Introduction: Repeated Failure to File Income Tax Penalty
Under Canada’s income tax system, taxpayers are obligated to calculate, report, and pay their taxes by the applicable deadlines. While most Canadians comply with these requirements, some fail to file or pay their taxes on time. To ensure compliance, the Canada Revenue Agency (CRA) enforces penalties, including the Repeated Failure to File Income Tax Penalty under subsection 162(2) of the Income Tax Act.
This penalty targets taxpayers who have failed to file returns multiple times within a specific timeframe.
What is the Repeated Failure to File Penalty?
Subsection 162(2) of the Income Tax Act imposes a penalty when:
- A Tax Return is Not Filed:
The taxpayer fails to file a return for the taxation year as required under subsection 150(1). - A Demand is Issued:
The CRA sends a demand to the taxpayer under subsection 150(2) to file a return. - Non-Compliance with Demand:
The taxpayer fails to file the return within the reasonable time set out in the demand letter. - Previous Penalties Exist:
The taxpayer was liable for a failure-to-file penalty or a repeated failure-to-file penalty for any of the three preceding taxation years.
If these conditions are met, the penalty is calculated as:
- 10% of the tax payable that was unpaid when the return was required to be filed.
- An additional 2% of the unpaid tax for each full month the return remains unfiled, up to a maximum of 20 months.
Clarifications from Case Law: Hughes v. The Queen
In Hughes v. The Queen, the Tax Court analyzed subsection 162(2) and clarified its application. The court determined that subsection 162(2) only applies if all four conditions outlined above are met. The French version of the legislation was found to provide a more precise interpretation of the requirements.
Key Takeaway:
If the taxpayer files their return within the time specified in the CRA’s demand letter, the penalty under subsection 162(2) will not apply.
Pro Tax Tips: How to Address the Repeated Failure to File Penalty
- Consult an Accountant Immediately:
If you’ve been assessed with a repeated failure-to-file penalty, seek professional advice. A certified accountant can help assess whether the penalty was applied correctly and explore possible remedies. - Appeal or Seek Relief:
Relief may be available through:- Filing a tax appeal.
- Applying for relief under the Taxpayer Relief Program.
- Submitting a remission order application.
- Use the Voluntary Disclosures Program (VDP):
If you know that this penalty applies but the CRA has not acted, consider using the VDP to disclose unfiled returns. This program can eliminate penalties and reduce interest in certain circumstances. - Maintain Timely Compliance:
Avoid future penalties by filing your tax returns on time, even if you are unable to pay the full balance owed. Filing protects you from additional penalties.
This article is written for educational purposes.
Should you have any inquiries, please do not hesitate to contact us at (905) 836-8755, via email at info@taxpartners.ca, or by visiting our website at www.taxpartners.ca.
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