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It’s vital to file your tax return on time, whether or not you’re a person taxpayer or submitting on behalf of your company. Failure to file your return on time can result in late-filing penalties and arrears curiosity, charged on the prescribed price for underpaid taxes, which is presently at 9 per cent every year, compounded-daily — and isn’t tax deductible.

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Must you be hit with penalties and curiosity, you’ll be able to at all times ask the Canada Income Company to waive or cancel them beneath the taxpayer reduction provisions. Ought to the CRA refuse your request for reduction, you’ll be able to have the CRA’s resolution reviewed by a Federal Court docket choose to find out whether or not it was “cheap.” That’s in the end what occurred in a current case that was heard in courtroom final month, involving a late-filed company tax return.

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The company taxpayer was assessed $8,783.14 in penalties and curiosity because of the late-filing of its 2018 company tax return. The company was represented in courtroom by its president and proprietor, who, whereas not a lawyer, was granted permission by the choose, in her discretion, to signify his company on the listening to.

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The enterprise proprietor argued that the late submitting of his company’s taxes was not the company’s fault, however somewhat the fault of the company’s accountant. The proprietor argued that he had supplied the revenue tax info to the accountant effectively earlier than the submitting deadline, however the accountant had relocated, and did not file the return on time.

The company filed its tax return for the 12 months ending Dec. 31, 2018 over six months late, on Jan. 17, 2020. The conventional company tax submitting deadline for firms is six months from its year-end, which on this case would have been June 30, 2019.

After getting hit with the late-filing penalty and curiosity, the company submitted an preliminary request for reduction to the CRA to cancel or waive these penalties and curiosity. In that request, the company said that its tax return was late as a result of its president, the proprietor, had been occupied together with his ailing mother and father and that his accountant had moved workplaces. Evidently company had supplied its paperwork to the accountant on April 12, 2019, however the accountant didn’t file the company’s return by the June 30 deadline. The proprietor additionally cited “monetary hardship” and the company’s constructive compliance historical past.

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The CRA officer, performing a first-level evaluate, denied the taxpayer’s request for reduction, saying that the proprietor’s private monetary state of affairs was not related to the company’s monetary state of affairs “as they’re separate entities.” When it comes to the proprietor’s mother and father’ medical state of affairs, the CRA officer was unable to conclude that there have been circumstances that prevented the company from submitting its return on time. Lastly, the officer held that, regardless of the accountant’s transfer, the company is in the end chargeable for making certain its tax returns are filed on time.

The company then requested a second-level evaluate of its utility for taxpayer reduction on the only real foundation that the first-level CRA officer didn’t correctly think about the failure of its accountant to file the tax return on time because of the relocation of the accountant’s apply.

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This second-level evaluate additionally denied the company’s request for reduction, stating that “beneath Canada’s self-assessment tax system, firms are chargeable for making certain their tax returns are … filed on time.… Though chances are you’ll use the companies of an expert, the connection between a taxpayer and a tax preparer is one in all alternative, and any detrimental penalties of that alternative stays between these events. Counting on an expert, doesn’t absolve you out of your duty.”

The company then took the matter to Federal Court docket, the place the choose was tasked with figuring out whether or not the CRA’s second-level resolution to disclaim reduction was cheap. An inexpensive resolution is “one that’s primarily based on an internally coherent and rational chain of research and that’s justified in relation to the information and regulation that constrain the decision-maker.”

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The choose, in reviewing the proof, turned to the CRA’s revealed administrative tips for cancelling or waiving penalties and curiosity. Particularly, in conditions involving third-party delays, the CRA will assess whether or not the circumstances have been past the taxpayer’s management, pursuant to sure elements which embody: pure or human-made disasters, equivalent to flood or fireplace, civil disturbances or disruption in companies, equivalent to a postal strike, critical sickness or accident, and critical emotional or psychological misery, equivalent to a dying within the rapid household. In the end, nevertheless, taxpayers are typically chargeable for delays attributable to a 3rd get together appearing for the taxpayer apart from in “distinctive conditions.”

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The company argued that the CRA did not correctly think about its cause for the late-filing of its tax return, particularly that its accountant had moved workplaces. In courtroom, the proprietor argued that this was a matter out of the company’s management and that the company shouldn’t be penalized consequently.

Sadly for the taxpayer, the choose concluded that the accountant’s transfer “doesn’t represent both a unprecedented circumstance or an distinctive state of affairs … that prevented the well timed submitting of the (company’s) tax return.” Moreover, the choose famous that though the company supplied its revenue tax info to the accountant on April 19, 2019, which was effectively earlier than the June 30 submitting deadline, the company did not follow-up to make sure the return was being filed on time and solely followed-up three months later, on July 20, 2019, after the submitting deadline had expired. In the end, the tax return was not filed till Jan. 17, 2020, which was over six months after the submitting deadline.

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Consequently, the choose decided that the CRA’s resolution to not cancel the penalties and curiosity was cheap. The choose was additionally sympathetic in the direction of the enterprise proprietor, refusing to grant the CRA its requested “prices” of $2,040 in opposition to the taxpayer, “having regard to all of the circumstances of (the) case.”

Whether or not the taxpayer would achieve success in making a declare in opposition to the accountant (or, in the end, the accountant’s insurer) will rely upon all of the information and circumstances surrounding their interplay, and whether or not the taxpayer can reveal that the accountant was negligent in not submitting the company’s return on time.

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

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