Subsection 162(1) - Failure to file return of income
Cases
Carlson v. The Queen, 73 DTC 5192, [1973] CTC 360 (FCTD)
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
Friedlander v. The Queen, 2012 DTC 1165 [at 3405], 2012 TCC 163
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 3031], 2010 TCC 122
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 (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 (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 Memorandum 2014-0519701I7 - Filing a NIL return to avoid late-filing penalties
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
Kreuz v. The Queen, 2012 DTC 1201 [at 3514], 2012 TCC 238
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 3427], 2012 TCC 166
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 (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 (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 CF 1238
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 LLC v. The Queen, 2010 DTC 5101, 2010 FCA 159
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).
See Also
Exida.com LLC v. The Queen, 2009 DTC 1278, 2009 TCC 373, 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.
Goare, Allison & Associates Inc. v. The Queen, 2009 DTC 653, 2009 TCC 174
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 Memorandum 2004-010329 -
"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(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
Exida.com LLC v. The Queen, 2010 DTC 5101, 2010 FCA 159
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).
See Also
Suissa v. Canada (AG), 2013 DTC 5158 [at 6383], 2013 FC 897
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 124], 2012 TCC 430
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 3083], 2012 TCC 73
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 3556], 2010 TCC 99
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 LLC v. The Queen, 2009 DTC 1278, 2009 TCC 373, 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).
Administrative Policy
15 September 2015 Memorandum 2015-0572771I7 - T1135 - Normal Reassessment Period
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 Memorandum 2014-0537701I7 F - Voluntary disclosure - T1134 and FAPI
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 Memorandum 2013-0509051I7 - Penalties beyond the 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 Memorandum 2013-0498121I7 - Follow up to XXXXXXXXXX
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 Memorandum 2012-0458401I7 - Penalties - Foreign Reporting Forms
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 Memorandum 2013-0497231I7 - Penalties on Foreign Asset Reporting
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 , 2010 CTF Annual Conference Roundtable Q. , 2010-0386341C6
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 Q. , 2012-0453211C6 F
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 Memorandum 2009-0312521I7 -
"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 Memorandum 953151 (C.T.O. "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 T.I. 941512 (C.T.O. "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.
Subsection 162(7.1) - Failure to make partnership information return
Administrative Policy
10 October 2014 APFF Roundtable Q. 27, 2014-0538211C6 F
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 T.I. 2003-018142
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(7.01) - Late filing penalty — prescribed information returns
Administrative Policy
11 April 2014 T.I. 2013-0515121E5 - Application of 162(7.01) and (7.02) penalties
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.
Subsection 162(10) - Failure to furnish foreign-based information
Administrative Policy
14 July 2014 Memorandum 2014-0537701I7 F - Voluntary disclosure - T1134 and FAPI
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 Memorandum 2013-0497231I7 - Penalties on Foreign Asset Reporting
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
Administrative Policy
16 July 2015 Memorandum 2015-0590681I7 - Application of paragraph 162(10.1)(e) penalty
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 Memorandum 2013-0497231I7 - Penalties on Foreign Asset Reporting
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).