Note that this case was heard under the TCC's informal procedure and cannot be relied on as a precedent.
Generally, a person that fails to file an information return will be subject to a penalty of the greater of $100 or $25 per day (not to exceed 100 days), unless another section of the Act provides a penalty for the same failure to file.
Form T1135 requires a statement of the ownership of foreign property and foreign income, and is due at the same time as a taxpayer's income tax return.
Mr. D prepared his own income tax return for the 2008 taxation year. Mr. D filed Form T1135 with the return, on which he stated that he owned real property in the United Kingdom with a value between $100,000 and $300,000. He did not report any income from the property.
The deadline for filing the income tax return and Form T1135, was June 15, 2009, but Mr. D knowingly filed both late, in March 2010. Mr. D's understanding was that missing the filing deadline was acceptable if there was no tax payable, and he had filed his income tax return late in previous years.
As the T1135 was filed more than 100 days late, the CRA assessed the maximum penalty of $2,500, under subsection 162(7).
At issue is whether the penalty was properly imposed.
The TCC found that Mr. D was not cavalier about his income tax obligations and that it was reasonable for Mr. D to conclude that the income tax return could be filed late because there was no tax payable for the year. The TCC also considered it reasonable for Mr. D to file Form T1135 with the income tax return, as the form's instructions state "Complete and file this statement with your tax return".
The TCC noted that even strict penalties should not be applied if a taxpayer has taken all reasonable measures to comply with the legislation, as established in Home Depot of Canada Inc. v. The Queen (2009 TCC 281).
The TCC noted that because Mr. D reported gross professional income in the amount of $28,636, and net professional income of only $865, it is not reasonable to expect Mr. D to have sought professional tax advice concerning the completion of Form T1135.
The TCC noted that although a judge-made due diligence defence should be applied sparingly, it is appropriate in this case. As a result, the TCC vacated the penalty.
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