Canada: CRA Income Tax Penalties – Failure To File Tax Returns Electronically Penalties –Toronto Tax Lawyer Analysis

Last Updated: November 22 2017
Article by David Rotfleisch

Introduction – Failure to File Tax Returns Electronically Penalties

Since developing the infrastructure necessary to accept electronic filing of some types of income tax returns and information returns, the Canada Revenue Agency (the "CRA") has begun requiring some persons and partnerships to file electronically. As of October of 2017, these requirements effect three groups. The first is most Canadian Corporations with gross revenue over one million dollars. The second is any person or partnership which is required to file a large number of information returns. The third are tax preparers who prepare over ten corporate income tax returns or over ten individual income tax returns per year. Failure to comply with these requirements will result in penalties being imposed which are typically proportionate to the number of returns that were paper filed instead of being filed electronically.

Failure to File Tax Returns Electronically - Corporations

The Canadian Income Tax Act requires certain corporations to file their annual income tax returns electronically. Specifically corporations, which have gross revenues over one million dollars during a taxation year end are required to file electronically unless they fall into a specific exception. The actual income of the corporation is not relevant, so corporations with losses or low profits but large revenues are still required to file electronically. The exceptions to this requirement include non-resident corporations, insurance corporations, and corporations exempt from tax under the Canadian Income Tax Act. Examples of exempt corporations include non-profit corporations, registered charities, pension corporations and crown corporations.

The penalty for a corporation failing to comply with this electronic tax return filing requirement for a taxation year is $1000. If you are unsure whether this filing requirement applies to you, please consider speaking with one of our knowledgeable Toronto tax lawyers.

Failure to File Tax Returns Electronically –Information Returns

Persons or partnerships who file more than 50 information returns may be required to file the information returns electronically or pay a penalty. The Canadian Income Tax Act and its regulations list a significant number of information returns that are relevant to this requirement. If a person or partnership, other than a registered charity, paper files at least 50 information returns of any combination of the types listed, they are required to pay a penalty. The list of information returns to which this penalty can apply is long, and includes T4 information returns, T4A information returns, T5 information returns, and the information returns associated with RRSPs and TFSAs.

T4 information returns are required from persons or partnerships that have any employees, so this requirement is relevant to most organizations with at least 50 employees. T5 returns are relevant to organizations that pay out investment income, including dividends, to their investors. Many of the other information returns required are typically required from financial institutions. The penalty for failing to file the information returns electronically is determined by the number of information returns paper filed.

Information Returns Filed

Penalty

At least 50 and at most 250

$250

At least 251 and at most 500

$500

At least 501 and at most 2500

$1,500

At least 2501

$2,500

Failure to File Tax Returns Electronically – Tax Preparers

Tax preparers are required by the CRA to file individual and corporate income tax returns electronically. The CRA considers any person or partnership which files at least ten individual income tax returns or at least ten corporate income tax returns during a calendar year to be a tax preparer. During each calendar year, a tax preparer can file up to ten individual income tax returns and ten corporate tax returns without paying a penalty. For each individual income tax return paper filed after the tenth paper filed individual return during a calendar year, the tax preparer will be charged a penalty of $25. Similarly, for each corporate income tax return paper filed after the tenth paper filed corporate return during a calendar year, the tax preparer will be charged a penalty of $100. The CRA has taken an administrative position that if a tax return is prepared by a tax preparer and then paper filed by a taxpayer, the penalty still applies and is applied to the tax preparer.

Tax Tips– Filing File Tax Returns Electronically

In order to avoid paying unnecessary penalties to the CRA, it is important to be aware if there are any requirements imposed by the Canadian Income Tax Act specifying the appropriate manner to file an income tax return or information return. It is worth noting that the penalties charged to a business for a failure to file electronically are not deductible. Interestingly, the CRA has stated that it will not impose the penalty on Corporations which file a late paper income tax return or no paper return at all. Instead the CRA will apply only the penalties that apply to late or unfiled returns.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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