Penalties

Question 1

Failure to file return (Late-filed tax return)

Answer 1

First occurrence:

• Balance of tax owing x 5% + 1% for each complete month late: Maximum 17%

Repeat offender:

• Balance of tax owing x 10% + 2% for each complete month late: Maximum 50%

Question 2

Failure to report an amount of income

Answer 2

(not applied on first occurrence)

For repeat offender (a previous failure in the preceding 3 years): 10% of income not reported

Question 3

False statements or omission (under-reporting income)

Answer 3

For knowingly or through gross negligence under-reporting income:

• greater of $100 and 50% of the difference in tax liability.
• not applied to amounts excluded because of an honest dispute as to their taxablility

Question 4

Interplay of penalty provisions

Answer 4

• On first failure to report, the failure to report penalty would not apply, so the CRA could impose the penalty for false statements or omissions.
• On further failure to report within the three years specified, the CRA may have a choice between the failure to report penalty of 10% of income, and the false statement or omission penalty which is base on 50% of tax. (ie. if no tax is payable on unreported income, the penalty for failure to report would yield 10% of unreported income.

Question 5

Late or deficient instalments

Answer 5

50% of [Interest charged on late or deficient instalments - greater of (a) $1,000 and (b) 25% of interest that would have been charged if no instalment were made]

Example: 50% x [interest charged on late or underpaid instalment payments minus (the greater of $1,000 or 25% of the interest calculated as if no instalments had been paid)]

Instalment of $2,000 due: June 15
Instalmnet paid: July 1
Interest Rate: June 1 to June 30 1%
July 1 to Sep 30 1.5%
Oct 1 to Dec 31 1.3%
Jan 1 to March 31 1.4%
April 1 to June 30 1.6%

50% X [(2,000 X 1% X15/365) - (the greater of 1,000 or 25% X (2,000 X 1% X 15/365 + 2,000 X 1.5% X 92/365 + 2,000 X 1.3% X 92 /365 + 2,000 X 1.4% X 90 + 2,000 X 1.6% X 30/365]
=0

Question 6

Third party civil penalties

Answer 6

1. Planner’s penalty:
   
   • minimum $1,000
   • maximum = Fee charged for planning
2. Preparer’s penalty :
   
   • minimum = $1,000
   • maximum = lesser of
     
     • $100,000 + fee charged
     • 50% of tax on unreported income

Question 7

List criminal offences and their penalties

Criminal offences

Answer 7

1. Failing to file a return:
   
   • $1,000 to $25,000
   • both fine and imprisonment for up to 12 months
2. Fine of between 50% and 200% of tax sought to be evaded for:
   
   • making a false statement on a return
   • destroying or falsifying books and records
   • wilfully attempting to evade compliance with the Act
   • conspiring to commit any of the above offences