Running afoul of the CRA's filing deadline can be a costly mistake — and don't expect the courts to take pity

National Post


A new survey out this week shows that, due to the complications brought on by the pandemic, 78 per cent of Canadians are less inclined than in previous years to procrastinate and delay filing their taxes to the last minute. The survey, commissioned by TurboTax Canada, also found that two-thirds (66 per cent) of Canadians agree that this year, more than any other, it’s important to get ahead of the tax preparation process to avoid stress closer to the tax filing deadline. As of March 15, however, only 17 per cent of expected returns have been received by the Canada Revenue Agency.

This week, the Internal Revenue Service announced that it was giving U.S. individual taxpayers an extra month to file, extending the deadline to May 17 from April 15 to allow more time for taxpayers to navigate the complexities of pandemic-related filings. CRA spokesperson Christopher Doody said that at this time, the CRA has not extended the tax filing deadlines and it will advise both the media and the public if the tax filing deadlines are extended. Some accountants and taxpayers who reached out to me this past week are hoping for a deadline extension, especially in light of the inconvenience faced by some Canadians when the CRA suspended about 800,000 taxpayers’ accounts after login credentials were found on the dark web.

So, in the absence of any filing deadline extension, the normal April 30 deadline continues to apply unless you (or your spouse or partner) had self-employment income, including gig economy income, in 2020, in which case your filing deadline isn’t until June 15, 2021.

If you don’t have the cash to pay the tax owing by April 30, the CRA has stated that you won’t have to pay any arrears interest provided you file your tax return and pay the tax owing by April 30, 2022 – assuming you qualify. To qualify for this targeted interest relief, you must have had a total taxable income of $75,000 or less in 2020 and have received income support in 2020 through one or more of the COVID-19 measures: the CERB, CESB, CRB, CRCB, CRSB, Employment Insurance benefits or provincial or territorial emergency benefits.

Notwithstanding the potential interest relief, failure to file your tax return by the deadline can result in a late-filing penalty of five per cent of your balance owing, plus one per cent of the balance owing for each full month your return is late, to a maximum of 12 months. And, if it’s not the first time you have filed late and you’ve been assessed a late-filing penalty in any of the prior three years, the penalties can double to 10 per cent of the unpaid amount, plus a two per cent penalty for each late month, to a maximum of 20 months. Repeated failure to file subsequent years’ tax returns on time, therefore, can add up to huge penalties as a Nova Scotia taxpayer recently found out.

The taxpayer was in court last month appealing a decision by the CRA not to forgive approximately $40,000 in late-filing penalties assessed by the CRA for failure to file his tax returns for the 2009 through 2015 calendar years on time. The case was held by videoconference, with the taxpayer in Halifax and the judge sitting in Ottawa.

The taxpayer has been struggling with complex neurological and other health issues since 2007. He said that these caused him to misinterpret the advice he received from the CRA and he attempted to pay all amounts owing before filing income tax returns for subsequent years. The taxpayer argued that the CRA “misapprehended the evidence, and failed to consider his exceptional financial circumstances.”

The taxpayer has a long history of tax compliance problems and has submitted numerous requests for relief from penalties and interest, beginning in 2008. His first request for relief were for his 2002 to 2007 taxation years, and relief was granted with the conditions that monthly payments to the CRA continue to be made by the taxpayer’s employer, and all future income tax returns would be filed by their due dates with payment in full.

Unfortunately, income tax returns for the 2009 to 2014 taxation years were all filed late. The taxpayer was assessed late-filing penalties and repeated late-filing penalties for the 2009 to 2014 taxation years, and interest on arrears for the 2014 and 2015 taxation years. The taxpayer was also hit with instalment interest for the 2009 to 2015 taxation years and instalment penalties for the 2014 and 2015 taxation years, but these were waived in a prior decision.

After some back and forth with the CRA, it agreed to cancel much of the arrears interest but declined to waive late-filing penalties and repeated late-filing penalties for the 2009 to 2014 taxation years. Thus, the sole issue before the court was whether the CRA’s refusal to waive late-filing penalties and repeated late-filing penalties was reasonable.

As in prior judicial review cases, the court indicated that it will only intervene with a decision of the CRA if “there are sufficiently serious shortcomings in the decision such that it cannot be said to exhibit the requisite degree of justification, intelligibility and transparency.”

Much of the taxpayer’s arguments for failing to file his returns on time concern his complex neurological and other health issues. A December 2016 doctor’s report revealed that the taxpayer “has a long history of complex neurological symptomatology which has been investigated repeatedly in the past with negative results. There has been no evidence of serious underlying neurological disease related to his long-standing symptoms…. It should be noted that (the taxpayer) was able to continue to work as an investment adviser up until the spring of this year.”

A Cognitive Linguistic Quick Test of the taxpayer conducted in February 2017 found that his executive functions were within normal limits. His score was in the moderate category for the memory and language portions of the test, and in the mild category for attention and visuospatial skills.

In the end, the court found that the onus was on the taxpayer to demonstrate that his medical condition prevented him from complying with his tax obligations. The CRA, while acknowledging the taxpayer’s “complex neurological issues” concluded that these issues “did not sufficiently explain the (taxpayer’s) repeated failures to file his income tax returns on time.”

The judge agreed, concluding that the CRA’s decision to grant the taxpayer only partial relief “was justified, intelligible and transparent, and was therefore reasonable.”