Tax Matters

Jamie Golombek

As managing director of tax and estate planning with Canadian Imperial Bank of Commerce's wealth advisory services division in Toronto, Jamie Golombek is quoted frequently in the national media as an expert on taxation.

Taxpayer gets harsh treatment from the CRA for late-filing Form T1135

By Jamie Golombek |

Another Canadian taxpayer has fallen victim to harsh penalties for late-filing Form T1135, the "Foreign Income Verification Statement," reminding us all of the importance of filing this form by its due date.

Canadians who hold "specified foreign property" at any time in the year with a cost of more than $100,000 must complete Form T1135. In two previous columns in this space this year (Relief for T1135 reporting doesn't go far enough in March and, most recently, The CRA makes key changes to T1135 reporting in August), some recent relieving provisions intended make it easier to complete the form were discussed. Still, it's critical to send in the form on time as the latest T1135 case shows.

In the recent decision of Fung v AGC (2014 FC 934), Yuet Yi Fung filed Form T1135 for the 2011 taxation year more than three months after its due date of June 15, 2012. (Although the normal due date is April 30, the filing due date is extended to June 15 if you or your spouse or partner was self-employed.)

Fung gave birth to a baby in August 2011 and claimed that the newborn required "intensive care for an extended period of time." She stated that, "because she had had to take care of a premature baby and her four-year-old child, it was very difficult for her to have what she described as ‘focused time' to organize her income tax receipts, with the result that she was unable to file for the 2011 taxation year until October of 2012."

There was no mention in the case of whether Fung reported income from her foreign assets on her 2011 tax return. In fact, this information is totally irrelevant in determining penalties for failure to file Form T1135, notwithstanding that the point of the form is supposedly to help the Canada Revenue Agency (CRA) determine the taxpayers who are not reporting and paying taxes on foreign income. Merely for missing the filing deadline for Form T1135 by more than 100 days, Fung was hit with the maximum penalty of $2,500.

Fung sought relief from the penalty under the "tax fairness" provisions of the Income Tax Act, which give the CRA "the discretion to cancel all or a portion of interest or penalties owing, where such penalties or interest were incurred as a result of circumstances beyond the taxpayer's control." The CRA accepted that "difficulties are sometimes involved" but noted that Fung's premature baby was born in August 2011, 10 months before the tax filing deadline. Being unsatisfied that Fung had established the existence of circumstances beyond her control, the CRA refused her request for relief.

In turn, Fung applied to federal court for a judicial review of the CRA's decision. The judge in the case noted that, "I can only intervene in the decision if Ms. Fung can persuade me that the (CRA's) … decision was unreasonable." In the end, however, the judge was not convinced, saying that, "Ms. Fung has not provided any evidence as to any efforts that she may have made during the relevant period to comply with her tax obligations."

More specifically, the judge said that she, "did not provide any information as to the type of care that was required by her child, nor did she explain why she was unable to obtain the services of a tax professional in a timely manner." Accordingly, the penalty was upheld.

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