Jamie Golombek: Tax Court docket case illustrates the significance of monitoring each tax slip
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I not often get any bodily mail anymore. The truth is, if it weren’t for my weekly New Yorker journal subscription, my mail service would haven’t any motive to go to my entrance stoop. Over a decade in the past, I switched all my payments (hydro, pure gasoline, residence web, bank cards, and so on.) to e-mail supply, and this consists of most tax slips, in addition to correspondence from the Canada Income Company.
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So, you possibly can think about my horror once I arrived residence from work one darkish, chilly January night this winter to discover a solitary piece of mail: an outsized, brown envelope from the CRA. This was most uncommon, since I’ve been receiving all my notices of evaluation (and, often, reassessment) through e-mail notification, which requires me to log into the CRA’s My Account portal to view the discover. If the CRA was sending me outsized bodily mail, it was unlikely to be a novelty cheque. I suspected one thing was awry.
Certain sufficient, my 2023 tax return was caught by the CRA’s matching program, which decided that I had “acquired funding revenue that seems to have been not totally reported.” Uh oh.
The explanation for the big brown envelope was as a result of the CRA, together with its letter to me, had enclosed two legal-sized spreadsheet printouts containing summaries of all my 2023 T5 and T3 Slips reporting funding revenue. Apparently, I had omitted to incorporate some Canadian dividend revenue from a T5 slip from a secondary brokerage account I had.
Beneath the Earnings Tax Act, in the event you fail to report at the least $500 of revenue in a tax yr and in any of the three previous taxation years, you might be hit with a “repeated failure to report revenue” federal penalty. That is calculated because the lesser of 10 per cent of the unreported revenue and 50 per cent of the distinction between the understatement of tax (or the overstatement of tax credit) associated to the omission, and the quantity of any tax paid in respect of the unreported quantity, for instance, by an employer by means of supply deductions withheld. A corresponding provincial 10 per cent penalty can be usually assessed.
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Thankfully for me, this was the primary time I omitted revenue from a return, so I wasn’t assessed the repeated omission penalty, however was merely charged the tax on the dividends that I uncared for to report, together with some arrears curiosity.
However for me, the larger query was how may I’ve missed this T5 slip? My investigation started by pulling my 2023 paper file folder through which I had printed copies of assorted tax slips, donation receipts, medical bills, and extra. There I discovered my T4 slip, some T3s and T5s, numerous different RRSP, charitable and medical receipts, however the lacking T5 was, nicely, lacking.
I then went on-line to the CRA My Account and, to my shock, the lacking 2023 T5 slip nonetheless wasn’t exhibiting up on-line, which is why the Autofill program, which I used final tax submitting season to import my tax slips, didn’t enter it. But the CRA clearly had a file of receiving it, because it was picked up by its matching program.
The subsequent step was to show to my brokerage agency to search out out why I by no means acquired that T5 slip within the mail, regardless of having acquired mailed copies of T5 and T3 slips for my different non-registered account. After some investigation, it was decided that I had chosen on-line tax reporting for this brokerage account, and, because of this, nothing was mailed and even emailed to alert me to go online to my on-line brokerage account, and obtain the T5 slip. Lesson discovered.
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Tax slips may trigger issues for taxpayers who obtain multiple slip from the identical issuer. Are they duplicate slips, separate slips or amending slips? A latest tax case determined earlier this month highlights one taxpayer’s bother with an amended slip.
The taxpayer is an actual property agent in British Columbia who included a private actual property company such that each one actual property commissions he earned had been revenue of the company. In 2019, the company acquired fee revenue from a single payor, which issued a T4A slip for 2019 within the quantity of $53,258. It then issued an amended T4A for 2019 within the quantity of $55,074.
The CRA then made, within the phrases of the Tax Court docket decide, “a silly mistake.” Somewhat than recognizing that the amended T4A changed the unique T4A, the CRA added the quantity mirrored on the amended T4A to the quantity mirrored on the unique T4A, resulting in an misguided reassessment of the company’s revenue for 2019 of $108,332.
The taxpayer testified that he first heard from the CRA by letter in August 2022, proposing to reassess his company for T4A revenue of $108,332 for the 2019 taxation yr. The taxpayer testified that he referred to as the creator of that letter at the least twice. He stated that the creator of the letter agreed that solely the quantity mirrored on the amended T4A needs to be included within the company’s revenue. He made no notes of these conversations.
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The discover of reassessment for the 2019 taxation yr was posted on the company’s safe on-line account on October 12, 2022. Beneath the Earnings Tax Act, a taxpayer has 90 days to object to a discover of (re)evaluation, on this case that deadline being January 10, 2023. If a taxpayer misses the deadline, they will file an utility inside a yr asking the CRA to increase the time to object. The prolonged date would subsequently be January 10, 2024. Sadly, the taxpayer did not object to the reassessment till March 24, 2024, which was too late.
In courtroom, the taxpayer argued that he by no means noticed the discover of reassessment. Nevertheless, the CRA’s laptop system confirmed that it was considered on-line on 4 separate events. However that, the taxpayer stated it was the CRA which erred in including the 2 T4A slips collectively.
Whereas the decide was sympathetic to the taxpayer’s scenario, his arms had been tied. As he wrote, “Though the (CRA) made a silly mistake in reassessing, I’ve no discretion to increase the time limitations set out within the Act. … Why this egregious error was not rectified by the CRA’s inner ‘high quality management’ stays a thriller.”
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Jamie Golombek, FCPA, FCA, 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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