Canadian Tax Adviser
January 24, 2012

CRA Charging Stiff 20% Penalty For Missing Tax Slip

Ed Bartucci
Toronto, Enterprise Tax

Diane Wood
London, Enterprise Tax

The CRA is imposing harsh penalties on individuals who do not report income from a T-slip on their tax return — even if the omission was inadvertent. The CRA runs a sophisticated T-slip matching program that checks the amounts and slips reported on your tax return with data filed by your employer (T4 slips) or other slips reporting investment or trust income (e.g., T5, T3). This is usually done after the original assessment of your return.

There are several recent examples of the CRA imposing the federal subsection 163(1) penalty, and the provincial equivalent, on taxpayers who have repeatedly failed to report income from information slips on their personal income tax returns. The penalty is a combined 20% federal-provincial rate that may be applied to the amount of the unreported income. As a result, when you are gathering your personal tax information, ensure that you provide all your tax information to KPMG (or another tax return preparer).

If you have extensive investments, you should take special care because brokerage firms may issue late or amended slips.

Example
Mr. X is the director of several companies and the owner of a sizeable investment portfolio. As a result, each year he receives several T4 and T5 information slips. Mr. X inadvertently did not include $100 from a 2009 T5 slip on his 2009 personal income tax return because he misplaced or never received the T5 slip. The CRA noticed this omission when it ran its information slip matching program for 2009 returns and reassessed Mr. X's 2009 return to include the $100 in his income.

When Mr. X filed his 2010 tax return, he forgot to include director's fees of $25,000 reported on a 2010 T4 slip. Mr. X never received this slip because he moved during the year and the slip was sent to his former address. Mr. X discovered the omission after filing his return, but was not concerned as taxes had already been withheld from the income (i.e., technically, he thought he did not have an income tax liability).

The CRA's information slip matching program alerted the CRA to the $25,000 unreported income. As a result, the CRA charged Mr. X with a $5,000 penalty under subsection 163(1) of the Act and the provincial equivalent, even though Mr. X did not have an income tax liability associated with this income because the appropriate taxes were withheld.

Legislative background
The CRA’s authority for imposing the penalty is granted under subsection 163(1) "Repeated failure [to report income]". This rule applies to taxpayers who fail to report income in a tax return for a given taxation year if they have also failed to report income in a tax return for any of the three preceding taxation years. For federal purposes, the penalty is equal to 10% of the amount of income not reported in the tax return for the particular taxation year, unless a greater penalty under subsection 163(2), "False statements or omissions", applies.

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