Requirement to File Income Tax Returns
The general obligation to file income tax returns is set out in section 150 of the Income Tax Act.
Corporation Income Tax Filings
All corporations resident in Canada have to file T2 income tax returns within 6 months of their year end. There is no requirement that corporations have a calendar year end. Corporations that are not resident that are carrying on business in Canada or realize a capital gain during the year or dispose of taxable Canadian property also have an obligation to file a Canadian corporate tax return.
Trust and Estate Tax Returns
Trusts and estates have a calendar year end and are required to file T3 income tax returns within 90 days of the year end.
Individual Tax Returns
As a general rule individuals are required to file T1 tax returns by April 30 of each year, however there are exceptions. Individuals with self employment income have until June 15 to file their tax returns. If an individual had no taxable income during the year, there is no obligation to file a tax return unless the individual had a capital gain during the year of disposed of capital property, or unless CRA issues a demand to file a tax return under subsection 150(2).
Offences for Failure to File
Failure To File Offence
Failure to file a return is an offence under subsection 238(1) and is punishable by a fine of between $1,000 and $25,000 plus a possible jail sentence of up to 12 months. These penalties are applicable for every failure to file and each unfiled year is a separate offence, so failure to file 3 years of returns would be subject to a minimum penalty of $3,000.
Tax Evasion Offence
If CRA can prove that the failure to file the income tax returns was a deliberate attempt to evade the payment of income taxes, they can and do bring tax evasion charges under paragraph 239(1)(d). The penalties on conviction for income tax evasion are much more severe, with fines of between 50% to 200% of the tax evaded plus possible jail time of up to 2 years. CRA may also elect to proceed by indictment under subsection 239(2) in which case the penalties increase to between 100% to 200% of the taxes evaded plus possible imprisonment of up to 5 years.
Requests and Demands to File Returns
CRA does not generally proceed to bring charges whenever it finds a taxpayer has failed to submit the required tax returns. CRA’s policy is to encourage compliance with the Income Tax Act. When they come across a taxpayer who has failed to file tax returns they normally send a request to file the missing returns. If that request is not complied with then normally a Demand to file under subsection 150(2) is issued. Only if the Demand is ignored will they proceed to prosecution, usually under 238(1). When faced with clients being prosecuted with multiple years of unfiled returns our Canadian income tax litigation lawyers are usually able to negotiate a plea bargain to plead guilty and pay the minimum penalty for just one year by bringing all years into compliance prior to the trial.