Tax Tips and Pits: Little known tax penalty is no joke

Canada Revenue can invoke a 20% penalty for failing to report income.

Did you know that if a taxpayer fails to report on their tax return a source of income that is reported on a “T” slip in one year and then within the next three years fails to report another source of “T” slip income, Canada Revenue Agency (CRA) can assess a 20per cent penalty.

And not 20per cent of the tax liability, but 20per cent of the actual income – no April Fools on this one.

Let’s say it’s $10,000 worth of T5 investment income or T4 wages. The penalty is $2,000 plus the taxes due.  And this penalty applies even if taxes had been withheld at source and forwarded to CRA.  In other words, CRA may already have the taxes due and the penalty could still be assessed by CRA.

And CRA is assessing these days – again, no April Fools.

And it doesn’t have to be the same source of income missed twice in that four year period.  Any two “T” sources trigger this penalty, and the second offence is the defining income in terms of the penalty amount assessed.

For example, missing a $500 T5 in year 1 and then a $7,500 T4 in any of the following 3 years, the 20per cent penalty is assessed on the last offence.  That’s a $1,500 penalty on the $7,500. If the offences were reversed in timing, the penalty would be $100 on the $500.

This April Fools joke just keeps getting worse.

And if you’re thinking CRA won’t catch a missed “T” slip, remember that every “T” slip issued is matched by CRA’s super computer to the applicable taxpayer’s tax return.

Avoiding this penalty involves diligence by the taxpayer. That is, be aware of all the “T” slips due to you. Reviewing the prior year’s return is a good start.  Professional software actually alerts the preparer about slips not input this year that were last year, but not all do-it-yourself programs offer this feature.

Track down the “T” slips regardless of value, and ensure they get entered on your tax return.  And if you can’t get the official “T” slip, estimate the value and enter it, at least then you can say you tried.

And proving you tried is important.  The diligence put forward by a taxpayer is key to challenging such a penalty imposed by CRA.

The Tax Court of Canada has established that a taxpayer who makes the effort to report income when a “T” slip is missing, or if not reported, attempts to report it after the fact, and/or makes the effort to prevent such a miss in the future such as correcting their address on file, may be exempted from the penalty.

To this point, if a “T” slip arrives after you have filed, it might be best to do a T1 adjustment to catch that slip up to your return.  If you ignore it, it could lead to a very costly penalty, and that’s no joke.

Ron Clarke has his MBA and is a business owner in Trail, providing accounting and tax services. Email him at ron.clarke@JBSbiz.ca. To read previous Tax Tips & Pits columns visit www.JBSbiz.net.

Just Posted

Castlegar walk raises thousands for local Alzheimer’s support

Castle Wood Village fundraiser shows astounding support in community, organizers say

IRM reports small sulphuric acid leak at Waneta reload

IRM states a small volume of less than one cup and three dime-sized drips were leaked from carrier

Columbia Basin RDI: Exercise Your Right to Vote

Voter turnout statistics from the Columbia Basin Rural Development Institute

New farmers in Columbia Basin supported by land matching program

New and young farmers in the Basin are receiving support and services from a dedicated land matcher

Columbia Basin Trust offering business accelerator program

Trust seeking motivated companies for customized support and mentorship program

Video: Flyers new mascot ‘Gritty’ a bearded, googly-eyed terror

The Philadelphia Flyers unveiled their new mascot Monday, and as one would expect of the team that gave us the “Broad Street Bullies,” he’s far from cuddly.

Edmonton cannabis company revenues more than triples to $19.1 million

Aurora Cannabis revenues more than triple in fourth quarter

B.C. pharmacist suspended for giving drugs with human placenta

RCMP had samples of the seized substances tested by Health Canada

Seattle one step closer to NHL after arena plan approved

Seattle City Council unanimously approved plans for a privately funded $700 million renovation of KeyArena

Harvest Moon to light up B.C. skies with an ‘autumn hue’

It’s the first moon after the autumn equinox

Hockey league gets $1.4M for assistance program after Humboldt Broncos crash

Program will help players, families, coaches and volunteers after the shock of the deadly crash

Canada has removed six out of 900 asylum seekers already facing U.S. deportation

Ottawa had said the ‘overwhelming majority’ had been removed

Appeal pipeline decision but consult Indigenous communities, Scheer says

The federal appeals court halted the Trans Mountain expansion last month

Most Read