Fairness & Late Filing Penalties
Volume No. 06-08
“Late-filing penalties were referred back to CRA because all taxes were paid.”
In the recent case of Bremer (2006 FC 91), Mr. Bremer had filed his tax return five months after the due date, which was April 30, 2003. He actually filed his tax return on October 14, 2003. Mr. Bremer believed that there was no tax payable at the due date. However, he discovered that he owed some tax and paid the balance due in May 2003. The CRA assessed the tax owing and a late-filing penalty of 5%, plus 1% for each month up to the date of filing (October 14, 2003).
Mr. Bremer requested that the fairness provisions be applied to remove the 1% monthly late-filing penalty and to adjust the interest, since he had paid the tax in May 2003, but the charges were upheld by the CRA, in part because Mr. Bremer had a history of late filing his tax returns. The CRA followed the appropriate provisions of the Income Tax Act.
The Federal Court made a judicial review of the CRA’s refusal to reduce the charges and determined that, from May 2003 onwards, the taxpayer owed no tax or penalties as he had paid the amount due. Accordingly, when the taxpayer field his return, the only amount outstanding was the 1% monthly penalty applied for each month late filing. The Court determined that the CRA had made a reviewable error, and referred the matter back to the CRA to re-determine the appropriate penalties and interest to be applied.
This is an interesting case, as the CRA properly applied the provisions of the Income Tax Act. The Court, however, felt that it was unfair for a taxpayer to have to pay a late-filing penalty when all the tax due had been paid.
TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.
The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.
TAX TIP is provided as a free service to clients and friends of Cadesky Tax.
The material provided in Tax Tip is believed to be accurate and reliable as of the date of posting. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Cadesky Tax cannot accept any liability for the tax consequences that may result from acting based on the contents hereof.
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