A recent Federal Court case in Vancouver has underscored the importance of accurately reporting all income on tax returns, even if omissions are due to innocent mistakes. The court upheld the Canada Revenue Agency's (CRA) decision to deny a taxpayer's request for relief from penalties and interest after she failed to report income from two T5 slips.
Background of the Case
The taxpayer filed her 2021 income tax return in early March 2022 but omitted two T5 slips from TD Waterhouse and Equitable Bank, which she claimed she received only after filing. The CRA reassessed her for that year but did not impose a penalty. However, a similar issue occurred in 2023 when she filed her 2022 return in late March 2023, again omitting T5 slips from TD Waterhouse. She argued the slips were not available on the CRA's auto-fill service when she used commercial software. For the 2022 tax year, the unreported income exceeded $23,000, leading to a reassessment in October 2023 with a penalty of $2,925 and $636 in non-deductible arrears interest.
Taxpayer Relief Request Denied
After receiving the reassessment, the taxpayer applied for relief under the taxpayer relief provisions of the Income Tax Act. Three separate CRA officers reviewed her request and each denied it. The third decision noted that the CRA had received the omitted slips before the end of February 2023 and processed them in April 2023, meaning they were available to the taxpayer before the April 30 filing deadline.
Legal Framework for Income Omissions
Under the Income Tax Act, a taxpayer who fails to report at least $500 of income in a tax year, and who also failed to report at least $500 in any of the three preceding years, may be subject to a federal penalty. This penalty is the lesser of 10% of the unreported income and 50% of the difference between the tax understatement and any tax already paid on that income. A provincial penalty of 10% is often added.
Important Reminder for Taxpayers
As the judge noted, it is always the taxpayer's responsibility to file an accurate return, even when using commercial software or the CRA's auto-fill feature. Taxpayers are encouraged to log into their CRA account during the summer to review all T-slips on file and ensure all income has been reported. This is especially important for those who filed early, as the auto-fill feature may not have included all slips at the time of filing. Correcting omissions proactively can help avoid penalties and interest.
