure Program to avoid coming to Court and (at para. 18) the implicit presence of a due diligence defence, further noted (at para. 19) that “Mr. Moore was not cavalier about his income tax obligations” and “No amount was misrepresented, mischaracterized or omitted in his 2015 tax return,” and concluded ( at paras. 22-24):

I would ask the rhetorical question, “Is Mr. Moore’s disclosure to CRA on a voluntary basis of his failure to file a 2015 information return not the type of compliance effort CRA wants to encourage Canadians to follow?” …

I cannot imagine why in a case such as this the CRA would prefer to have Mr. Moore appeal to this Court, lose, and then go back to CRA’s Fairness Review program armed with my comments.

Apex City Homes Limited Partnership v. The Queen, 2018 TCC 247 (Informal Procedure)

due diligence defence was not available where the taxpayer incorrectly disagreed with a CRA position

A partnership (Apex) hired a general contractor to construct condos which it then sold. It was required under Reg. 238(2) to file T5018s if its business income was “derived primarily from” construction activities, and had failed to file them. MacPhee J rejected Apex’s argument (made at para.18) that it was not in the business of constructing condos but, rather, “in the business of selling condos after they are constructed.”

In further finding that Apex had not made out a due diligence defence to the imposition of s. 162(7) penalties, MacPhee J noted (at para. 25) the statement in l’École Polytechnique, 2004 FCA 127, at para. 28 that “due diligence excuses either a reasonable error of fact, or the taking of reasonable precautions to comply with the Act,” and then found that here Apex had become aware of CRA’s position that T5018s should be filed but “simply did not accept the CRA’s position that they had to file a Form T5018, and therefore they chose not to do so” (para. 31).

RAR Consultants Ltd. v. The Queen, 2017 TCC 214 (Informal Procedure)

requirement for T1134 was not based on whether information otherwise available

The taxpayer was assessed under s. 162(7) for $12,500 in penalties for failure to file T1134 forms in respect of its specified foreign property, which consisted of a 28% interest in a Bermuda company. Respecting a submission that “there was no purpose or utility” in filing the T1134 forms, he stated, (at para 35):

…[T]here is nothing in the Act to indicate that Parliament intended to relieve a reporting entity from filing a T1134 return where the Minister could otherwise discover elsewhere the information from material or other returns on file. …

Kokanee Placer Ltd. v. The Queen, 2016 TCC 63 (Informal Procedure)

due diligence defence available but mistaken belief re filing requirement no defence

Upon returning to Canada, the taxpayer’s sole shareholder and director (“Stephenson”) filed its 2014 tax return in July 2014 in paper form. It showed gross revenue of $1,073,838.56 (i.e., somewhat higher than the $1 million threshold in s. Reg. 205.1(2)). Stephenson testified that he was unaware at that time of the electronic filing requirement. A Notice of Assessment dated June 13, 2013 had imposed a s. 162(7.2) penalty of $500 for a preceding taxation year. In response to Stephenson’s submission that no penalty was payable because no tax was payable for the year, Paris J. stated (at para. 11):

The wording of subsection 162(7.2)… does not make the penalty for failing to file an electronic return conditional in any way on tax being payable by the corporation.

He also stated (at para. 15):

A mistake as to the existence of the electronic filing requirement set out in subsection 150.1(2.1) of the Act is a mistake of law and is not a defence to the subsection 162(7.2) penalty in issue.

Although a due diligence defence was available under s. 162(7.2), due diligence was not made out on the facts.

Suissa v. Canada (Attorney General), 2013 DTC 5158 [at at 6383], 2013 FC 897

penalties on six family members were reasonable but probably unjust

The taxpayers were six family members, each of whom owned a small percentage of some properties in Canada, which were sold at a loss over two years. The Minister assessed penalties under 162(7), which amounted to $10,000 each.

Roy J upheld the Minister's rejection of the taxpayers' applications for relief, but urged the Minister to provide relief anyway. The decisions to deny each of the six (essentially identical) applications were reasonable, as there were no extraordinary circumstances, there had been procedural fairness, and the decision-makers had not fettered their discretion.

Roy J nevertheless urged the Minister to consider relief, given the combined effect of all six penalties, which would have been just one $10,000 fine if the properties had been held by just one person. As the properties were sold at a loss, some measure of relief would clearly be just.

Roy J noted in particular that the situation was not analogous to the Court of Appeal's "volume discount" analysis in Stemijon, where each taxpayer independently entered the arrangement giving rise to penalties. In the present situation, five of the family members were essentially uninvolved in the decision-making (para. 41).

Edwards v. The Queen, 2013 DTC 1025 [at at 124], 2012 TCC 430 (Informal Procedure)

VA Miller J found that the taxpayer, who spent an equal amount of time in Canada and the UK, was a Canadian resident based on her personal ties to her daughter who, due to a custody assessment, lived in Edmonton. VA Miller J stated that "her settled routine was that she worked in the UK and she returned to Canada where she resided with her daughter" (para. 23).

Douglas v. The Queen, 2012 DTC 1114 [at at 3083], 2012 TCC 73 (Informal Procedure)

late filing of T1135 was excusable as no obligation to timely file T1

Woods J. found that the taxpayer had a due diligence defence against s. 162(7) penalties in his 2008 taxation year given that the taxpayer had no tax payable for that year. She agreed with the taxpayer that it is "common knowledge" that a taxpayer is allowed to file a return late if no tax is payable (para. 11). Moreover, the taxpayer had complied with the instructions on the T1135 form, which stated that the taxpayer should "complete and file this statement with your tax return...", when he included the T1135 with his return in 2010. Woods J. stated (at para. 14):

Although the penalty in subsection 162(7) is strict and Parliament has not provided for a due diligence defence, this Court has held that even strict penalties should not be applied if a taxpayer has taken all reasonable measures to comply with the legislation... .

Leclerc v. The Queen, 2010 DTC 1209 [at at 3556], 2010 TCC 99 (Informal Procedure)

The taxpayer filed his tax returns for his 2003 and 2006 taxation years several years late. Although no tax was owing by him for those years, he was assessed a penalty under s. 162(7) because the T1135 forms included with the returns were thus filed on a late basis. After noting (at para. 15) that "Parliament's intention is to motivate taxpayers who own foreign property whose cost amount exceeds $100,000 to report their foreign source income", Favreau, J. found that the penalty was imposed correctly and that the due diligence defence was not applicable in this case.

Woods, J. found that if (contrary to her findings), s. 162(2.1) did not apply to the taxpayer (a non-resident corporation that was late in filing returns but which had no tax payable for the related taxation years) had not been subject to a penalty under s. 162(2.1), it would not have been subject to any penalty under s. 162(7). The penalty for failure to file an income tax return is provided for in s. 162(1) and, in her view, "it is not relevant that the penalty could be nil" under that subsection (para. 32). Accordingly, s. 162(7) would not apply because a penalty for failure to file returns on a timely basis was nonetheless "set out" in s. 162(1).

Exida.Com Limited Liability Company v. The Queen, 2009 DTC 1278, 2009 TCC 373 (Informal Procedure), rev'd above.

Woods, J. found that if (contrary to her findings), s. 162(2.1) did not apply to the taxpayer (a non-resident corporation that was late in filing returns but which had no tax payable for the related taxation years) had not been subject to a penalty under s. 162(2.1), it would not have been subject to any penalty under s. 162(7). The penalty for failure to file an income tax return is provided for in s. 162(1) and, in her view, "it is not relevant that the penalty could be nil" under that subsection (para. 32). Accordingly, s. 162(7) would not apply because a penalty for failure to file returns on a timely basis was nonetheless "set out" in s. 162(1).

Words and Phrases
set-out

Administrative Policy

CRA Webpage, New reporting requirements for trusts and bare trusts: T3 returns filed for tax years ending after December 30, 2023, updated on 29 October 2024

no s. 162(7) penalty for 2023 taxation year of bare trust unless gross negligence

3.5. Will the CRA provide any relief for penalties if a bare trust does not file their 2023 T3 Return and Schedule 15 by the filing deadline as required? …

As some bare trusts may be uncertain about the new requirements, the CRA is adopting an education-first approach to compliance and providing relief to bare trusts by waiving the penalty payable under subsection 162(7) of the Income Tax Act for the 2023 tax year in situations where the T3 Return and Schedule 15 are filed after the filing deadline for reasons other than gross negligence. …

This proactive relief is for bare trusts only and only for the 2023 tax year.

CRA went on to also refer to potential relied from the gross negligence penalty under s. 163(5) for late filing by bare trusts for their 2023 taxation year

27 June 2019 Internal T.I. 2019-0791541I7 - Interaction of 162(5) and (7)

a double penalty should only be assessed where this is appropriate and equitable

A T1135 form was filed late and with missing information, that did not affect the substance of the form. Headquarters found that “technically” both a penalty of $2,500 under s. 162(7) (for late-filing) and of $100 under s. 162(5)(a) for the missing information, could be assessed, but then stated:

We suggest that care be taken to ensure that assessing penalties under subsections 162(5) and (7) is both appropriate based on the relevant facts of a situation and equitable to the tax community as a whole.

Headquarters also noted that for s. 162(7) penalty purposes, “an information return that is missing substantial information will be considered invalid and, therefore, will not be considered to have been filed.”

6 October 2017 APFF Financial Strategies and Instruments Roundtable Q. 14, 2017-0708511C6 F - T1135 and 162(7) penalty

penalty for late-filing of a T1135 will be imposed automatically

In 2015-0588971C6, CRA indicated that where there has been a voluntary disclosure for failure of the taxpayer to file T1135s for a period of years extending back more than 10 years, the current practice of CRA is to assess the $2,500 per-year penalty for the years before the 10-year period as being before the 10-year period for which CRA is permitted to waive penalties under s. 220(3.1). However, the proposition that “the late-filing penalty of $2,500 under subsection 162(7) applies automatically… is currently under study.” What is the current status of this study? CRA responded:

Having reviewed the question of the automatic application of the $2,500 late filing penalty under subsection 162(7), we are still of the opinion that it applies automatically where all the conditions of that subsection are satisfied.

Furthermore, subsection 220(3.1) does not permit the CRA to waive or cancel a penalty otherwise payable by a taxpayer for a taxation year of a taxpayer beyond the day that is 10 calendar years after the end of that taxation year.

…[A]lthough automatic, the penalty provided for under subsection 162(7) will not be assessed outside the normal reassessment period [as extended under s. 152(4)(b.2)] unless the Minister of National Revenue determines that the exception in paragraph 152(4)(a) [for neglect etc.] is applicable.

6 October 2017 APFF Roundtable Q. 1, 2017-0708971C6 F - Inactive Corporations & subs. 162(7) ITA

no penalty imposed where failure to file a nil T2 return

At the 2016 APFF Conference, CRA indicated that an inactive corporation must file an income tax return, but could file a letter explaining the non-filing, and that a penalty would not be automatically imposed. What is the CRA position as to: (a) the obligation to file a T2 return for each of the years in which there is no business activity and, thus, no tax payable; and (b) the application of late-filing penalties?

After noting that such filing was required by s. 150(1)(a)(i)(A), CRA stated:

Exida.com … stated that the general penalty in subsection 162(7) was applicable … where a person fails to comply with an obligation imposed on the person … unless another provision of the Income Tax Act provides for a penalty for such default. …

However … the CRA [considers] that since this decision is based on a rather narrow interpretation of the relevant statutory provisions, the penalty under subsection 162(7) will generally not be imposed on resident corporations that failed to file their tax returns where they either had no taxable income or had incurred a loss for the year. The CRA does not intend to change its position in this regard.

6 October 2017 APFF Roundtable Q. 2, 2017-0709001C6 F - T4A filing obligation

"temporary" policy for not applying penalties for failure to issue T4As to independent contractors

Where an invoice for services rendered bears a valid GST/HS registration number, would failure to file a T4A result in the application of the penalty? CRA responded:

In 2010, the T4A form was amended to add Box 048 "Fees for services--Business income"… . At that time, the CRA had announced a temporary measure specifying that taxpayers would not be penalized for failing to properly fill in Box 048. However, this has never had the effect of relieving taxpayers of their responsibility to report these payments.

Thus, a penalty under subsection 162(7) is applicable for non-filing if payments for services are not reported on the T4A form, even if an invoice with valid tax numbers is provided to the payer.

May 2016 Alberta CPA Roundtable, Q.17

penalty not an absolute liability penalty

CRA acknowledges that assessing a s. 162(7) penalty for failure to file T1135s for periods before the normal reassessment period (as potentially extended by three years under s. 152(4)(b.2)) would require CRA to demonstrate that such failure “was an error that a prudent and conscientious person would not have made,” and then stated that in order for failure to file T1135s to be exonerated under the voluntary disclosure program, “the taxpayer would have to complete the T1135 for all years for which such filing was required.”

26 May 2016 Alberta CPA Roundtable, 2016-0645001C6 - Failure to file Form T1135

failure to file a T1135 may not indicate carelessness or neglect

CRA considered that a s. 162(7) penalty for failure to file a T1135 form can be assessed beyond the normal reassessment period (or, under s. 152(4)(b.2), beyond the normal reassessment period plus three years where the taxpayer did not report income from specified foreign property in the relevant return) but, in such a case, CRA would have to “prove” that “although that error may have been made in good faith, it was an error that a prudent and conscientious person would not have made.”

12 April 2016 External T.I. 2015-0595461E5 - Australian Super Fund & T1135

no penalty for reasonably estimating an unknown amount, e.g., the “cost amount” of a pension interest

An Australian Superannuation Fund (or “Super Fund”) is a government-regulated trust that has been registered and approved by the Australian Government and is funded by contributions from employers and individuals over their working lives in order to provide retirement incomes. After concluding that a Canadian beneficiary’s interest is considered to be specified foreign property, and the individual is required to file T1135s reporting inter alia the “cost amount” of the individual’s interest in the fund, and that such cost amount included all future amounts which the individual was legally entitled to receive from the Super Fund, CRA stated:

…[W]here it is not possible to determine the cost amount of a specified foreign property, taxpayers should use their best efforts to reasonably estimate the cost amount of the property. [CRA] will not penalize taxpayers who have made reasonable estimates based on the best available information. The onus is on the taxpayer to demonstrate the reasonableness of any such estimates, if requested… .

9 October 2015 APFF Financial Strategies and Instruments Roundtable Q. 4, 2015-0588971C6 F - T1135 and voluntary disclosure

CRA is studying whether the $2,500 penalty for late T1135 filings applies automatically

Where there has been a voluntary disclosure for failure of the taxpayer to file T1135s for the past, say, 15 years, the current practice of CRA is to assess the $2,500 per-year penalty for the first five years as being before the 10-year period for which CRA is permitted to waive penalties under s. 220(3.1). However, the proposition that “the late-filing penalty of $2,500 under subsection 162(7) applies automatically… is currently under study.”

15 September 2015 Internal T.I. 2015-0572771I7 - T1135 - Normal Reassessment Period

unlike s. 216 returns, the assessment of s. 162(7) penalties is subject to the same normal reassessment period as for the Part I return

CRA confirmed its position that, as a s. 216 return is a distinct return from a normal Part I return, it has its own normal reassessment period. However, the same does not apply to the imposition of penalties under s. 162(7) for failure to file T1135 returns, as the income from foreign properties in question is required to be reported on a normal Part I return rather than a distinct return – so that such a penalty must be reassessed within the normal reassessment period for that return.

See summary under s. 152(4).

14 July 2014 Internal T.I. 2014-0537701I7 F - Voluntary disclosure - T1134 and FAPI

penalties under ss. 162(10), (10.1) or 163(2.4) for failure to file T1134s

Representatives of a taxpayer initiated a voluntary disclosure for a taxpayer who had not filed T1134s and who had failed to report foreign accrual property income (or related FAPL or FACL deductions). Without being asked about the penalties that would apply if a disclosure did not meet the requirements of the voluntary disclosure programme, Headquarters noted that a T1134 is required for each foreign affiliate for each post-1995 year, and that a s. 162(7) assessment "must be made by the Minister before the expiration of the normal reassessment period," but referred to the exception for carelessness etc. and the potential three-year extension under s. 152(4)(b)(iii). However, the penalties under ss. 162(10) or (10.1), or s. 163(2.4), which could be engaged only in circumstances of gross negligence etc., generally could be imposed without time limitation.

5 June 2014 Internal T.I. 2013-0509051I7 - Penalties beyond the Normal Reassessment Period

carelessness sufficient to assess beyond normal reassessment period

The level of culpability required to assess beyond the normal reassessment period (in this case, a penalty under s. 162(7)) pursuant to s. 152(4)(a)(i) (i.e., "neglect, carelessness or wilful default") is lower than that required to assess a penalty for gross negligence such as under s. 163(2) or 162(10) (i.e., "knowingly, or under circumstances amounting to gross negligence").

17 February 2014 Internal T.I. 2013-0498121I7 - Follow up to XXXXXXXXXX

diplomatic exemption/discretion if property sold at loss

During a Canadian posting, a diplomat purchased a property in another city for his adult child, and then sold it to the child (without applying for a s. 116 certificate) when the posting ended. The child subsequently sold the property at a loss upon leaving Canada, and applied late for a s. 116(4) certificate. After finding that there was no exemption for the diplomat in Art. 34 of the Vienna Convention on Diplomatic Relations from the s. 162(7) penalty as the property "was not held on behalf of the sending State as part of the mission," nor was there any exemption for the child, CRA stated that "you may wish to consider exercising discretion in assessing the penalty given that….there was a loss on the property."

6 December 2012 Internal T.I. 2012-0458401I7 - Penalties - Foreign Reporting Forms

s. 162(5) or (7) choice

Respecting whether the penalty under s. 162(5) or (7) should be imposed where foreign reporting forms (e.g., T1134, T1135 or T1142) were incomplete, CRA stated:

The importance of the information that is missing from a prescribed form will determine [which] penalty…is applicable. Subsection 162(5) applies in situations where the prescribed form is filed, but the form is missing information which does not affect the substance of the form. However… where…the form is substantially incomplete, the applicable penalty would be provided by paragraph 162(7)(a) if a valid return is not received by the filing deadline.

CRA also noted:

[T]he required information provided by the forms is entered into the Foreign Reporting Requirements Management System (FRRMS) by the OTC [Ottawa Technology Centre]. The ... information from the FRRMS provides the main risk assessment tool for Aggressive Tax Planning and international auditors.

12 December 2013 Internal T.I. 2013-0497231I7 - Penalties on Foreign Asset Reporting

s. 152(4)(a) applies to Part XV returns

What are the time limitations for assessing a penalty on foreign asset reporting? After noting that no limitation period for a Part XV information return commences running if the return has not been filed, CRA further indicated that s. 152(4)(a)(i) will apply to permit the assessment of a s. 162(7) penalty beyond the normal reassesment period (or such period as it is to be extended by three years under proposed s. 152(4)(b.2) respecting s. 233.3 returns) if there has been neglect etc.

28 November 2010 CTF Annual Roundtable Q. 4, 2010-0386341C6 - CTF Q#4: Penalties for Late-Filed T2 returns

indulgence where nil income

CRA stated that it was never its:

practice to apply subsection 162(7) penalties on resident corporations that are late in filing their returns because there is nil taxable income or a loss for tax purposes. Although the FCA decision in Exida.Com stands, there are no plans to change our practice in this regard.

5 October 2012 APFF Roundtable, 2012-0453211C6 F - Formulaire T1135

CRA is not bound by Douglas

In response to a query respecting the Douglas decision, and as to whether CRA has considered providing administrative relief from the penalty outside the voluntary disclosure program, CRA stated (TaxInterpretations translation):

1. The CRA has considered the Douglas decision. However, that case proceeded under the informal procedure and on that basis, the CRA is not bound by that decision.

2. For the time being, having regard to the current legislation, the CRA is bound to apply the penalty provided in ITA subsection 162(7). No specific mechanism is provided to avoid the penalty.

Respecting the voluntary disclosure program, CRA stated (TaxInterpretations translation):

Each disclosure must satisfy these four conditions:

1. is voluntary, 2. is complete, 3. engages the imposition or potential imposition of a penalty, and 4. comprises information that is more than a year overdue.

3 July 2009 Internal T.I. 2009-0312521I7 - Form T106

"Subsection 162(7) is operative only where the Minister serves a reporting person with a demand for the information return, and that person does not comply with the demand within 90 days of service."

4 January 1996 Internal T.I. 9531516 - T3D, T3P, T3S AS INFORMATION RETURNS

The T3P, T3S and T3R1 forms are information returns for purposes of s. 162(7) by virtue of Regulation 204(1). AT3D (although a tax return) is not considered an information return for purposes of the Act.

6 September 1994 External T.I. 9415125 - CONSOLIDATION OF INFORMATION RETURNS

A penalty will not be assessed to individual corporations within a corporate group for failure to make separate T5 information returns, where the information required therein is included in a consolidated T5 information return prepared for the entire corporate group.

23 October 1991 Memorandum (Tax Window, No. 12, p. 23, ¶1551)

The Rulings Directorate has never addressed the possibility of applying the penalty in s. 162(7)(b) to a person who fails to obtain a clearance certificate.

Paragraph 162(7)(b)

Cases

Canada v. Bowker, 2023 FCA 133

s. 162(7)(b) did not apply where return was timely filed but negligently completed

The taxpayer was found in the Tax Court not to be liable for a gross negligence penalty under s. 163(2) regarding her filing an amended return which claimed large fictitious losses because she “was essentially passive in the exercise and gave the tax preparers and her husband free rein without any oversight on her part” (para. 1).

Regarding its costs award, the Tax Court noted that the taxpayer’s counsel had offered to settle on the basis of the Minister vacating the penalty assessed against the taxpayer under s. 163(2) and instead “assess a penalty in the amount of $2,500 under paragraph 162(7)(b) of the Act in respect of the [taxpayer’s] failure to comply with her duty or obligation under the Act to prevent the filing of the Amended Return” (para. 38). The taxpayer’s counsel had proposed in the alternative that the Minister cancel the penalty under s. 220(3.1).

In reversing the Tax Court’s finding that this settlement offer was a factor tending to increase the costs award in the taxpayer’s favour, Pelletier JA first found that in light of the noscitur a sociis principle and “the specific context of paragraph 162(7)(a) dealing with the failure to file information returns,” that “the general language of paragraph 162(7)(b) would be limited to instances of failure to file returns or to provide information not specifically enumerated in the balance of section 162” (para. 49), so that s. 162(7) “would not apply to the case of returns that were filed when required but were negligently prepared” (para. 53). Furthermore, there was no penalty in the Act “for negligently making a false statement in an income tax return" (para. 54). Accordingly, on the basis of the Galway principle, the “settlement proposal was not one which the Minister could have accepted as the lower penalty under paragraph 162(7)(b) was not available” (para. 53). Since the settlement offer could not have been accepted by the Minister in accordance with Galway, it was irrelevant to the quantum of the costs award.

Subsection 162(7.01) - Late filing penalty — prescribed information returns

Administrative Policy

30 November 2009 Internal T.I. 2009-0344051I7 F - Pénalités visées par 162(7), (7.01) et (7.02)

ss. 162(7) and (7.01) (and, where relevant, (7.02)) apply to each of T5003 Summary and T5005 slips

Are the T5003 "Tax Shelter Information" return and the T5003 "Statement of Tax Shelter Information" slips considered to be separate information returns and, if so, does s. 162(7) apply to the T5003 summary return while s. 162(7.01) applies to the slips? The Directorate first stated:

Although the T5003 "Tax Shelter Information Return" and the T5003 "Statement of Tax Shelter Information" slips are considered interdependent … each summary and slip is a separate information return.

It then noted that s. 162(7) applies to a person who fails to file an information return, s. 162(7.01) is directed at a person who files an information return late and s. 162(7.02) is directed at a person who fails to comply with the form and format for filing an information return in electronic form. The Directorate then stated:

[T]he above subsections apply to both the T5003 summary returns and the T5003 slips as each is a separate information return.

5 January 2011 Internal T.I. 2010-0389761I7 F - Application du paragraphe 162(7.01)

s. 162(7.01) penalty is cumulative with (7.02). and is computed aggregating base and summary slips and both are computed from initial final deadline if s. 220(3) deadline is missed

Are the penalties under ss. 162(7), (7.01) and (7.02) cumulative? The Directorate responded:

The penalty under subsection 162(7) cannot be combined with the penalties under subsections 162(7.01) and 162(7.02). However, it is possible to combine the penalties provided for in subsections 162 (7.01) and 162 (7.02) where a taxpayer does not complete one or more information returns within the prescribed time or in the manner (electronic format) required by the Act.

From what date will the calculation of the penalties be made if the returns are filed after an extension date granted under s. 220(3); and how will the number of information returns be computed for the purposes of subsection 162(7.01)? The Directorate responded:

[T]he penalties under subsections 162(7.01) and 162(7.02) will be calculated from the expiry of the filing deadline … where that information return is made after the extension date determined by the Minister pursuant to subsection 220(3).

…[T]he number of slips and summary(s) by type of payment must be added together to determine the applicable penalties under subsections 162(7.01) and 162(7.02). For example, a person who fails to complete 1,000 T4 Slips - Statement of Remuneration Paid and 50 T4SUM Summary of Remuneration Paid within the time prescribed … would be liable to a penalty under subsection 162(7.01) on a total of 1,050 information returns of the same type.

Penalty for failure to file an information return by the due date (CRA webpage)

administrative reduction in s. 162(7.01) penalty

We may assess a penalty if you file your information return late. For certain information returns, we have an administrative policy that reduces the penalty that we assess so it is fair and reasonable for small businesses. Each slip is an information return, and the penalty we assess is based on the number of information returns you filed late. The penalty is $100 or the amount calculated according to the chart below, whichever is more:

Penalties under the relieving administrative policy

Number of information returns (slips) filed late Penalty per day (up to 100 days) Maximum penalty
1 to 5 penalty not based on number of days $100 flat penalty
6 to 10 $5 $500
11 to 50 $10 $1,000
51 to 500 $15 $1,500
501 to 2,500 $25 $2,500
2,501 to 10,000 $50 $5,000
10,001 or more $75 $7,500

11 April 2014 External T.I. 2013-0515121E5 - Application of 162(7.01) and (7.02) penalties

separate penalty for each form

A taxpayer filed 40 T4As and 40 T5s late for the 2013 year. Does the phrase "the number of those information returns" establish one penalty for late-filing 80 information slips or two penalties for the 40 T4As and the 40 T5s? CRA stated:

[T]he reference to "the number of those information returns"…refers to the phrase "of a type" used in the preamble. … Therefore…two separate penalties could be assessed under paragraph 162(7.01)(a)… .

Essentially the same analysis would apply under s. 162(7.02) respecting late electronic filing of 150 T4A slips and 200 T5 slips.

Paragraph 162(7.01)(b)

Administrative Policy

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

penalty for late-filing information slips references when the last slip was filed

How is the penalty under s. 162(7.01) calculated for a person who files 73 T5 slips 8 days after the required filing deadline and a further single T5 slip, 56 days after that deadline? The Directorate stated:

[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.

…[T]he total number of T5 information slips filed beyond the filing deadline is 74. Therefore, the applicable penalty provided by paragraph 162(7.01)(b) … 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.

Subsection 162(7.1) - Failure to make partnership information return

Administrative Policy

10 October 2014 APFF Roundtable Q. 27, 2014-0538211C6 F - 2014 APFF Roundtable, Q. 27 - Various issues re: administration of the Act

no T5013/T3 late filing penalty where filing after waiving of filing requirement

Late-filing penalties under s. 162(7.1) generally will not apply when the requirement to file T5013 or T3 returns has been waived by the Minister, but such forms are filed anyway, but late.

19 February 2003 External T.I. 2003-0181425 - Penalties - Partnership Info Returns

In the event that a partnership information return is not filed within the time set out in Regulation 229(5), the partnership, as opposed to the partners, will be liable for a penalty by virtue of s. 162(7.1).

Subsection 162(7.3)

Administrative Policy

May 2017 CPA Alberta Roundtable, ITA Q.8

due diligence defence to penalty

What factors would influence CRA’s assessment of due diligence, and what support would CRA expect the tax preparer to retain to evidence due diligence? CRA responded:

The assessment will be based on the … legislation, which states that tax preparers who prepare more than 10 returns must file them electronically. Certain restrictions do apply however that may preclude a tax preparer from filing these returns electronically. These restrictions will be considered during assessment. …

Similarly, please consider the due diligence issue where a tax professional has been engaged to prepare a return for a person for whom no one is authorized to sign a T183. Such a circumstance could arise where a return is due for an individual who lacks competency to sign, and over whom no one has Power of Attorney (for example, a child or spouse looking after a parent or spouse’s affairs on an informal basis, or a deceased taxpayer where no Executor or Administrator has been legally appointed).

Subsection 162(10) - Failure to furnish foreign-based information

Administrative Policy

RC4651 “Guidance on Country-By-Country Reporting in Canada” 23 November 2018

Presumption of gross negligence after 2017 filing year

Paragraphs 162(10)(a) and (b) of the Act

The penalty under subsection 162(10) of the Act applies in two mutually exclusive situations described by paragraphs 162(10)(a) and (b).

The first situation arises where a person or partnership, knowingly or under circumstances amount to gross negligence, fails to file an information return as and when required by any of sections 233.1 to 233.4 or section 233.8. Where no demand has been served under section 233 to file the return, the penalty is $500 per month for up to 24 months. It begins to run from the month in which the return was required to be filed.

The second situation arises where a person or partnership required to file a return under any of sections 233.1 to 233.4 or section 233.8 has, knowingly or under circumstances amounting to gross negligence, failed to comply with a demand served under section 233 to file the return. The penalty in this case is $1,000 per month for up to 24 months. It begins to run from the month in which the demand was served.

Given the widespread understanding of CbC reporting requirements by multinationals, any failure to file a CbC report as required under subsection 233.8(3) of the Act will, for the 2018 and subsequent filing years, be presumed to be gross negligence unless special circumstances exist that explain the failure to file.

Procedure for requesting waiver of penalties

Requesting penalty relief

...To make a request, if paper filing the CbC report, attach a note to the cover page requesting relief for late filing penalties under subsection 220(3.1). If electronic filing, put a note in Table 3 clearly outlining the request, the applicable subsection and the reasons for the request.

14 July 2014 Internal T.I. 2014-0537701I7 F - Voluntary disclosure - T1134 and FAPI

s. 162(10) penalty for failure to file T1134s

Representatives of a taxpayer initiated a voluntary disclosure for a taxpayer who had not filed T1134s and who had failed to report foreign accrual property income (or related FAPL or FACL deductions). Without being asked about the penalties that would apply if a disclosure did not meet the requirements of the voluntary disclosure programme, Headquarters noted that a T1134 is required for each foreign affiliate for each post-1995 year, and that a s. 162(7) assessment "must be made by the Minister before the expiration of the normal reassessment period," but referred to the exception for carelessness etc. and the potential three-year extension under s. 152(4)(b)(iii). However, the penalties under ss. 162(10) or (10.1), or s. 163(2.4), which could be engaged only in circumstances of gross negligence etc., generally could be imposed without time limitation.

12 December 2013 Internal T.I. 2013-0497231I7 - Penalties on Foreign Asset Reporting

normal reassessment period does not apply

What are the time limitations for assessing a penalty on foreign asset reporting? After noting that no limitation period for a Part XV information return commences running if the return has not been filed, and that s. 152(4)(a)(i) will apply to permit the assessment of a s. 162(7) penalty beyond the normal reassessment period (or such period as it is to be extended by three years under proposed s. 152(4)(b.2) respecting s. 233.3 returns) if there has been neglect etc., CRA stated:

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).

Subsection 162(10.1) - Additional penalty

See Also

Goldhar v. The King, 2023 TCC 30

taxpayer established due diligence defence in relying on his accountants

In finding that the taxpayer had established a due diligence defence for failure to file T1134 forms for some but not all the taxation years under review, Visser J stated (at para. 63) that “[p]enalties under paragraphs 162(7)(a) and 162(10.1)(f) are subject to a due diligence defence” and quoted with approval the application in Chiang of an SCC statement that under such defence “[a] defendant can also avoid liability by showing that he or she took all reasonable steps to avoid the particular event...” and then stated (at para. 64):

Mr. Goldhar has established that he took all reasonable steps and was not negligent in filing his tax returns, including form T1134 in each of his 2008-2011 taxation years. With the assistance of Ms. Goldhar, he provided all requested information to his accountants each year and made reasonable efforts to ensure that his tax returns were filed accurately. In my view, any deficiency in his T1134 filings was not due to a lack of reasonable efforts he undertook, with the assistance of Ms. Goldhar and his professional accountants. For example, he did file a T1134 form in 2008 in respect of Beanteek, albeit with a deficiency he was not aware of until so advised by the CRA on June 8, 2009. With the assistance of Ms. Goldhar, he undertook to resolve this deficiency promptly with respect to 2008 and going forward, going so far as to switch professional accounting firms. While Mr. Pelchovitz [Goldhar’s accountant], in his testimony did not know why T1134 forms were not filed for Beanteek in 2009 and 2010 Ltd. in 2009 and 2010, I note that his firm did properly file T1134 forms for both corporations in 2011 and it is clear that his firm was aware of the existence of both corporations and the necessity to file the T1134 forms. Due to complexity of his financial affairs, and his lack of tax background, it is my view that Mr. Goldhar reasonably relied on his accountants to properly file his tax returns in each of his 2008 to 2011 taxation years.

Administrative Policy

16 July 2015 Internal T.I. 2015-0590681I7 - Application of paragraph 162(10.1)(e) penalty

same date must be used for picking maximum amount

Should the computation of the s. 162(10.1)(e) penalty be based on:

  • Option 1: the highest of all amounts each of which is the total costs of all specified foreign property at a certain date (e.g., month end); or
  • Option 2: the total of the highest of the costs of each specified foreign property during the year.

CRA responded:

[W]e agree with Option 1 where the computation of paragraph 162(10.1)(e) penalty is based on the highest of the total costs of all specified foreign property during the year, rather than on the total of the highest cost of each specified foreign property during the year.

…[T]his interpretation is consistent with the definition of "reporting entity" in subsection 233.3(1), which requires a comparison of the total of the cost amounts of all specified foreign property during the year with the $100,000 threshold, rather than the costs of the individual properties at different points in time.

12 December 2013 Internal T.I. 2013-0497231I7 - Penalties on Foreign Asset Reporting

normal reassessment period does not apply

After discussing (above) the s. 162(10) penalty, CRA stated:

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).

Subsection 162(11)

Cases

Borealis Geopower Inc. v. The Queen, 2018 TCC 189 (Informal Procedure)

loss carryback did not reduce late-filing penalty or interest

Campbell J found that the taxpayer had received government assistance in its 2014 taxation year, as a result of which its SR&ED expenditures for 2014 were reduced under s. 37(1)(d) for income computation and investment tax credit purposes, with the effect that a late-filing penalty respecting the filing of its return for the 2014 year was increased. The taxpayer then carried back a subsequent year’s non-capital loss. In confirming that such carryback did not reduce the penalty or interest in light inter alia of s. 162(11), Campbell J stated (at paras 32 and 33):

…[T]he Appellant’s tax payable for the purposes of calculating the late filing penalty for the 2014 taxation year cannot take into account either the non-capital loss carryback or ITC carryback. This application of the provisions to the calculation of the penalty in this appeal is supported as well by the jurisprudence (Hazhir Zandi v The Queen, 2012 TCC 259, 2012 DTC 1246). The late filing penalty was correctly calculated by the Minister in accordance with those provisions. The non-capital loss carryback incurred in 2015 cannot be taken into account when considering the Appellant’s tax payable for the 2014 taxation year for the purpose of calculating the late filing penalty amount.

Similarly, pursuant to subsection 161(7)…, carryback deductions used to reduce income tax in a preceding taxation year will not affect the calculation of interest for that year. The Federal Court of Appeal in Connaught Laboratories Ltd. v The Queen, [1994] FCJ No. 1681, 94 DTC 6697, concluded that there was no ambiguity in the wording of subsection 161(7), nor was the provision offensive to the intent and purpose of the Act.