Filing Tax Returns - Filing Notice of Appeal Canada & Federal Tax Law Canada
 
 
Filing Tax Returns
 
IFiling Requirements
 
Subsection 150(1) of the Income Tax Act requires that a “return of income that is in prescribed form and that contains prescribed information be filed with the Minister… for each taxation year”. This subsection outlines different requirements for each of the following: corporations, deceased individuals, trusts and estates, and general individuals.
 
A corporation is liable for tax to the Canada Revenue Agency if that corporation, at any time in the taxed year:
 
a. was a resident in Canada,
b. carried on business in Canada,
c. had taxable capital gain, or
d. disposed of taxable Canadian property
 
A deceased individual who dies after October must pay taxes. The deceased’s legal representatives must file returns on the later of either:
 
a. the day on or before which the return would otherwise be required to be filed,
b. the day that is 6 months after the day of death.
 
Trusts and estates must file returns within 90 days from the end of the year.
 
There are two scenarios for individuals:
 
a. Generally, a person who does not own a business must file the tax returns by April 30th of the year after the taxed year. If     the individual is unable to do so, a guardian, special committee or another legal representative must file the taxes for the    person.
b. An individual who carried on a business during the taxable year must file tax returns by June 15th of the next year, unless    the expenses made in the course of carrying on the business were primarily the costs of tax shelter investments.
 
Subsection 150(1.1) of the Act lists several entities that are not exempt from the previous rules:
 
a. a corporation that is a registered charity throughout the year,
b. the taxpayer is an individual who:
 
i. is a resident of Canada but has no tax payable for the past year,
ii. is not a resident of Canada and does not have taxable capital gains nor disposes of capital property during the year in    Canada,
iii. has an HBP balance or LLP balance (as defined by ss. 146.01(1) or 146.02(1) of the Act) that is not positive.
 
Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), s. 150(1) [ITA].
 
III Authority to Require Yearly Tax Returns
 
The federal government has authority to enact the Income Tax Act through s. 91(3) of the Constitution Act, 1867, which states that the federal government may raise money “by any Mode or System of Taxation”. Contravening any sections of the Act is therefore unlawful and any number of punishments may arise.
 
Subsection 2(1) of the Act makes it necessary to file a tax return every year: “income tax shall be paid, as required by this Act, on the taxable income for each taxation year of every person resident in Canada at any time in the year”. Subsection 2(3) deals with non-residents of Canada, stating that anyone who (i) was employed in Canada, (ii) carried on a business in Canada, or (iii) disposed of taxable Canadian property “at any time in the year” must pay tax on income “earned in Canada”.
 
III) Consequences of Not Filing a Return
 
If a taxpayer fails to file a return as required by s. 150(1) of the Act, s. 162(1) is triggered and a penalty is charged. The penalty is split into two components which are calculated separately and then added together. First, a sum equal to “5% of the person’s tax payable… for the year that was unpaid when the return was required to be filed” is calculated. Second, “1% of the person’s tax payable… for the year that was unpaid when the return was required to be filed is multiplied by the number of complete months… from the date on which the return was required to be filed, to the date on which the return was filed”.
 
Subsection 150(1) subjects business entities to different penalties, depending on their structure and the nature of the filing failure (whether it is a one-time or repeated failure). Section 235 adds another penalty on top of the s. 150(1) penalties for corporations: “[e]very corporation that fails to file a return… is liable, in addition to any penalty otherwise provided, to a penalty… equal to” the following calculation:
0.0025A x B, where:
 

A à is the total of the taxes payable under Parts I.3 and VI of the Act for the year if the Act were read without reference to ss. 181.1(4) and 190.1(3).

B à is the number of complete months, not exceeding 40, from the later of (i) the day on or before which the return was required to be filed and (ii) December 17, 1991, to the day on which the return is filed.
 
Constitution Act, 1867 (U.K.), 30 & 31 Vict., c. 3, s. 91(3), reprinted in R.S.C. 1985, App. II, No. 5.
ITA, supra note 1, s. 2(1).
Ibid., s. 2(3).
Ibid., s. 162(1)(a).
Ibid., s. 162(1)(b).
Ibid., s. 235.
Ibid.
Ibid.
 
In addition to the civil penalties listed above, there is a possibility of criminal penalties. An individual can also be charged a fine between $1,000 and $25,000, be imprisoned for a term not exceeding 12 months, or both if he or she:
 
a. failed to file a tax return, or
b. failed to comply with ss. 116(3), 127(3.1) or 127(3.2), 147.1(7) or 153(1), any of ss. 230 to 232 or a regulation made under subsection 147.1(18) or with an order made under subsection 238(2).
 
IV) Consequences of Other Act Contraventions
 
Taxpayers who knowingly or negligently make a false statement or omission on their tax returns will be subject to a financial penalty, the calculation of which is complex and can be found in ss. 163(2), 163(2.2), 163(2.21) and 163(2.4).
 
Similarly, taxpayers who fail to pay any required installments of taxes by their due date is subject to a financial penalty under s. 163.1. The penalty equals 50% of the amount by which “the interest payable… exceeds the greater of” $1,000 and “25% of the interest that would have been payable by the person under section 161 in respect of all installments for the year if no installment had been made for that year”.
 
If an individual knowingly attempts or conspires to (i) create deceptive statements or (ii) willfully evade compliance with the Act, that individual is guilty of a criminal offence and will be subject to:
 
a. a fine between 50% and 200%, of the amount of tax that was sought to be evaded, or
b. both the fine described in (a) and imprisonment for a term not exceeding 2 years.
 
Ibid., s. 238(1).
Ibid., s. 163.1.
Ibid., s. 239(1).
 
 
 
 
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