One Small Victory for Taxpayers
With the tax filing deadline for most Canadians just over five weeks away, you should be well on your way to assembling your tax information, especially if you must report your foreign investment holdings.
That’s because of the requirement to timely file Form T1135, the “Foreign Income Verification Statement” which must be completed annually if the total cost of all your foreign investments, including foreign stocks held in non-registered Canadian brokerage accounts, is more than $100,000. The penalty for failing to file this form is $25 a day, to a maximum of $2,500.
You may recall the six Federal Court of Appeal decisions from the fall in which the Asper Group of companies failed to file T1135 forms for six companies over the course of four years and were stuck with penalties of $2,500 for each instance. The Asper Group was unsuccessful in trying to get these penalties reversed.
The most recent T1135 case, decided this month, may provide a glimmer of hope in situations where you innocently file the T1135 late. Bruce Douglas was assessed a $2,500 penalty for the failure to file his T1135 on time.
In 2008, he prepared his own income tax return, in which he included Form T1135. Because he was self-employed, the deadline for filing his 2008 tax return, as well as the T1135, was June 15, 2009, but he didn’t file it until March 2010, on the assumption that this was acceptable if there was no tax payable.
As his T1135 was filed more than 100 days late, the CRA assessed the maximum penalty of $2,500.
The judge took issue with the application of the penalty since “in this case … Mr. Douglas took reasonable actions to comply with his income tax obligations.” The judge felt Mr. Douglas’s conclusions were “reasonable.”
The judge said it would be “unfair to penalize Mr. Douglas for failure to comply with a filing deadline in these circumstances…. Although the penalty (for late-filing the T1135) is strict … 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.”
As Mr. Douglas was not “cavalier” about his need to file his T1135 and was “diligent in his compliance efforts and he acted reasonably, and competently,” the judge decided to cancel the penalty assessed and awarded Mr. Douglas court costs as well.
This is a significant victory for taxpayers and suggests some sympathy may in fact be available through the court system. My general advice would be that in cases of late-filed T1135 Forms, your first course of action should be to submit the Forms under the CRA’s voluntary disclosure system to avoid any penalties from being applied.
If you have already been assessed a late-filing penalty, you may be best to challenge it directly in Tax Court before a similarly sympathetic judge.