CRA decision to deny taxpayer late-filing relief sent back for review

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Should you personal overseas investments whose whole price exceeds $100,000 at any level in a tax 12 months, you’re required to file a Form T1135, Foreign Income Verification Statement, which covers apparent overseas property, similar to funds in a Cayman checking account, but additionally overseas shares held in a Canadian, non-registered brokerage account.

Overseas securities held inside pooled merchandise, like Canadian mutual funds, or inside a registered account, similar to a registered retirement financial savings plan (RRSP), registered retirement earnings fund (RRIF), tax-free financial savings account (TFSA), registered schooling financial savings plan (RESP), registered incapacity financial savings plan (RDSP) or first residence financial savings account (FHSA), are excluded. A overseas trip residence, like a Florida rental, can be excluded supplied it’s primarily for private use.

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The penalty for failing to file a T1135 on time is $25 per day to a most of $2,500, plus non-deductible arrears curiosity, compounded every day, charged on the prescribed charge for overdue taxes, which is currently sitting at nine per cent. If you’re greater than 100 days late in submitting the shape for a selected tax 12 months, you’re hit with an automated late-filing penalty of the $2,500 most, plus curiosity.

That’s what occurred to an Alberta taxpayer who filed her T1135s for the 2015 and 2016 tax years in 2020. The Canada Revenue Agency assessed the taxpayer penalties and curiosity totalling about $6,000 for not submitting the 2 T1135s on time.

After being assessed, the taxpayer wrote to the CRA requesting aid from the penalties and curiosity. She supplied medical info to the CRA about her and her husband’s well being conditions and described the long-standing challenges she was experiencing in areas similar to decision-making, time administration and accuracy, which made it troublesome for her to hold out advanced duties, similar to submitting tax returns. It additionally described well being points skilled by her partner, which restricted his potential to help the taxpayer and required the taxpayer to look after him.

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However this wasn’t adequate for the CRA, which denied her request for aid, concluding that the couple’s medical scenario mustn’t have prevented them from submitting the required types on time. The officer famous the taxpayer was able to operating her enterprise, which, within the officer’s opinion, was of “comparable complexity” to submitting tax returns.

The CRA officer additionally thought-about whether or not the taxpayer “had acted shortly” to treatment her failure to file her T1135s. Since she was capable of file her 2017 and 2018 types on time, the officer concluded there was no justification for her failing to file her 2015 and 2016 types once they have been due.

However the proof confirmed the taxpayer in 2019 contacted the CRA in search of affirmation as to which T1135s have been lacking. She didn’t obtain a response and wrote to the CRA once more within the spring of 2020. The CRA responded in July 2020 and the taxpayer supplied the excellent T1135s by August 2020. The “delay” in submitting was partly attributable to the CRA’s late response to the taxpayer’s inquiries.

The taxpayer requested a secondary assessment by a special CRA officer and supplied further medical info to the CRA. That second assessment officer additionally refused to grant aid. The taxpayer, feeling that the CRA officer’s resolution was unreasonable as a result of it didn’t take correct account of her medical circumstances, appealed the choice to Federal Courtroom. The courtroom’s function, as in prior such T1135 cases, is to find out whether or not the CRA officer’s resolution to disclaim aid was affordable.

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In courtroom, the decide reviewed the proof, together with the inference by the CRA officer that because the taxpayer, an inside designer, had been capable of preserve her enterprise going, however her well being points, there was no purpose why she couldn’t file her tax types.

“It’s not clear how the officer equated her potential to proceed to perform in that capability (as an inside designer) along with her potential to handle advanced tax issues,” the decide stated. “There may be nothing within the file that may help that conclusion.”

The decide additionally famous the taxpayer had beforehand supplied the identical medical info to a special CRA officer together with a separate request for aid on her late GST filings. That officer authorized her request and cancelled penalties and curiosity for the 2015 to 2019 tax years, protecting the identical years for which the taxpayer had sought aid for submitting her T1135s late.

In the end, the decide needed to decide why two completely different CRA brokers reached reverse conclusions primarily based on the identical proof. Was it as a result of every CRA officer, having a level of discretion, weighed the identical proof in a different way? Or was it due to an error made by one of many officers?

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Luckily for the taxpayer, the decide concluded that the CRA’s refusal to grant aid for the late-filed T1135s was the results of “defective inferences” from the proof that rendered the conclusion “unreasonable” because it was “not justified, clear or intelligible” nor did it reply “meaningfully” to the medical proof the taxpayer had supplied.

The decide allowed the appliance for judicial assessment and ordered the matter be despatched again to the CRA for reconsideration by a special officer.

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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