CRA resolution to disclaim taxpayer late-filing reduction despatched again for evaluation

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When you personal overseas investments whose whole value exceeds $100,000 at any level in a tax yr, you’re required to file a Kind T1135, International Revenue Verification Assertion, which covers apparent overseas belongings, equivalent to funds in a Cayman checking account, but in addition overseas shares held in a Canadian, non-registered brokerage account.

International securities held inside pooled merchandise, like Canadian mutual funds, or inside a registered account, equivalent to a registered retirement financial savings plan (RRSP), registered retirement revenue fund (RRIF), tax-free financial savings account (TFSA), registered training financial savings plan (RESP), registered incapacity financial savings plan (RDSP) or first house financial savings account (FHSA), are excluded. A overseas trip house, like a Florida apartment, can be excluded offered it’s primarily for private use.

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The penalty for failing to file a T1135 on time is $25 per day to a most of $2,500, plus non-deductible arrears curiosity, compounded every day, charged on the prescribed fee for overdue taxes, which is at the moment sitting at 9 per cent. If you’re greater than 100 days late in submitting the shape for a selected tax yr, you’re hit with an automated late-filing penalty of the $2,500 most, plus curiosity.

That’s what occurred to an Alberta taxpayer who filed her T1135s for the 2015 and 2016 tax years in 2020. The Canada Income Company assessed the taxpayer penalties and curiosity totalling about $6,000 for not submitting the 2 T1135s on time.

After being assessed, the taxpayer wrote to the CRA requesting reduction from the penalties and curiosity. She offered medical data to the CRA about her and her husband’s well being conditions and described the long-standing challenges she was experiencing in areas equivalent to decision-making, time administration and accuracy, which made it troublesome for her to hold out advanced duties, equivalent to submitting tax returns. It additionally described well being points skilled by her partner, which restricted his capacity to help the taxpayer and required the taxpayer to take care of him.

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However this wasn’t adequate for the CRA, which denied her request for reduction, concluding that the couple’s medical state of affairs shouldn’t have prevented them from submitting the required varieties on time. The officer famous the taxpayer was able to operating her enterprise, which, within the officer’s opinion, was of “comparable complexity” to submitting tax returns.

The CRA officer additionally thought-about whether or not the taxpayer “had acted shortly” to treatment her failure to file her T1135s. Since she was capable of file her 2017 and 2018 varieties on time, the officer concluded there was no justification for her failing to file her 2015 and 2016 varieties once they had been due.

However the proof confirmed the taxpayer in 2019 contacted the CRA searching for affirmation as to which T1135s had been lacking. She didn’t obtain a response and wrote to the CRA once more within the spring of 2020. The CRA responded in July 2020 and the taxpayer offered the excellent T1135s by August 2020. The “delay” in submitting was partly attributable to the CRA’s late response to the taxpayer’s inquiries.

The taxpayer requested a secondary evaluation by a distinct CRA officer and offered further medical data to the CRA. That second evaluation officer additionally refused to grant reduction. The taxpayer, feeling that the CRA officer’s resolution was unreasonable as a result of it didn’t take correct account of her medical circumstances, appealed the choice to Federal Courtroom. The court docket’s position, as in prior such T1135 instances, is to find out whether or not the CRA officer’s resolution to disclaim reduction was affordable.

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In court docket, the decide reviewed the proof, together with the inference by the CRA officer that for the reason that taxpayer, an inside designer, had been capable of hold her enterprise going, however her well being points, there was no purpose why she couldn’t file her tax varieties.

“It isn’t clear how the officer equated her capacity to proceed to perform in that capability (as an inside designer) along with her capacity to handle advanced tax issues,” the decide stated. “There’s nothing within the document that may assist that conclusion.”

The decide additionally famous the taxpayer had beforehand offered the identical medical data to a distinct CRA officer together with a separate request for reduction on her late GST filings. That officer authorized her request and cancelled penalties and curiosity for the 2015 to 2019 tax years, protecting the identical years for which the taxpayer had sought reduction for submitting her T1135s late.

In the end, the decide needed to decide why two totally different CRA brokers reached reverse conclusions primarily based on the identical proof. Was it as a result of every CRA officer, having a level of discretion, weighed the identical proof otherwise? Or was it due to an error made by one of many officers?

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Fortuitously for the taxpayer, the decide concluded that the CRA’s refusal to grant reduction for the late-filed T1135s was the results of “defective inferences” from the proof that rendered the conclusion “unreasonable” because it was “not justified, clear or intelligible” nor did it reply “meaningfully” to the medical proof the taxpayer had offered.

The decide allowed the applying for judicial evaluation and ordered the matter be despatched again to the CRA for reconsideration by a distinct officer.

Jamie Golombek, CPA, CA, CFP, CLU, TEP, is the managing director, Tax & Property Planning with CIBC Personal Wealth in Toronto. Jamie.Golombek@cibc.com.

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