Questions and answers about penalties

If someone left Canada and became a non-resident after the enactment of the foreign-reporting rules, what can the CRA do if that person doesn't file the information returns required under foreign-reporting legislation?

The foreign-reporting requirements provide for significant penalties for failing to file information returns by the due date. These penalties apply whether or not the person later becomes a non-resident.

If a person becomes liable for these penalties and doesn't pay the amount owing, we'll start our usual collection action.

Is each information return that's not filed subject to the maximum penalty of 5% of the amount to be reported?

The penalty for failing to file any of the foreign reporting information returns is the greater of either $100 or $25 per day for each day that the return is late (maximum of $2,500).

When a person fails to file an information return (except for Form T1142) knowingly or under circumstances amounting to gross negligence, the penalty is $500 per month for each month that the return is late (maximum of $12,000), less any penalties already levied.

If the CRA issues a demand for the return, and if the person fails to file the information return knowingly or under circumstances amounting to gross negligence, the penalty is $1,000 per month for each month that the return is late (maximum of $24,000), less any penalties already levied.

If a person, knowingly or under circumstances amounting to gross negligence, is late with a return by more than 24 months, an additional penalty is imposed, less any penalties already levied, of either: 5% of the cost of the property, the cost of the shares, and the indebtedness of the foreign affiliate; or 5% of the fair market value of the property transferred or loaned to the non-resident trust.

If a person who has to file Form T1134 or Form T1141 can show that, despite exercising due diligence, some or all the required information cannot be obtained, the penalties may be waived. If the person obtains the information later, it must be filed no later than 90 days after the person gets the information.

Is the 5% penalty for failing to file Form T1135 levied per annum?

The 5% penalty is levied when the failure to file for a year is done knowingly or under circumstances amounting to gross negligence.

For example, if a person fails to file for the 2014 tax year and the failure continues for more than 24 months, the 5% penalty will be levied on the cost amount of foreign property owned in 2014. The 5% penalty is levied only once and is not per annum.

If the same person continues to own the foreign property in 2015 and again fails to file the information return for a period of more than 24 months, the 5% penalty will be levied on the cost of the property that should have been reported for the 2015 tax year. The penalty for 2015 is separate from the one in 2014.

If the person owned no foreign property in 2015 for which Form T1135 was required to be filed, there would be no additional penalty.

How is the cost of foreign property determined for the 5% penalty for failing to file the return for more than 24 months?

For purposes of the 5% penalty, the cost of foreign property is the cost amount of the property, as defined in subsection 248(1) of the Income Tax Act.

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