Home Personal Finance CRA, courtroom do not buy ‘blame the accountant’ excuse for late tax submitting

CRA, courtroom do not buy ‘blame the accountant’ excuse for late tax submitting

CRA, courtroom do not buy ‘blame the accountant’ excuse for late tax submitting


Jamie Golombek: This is why a enterprise proprietor misplaced his bid to overturn late penalties and curiosity

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It’s vital to file your tax return on time, whether or not you’re a person taxpayer or submitting on behalf of your company. Failure to file your return on time can result in late-filing penalties and arrears curiosity, charged on the prescribed charge for underpaid taxes, which is presently at 9 per cent each year, compounded-daily — and isn’t tax deductible.

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Must you be hit with penalties and curiosity, you’ll be able to at all times ask the Canada Income Company to waive or cancel them underneath the taxpayer aid provisions. Ought to the CRA refuse your request for aid, you’ll be able to have the CRA’s determination reviewed by a Federal Court docket decide to find out whether or not it was “cheap.” That’s in the end what occurred in a latest case that was heard in courtroom final month, involving a late-filed company tax return.

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The company taxpayer was assessed $8,783.14 in penalties and curiosity because of the late-filing of its 2018 company tax return. The company was represented in courtroom by its president and proprietor, who, whereas not a lawyer, was granted permission by the decide, in her discretion, to symbolize his company on the listening to.

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The enterprise proprietor argued that the late submitting of his company’s taxes was not the company’s fault, however moderately the fault of the company’s accountant. The proprietor argued that he had offered the earnings tax data to the accountant effectively earlier than the submitting deadline, however the accountant had relocated, and did not file the return on time.

The company filed its tax return for the 12 months ending Dec. 31, 2018 over six months late, on Jan. 17, 2020. The conventional company tax submitting deadline for companies is six months from its year-end, which on this case would have been June 30, 2019.

After getting hit with the late-filing penalty and curiosity, the company submitted an preliminary request for aid to the CRA to cancel or waive these penalties and curiosity. In that request, the company acknowledged that its tax return was late as a result of its president, the proprietor, had been occupied together with his ailing dad and mom and that his accountant had moved workplaces. Plainly company had offered its paperwork to the accountant on April 12, 2019, however the accountant didn’t file the company’s return by the June 30 deadline. The proprietor additionally cited “monetary hardship” and the company’s constructive compliance historical past.

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The CRA officer, performing a first-level assessment, denied the taxpayer’s request for aid, saying that the proprietor’s private monetary scenario was not related to the company’s monetary scenario “as they’re separate entities.” By way of the proprietor’s dad and mom’ medical scenario, the CRA officer was unable to conclude that there have been circumstances that prevented the company from submitting its return on time. Lastly, the officer held that, regardless of the accountant’s transfer, the company is in the end liable for guaranteeing its tax returns are filed on time.

The company then requested a second-level assessment of its utility for taxpayer aid on the only foundation that the first-level CRA officer didn’t correctly think about the failure of its accountant to file the tax return on time because of the relocation of the accountant’s observe.

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This second-level assessment additionally denied the company’s request for aid, stating that “underneath Canada’s self-assessment tax system, firms are liable for guaranteeing their tax returns are … filed on time.… Though you might use the companies of an expert, the connection between a taxpayer and a tax preparer is one in all selection, and any unfavourable penalties of that selection stays between these events. Counting on an expert, doesn’t absolve you out of your duty.”

The company then took the matter to Federal Court docket, the place the decide was tasked with figuring out whether or not the CRA’s second-level determination to disclaim aid was cheap. An inexpensive determination is “one that’s based mostly on an internally coherent and rational chain of study and that’s justified in relation to the information and legislation that constrain the decision-maker.”

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The decide, in reviewing the proof, turned to the CRA’s revealed administrative tips for cancelling or waiving penalties and curiosity. Particularly, in conditions involving third-party delays, the CRA will assess whether or not the circumstances have been past the taxpayer’s management, pursuant to sure elements which embrace: pure or human-made disasters, resembling flood or fireplace, civil disturbances or disruption in companies, resembling a postal strike, severe sickness or accident, and severe emotional or psychological misery, resembling a loss of life within the instant household. Finally, nevertheless, taxpayers are usually liable for delays attributable to a 3rd get together appearing for the taxpayer apart from in “distinctive conditions.”

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The company argued that the CRA did not correctly think about its motive for the late-filing of its tax return, particularly that its accountant had moved workplaces. In courtroom, the proprietor argued that this was a matter out of the company’s management and that the company shouldn’t be penalized consequently.

Sadly for the taxpayer, the decide concluded that the accountant’s transfer “doesn’t represent both a rare circumstance or an distinctive scenario … that prevented the well timed submitting of the (company’s) tax return.” Moreover, the decide famous that though the company offered its earnings tax data to the accountant on April 19, 2019, which was effectively earlier than the June 30 submitting deadline, the company did not follow-up to make sure the return was being filed on time and solely followed-up three months later, on July 20, 2019, after the submitting deadline had expired. Finally, the tax return was not filed till Jan. 17, 2020, which was over six months after the submitting deadline.

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Because of this, the decide decided that the CRA’s determination to not cancel the penalties and curiosity was cheap. The decide was additionally sympathetic in the direction of the enterprise proprietor, refusing to grant the CRA its requested “prices” of $2,040 towards the taxpayer, “having regard to all of the circumstances of (the) case.”

Whether or not the taxpayer would achieve success in making a declare towards the accountant (or, in the end, the accountant’s insurer) will depend upon all of the information and circumstances surrounding their interplay, and whether or not the taxpayer can reveal that the accountant was negligent in not submitting the company’s return on time.

Jamie Golombek, CPA, CA, CFP, CLU, TEP is the managing director, Tax & Property Planning with CIBC Non-public Wealth in Toronto. Jamie.Golombek@cibc.com

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