Most people aren’t aware of one of the harshest penalties that the CRA (Canada Revenue Agency) gives out. This penalty doesn’t necessarily relate to fraud or tax evasion, but can occur if someone is simply forgetful or unorganized.
Over the last couple of years the CRA has started charging a 20% penalty of the total income on a slip (T3, T4, T5, T5013 for example) if the slip is omitted from the personal tax return (T1) and that tax payer has omitted a slip in the past. For example if you get a T5013 for partnership income late, which generally shows up after the T4’s and T5’s arrive, and you file your tax return for a second time omitting this T5013 the CRA can charge you a penalty of 20% of the income on that T5013.
Let’s look at a realistic scenario that could result in a huge penalty for the average tax payer…
I’m sure many of you get T5’s (slips for investment income) on bank account balances or T-Bills or items of that nature. You may get a T5 with income of $20 on it, which has very little tax consequences itself. You may misplace this T5 or receive it after filing your T1 personal tax return, and in any case the T5 is not reported. Then, in any year after that for whatever reason your T4, showing your employment income, is forgotten/misplaced and is somehow left off your tax return. If this scenario were to take place you could be penalized 20% of your gross employment income for the year, so if you made $100,000 in that year from that job you would be penalized $20,000 for omitting this slip.
A $20,000 penalty as described above isn’t the likely scenario, but it could happen. This rule just goes to show you how serious the CRA is about people forgetting/omitting information from their tax return. It is always a good idea to compare your current year information to the tax return that you filed last year to ensure that you have not missed anything. If you have a Chartered Accountant preparing your tax return they will add an extra assurance that nothing is omitted from your tax return on a year to year basis.
If you have any questions related to potential fines and penalties on your personal tax return, or if you want the peace of mind having a chartered accountant complete your personal tax return this year please contact us at firstname.lastname@example.org , 604 510-0156, or visit our website at http://www.wattsca.ca for more information.
Disclaimer: The information in the blog is for general information only and is not intended to be a substitute for professional advice. Each person’s situation is unique, and a designated professional accountant can assist you in using the information on this blog to your best advantage. The author of this blog strives, but does not guarantee, to provide information which is current and accurate. Due to the nature of the information, it should not be relied upon for decision making without talking to a designated professional accountant. By obtaining information from this blog, you fully release Steve Watts, Chartered Accountant of any liability that may arise from using this information.