2016-0645001C6 Failure to file Form T1135

Principal Issues: Can the CRA assess a penalty against a taxpayer beyond the normal reassessment period for failure to file a Form T1135 on time? Can subparagraph 152(4)(a)(i) of the Act apply to assess a penalty under subsection 162(7) of the Act beyond the normal reassessment period?

Position: General comments provided.

Reasons: A penalty under subsection 162(7) of the Act is assessed under Part I and is subject to the same limitations as any other assessment under that Part. Whether a penalty under subsection 162(7) of the Act may be assessed in a given situation pursuant to subparagraph 152(4)(a)(i) of the Act is a question of fact that must be determined on a case-by-case basis.

Author: Skulski, Katharine
Section: 152(4), 152(3.1), 162(7), 220(3.1) and 233.3

CPA / CRA Red Deer, Alberta Roundtable

QUESTION

In Technical Interpretation 2015-0572771I7, CRA confirms that a failure to file Form T1135 on time results in the assessment of penalties under subsection 162(7), which is in Part I of the Act.  Therefore, if a taxpayer is liable to a penalty under subsection 162(7) for a late filed Form T1135, the assessment of the penalty must be made within the normal reassessment period, as defined in subsection 152(3.1), for Part I unless one of the exceptions provided in subsection 152(4) applies.  The final paragraph of this Technical Interpretation suggests that the normal reassessment period that is relevant for Form T1135 is the normal reassessment period of the income tax return for that taxation year.

(a)   Can the CRA confirm that a taxpayer who failed to file Form T1135 cannot be assessed a penalty under subsection 162(7) of the Act for failing to file Form T1135 after the normal reassessment period in respect of a taxation year ?

(b)   Does the CRA consider the failure to file Form T1135 to be one of the exceptions to which subparagraph 152(4)(a)(i) of the Act would apply?

CRA RESPONSE

(a)   Subsection 233.3(3) of the Act requires that a reporting entity for a taxation year or fiscal period file Form T1135 on or before the taxpayer’s filing due date for the year.  Subsection 162(7) of the Act provides a penalty for the failure to file an information return and for the failure to comply with a duty or obligation imposed under the Act or the Regulations. If a taxpayer is liable to a penalty under subsection 162(7) of the Act, the assessment of such penalty must be made within the normal reassessment period, as defined in subsection 152(3.1) of the Act, unless one of the exceptions specified in subsection 152(4) of the Act applies.

It should also be noted that under paragraph 152(4)(b.2) of the Act, the normal reassessment period of a taxpayer for a taxation year is extended for an additional three years if
(a)   Form T1135 was not filed on time by the taxpayer, or a specified foreign property held by the taxpayer at any time during the year was not identified, or was improperly identified, on the Form T1135; and
(b)   the taxpayer has failed to report income from a specified foreign property on their income tax return for the year.

(b)   Where Form T1135 has not been filed on time but paragraph 152(4)(b.2) of the Act does not apply, pursuant to subparagraphs 152(4)(a)(i) and subparagraph 152(4.01)(a)(i) of the Act, an assessment or reassessment in respect of the penalty under subsection 162(7) of the Act for such failure may be made after the taxpayer’s normal reassessment period but only if it can reasonably be regarded as relating to any misrepresentation made by the taxpayer or a person filing the taxpayer’s return of income for a taxation year that is attributable to neglect, carelessness or wilful default or any fraud committed by the taxpayer or that person in filing the return or in supplying any information under this Act.

In our view, the failure to file a Form T1135 where one is required pursuant to subsection 233.3(3) of the Act constitutes a misrepresentation for the purposes of subparagraph 152(4)(a)(i) of the Act.  However, the question of whether such misrepresentation is attributable to neglect, carelessness or wilful default or any fraud committed by the taxpayer or the person filing the return or in supplying any information under this Act, is a question of fact.  Generally, the Minister would have to, at least, prove that the taxpayer or the person filing the return made an error in failing to file the Form T1135 and, although that error may have been made in good faith, it was an error that a prudent and conscientious person would not have made.

Prepared by:
Bob Naufal and Katharine Skulski
Income Tax Rulings Directorate
May 26, 2016
2016-064500

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