Fairness & Late Filing Penalties

Volume No. 06-08

“Late-filing penalties were referred back to CRA because all taxes were paid.”

In the recent case of Bremer (2006 FC 91), Mr. Bremer had filed his tax return five months after the due date, which was April 30, 2003. He actually filed his tax return on October 14, 2003. Mr. Bremer believed that there was no tax payable at the due date. However, he discovered that he owed some tax and paid the balance due in May 2003. The CRA assessed the tax owing and a late-filing penalty of 5%, plus 1% for each month up to the date of filing (October 14, 2003).

Mr. Bremer requested that the fairness provisions be applied to remove the 1% monthly late-filing penalty and to adjust the interest, since he had paid the tax in May 2003, but the charges were upheld by the CRA, in part because Mr. Bremer had a history of late filing his tax returns. The CRA followed the appropriate provisions of the Income Tax Act.

The Federal Court made a judicial review of the CRA’s refusal to reduce the charges and determined that, from May 2003 onwards, the taxpayer owed no tax or penalties as he had paid the amount due. Accordingly, when the taxpayer field his return, the only amount outstanding was the 1% monthly penalty applied for each month late filing. The Court determined that the CRA had made a reviewable error, and referred the matter back to the CRA to re-determine the appropriate penalties and interest to be applied.

This is an interesting case, as the CRA properly applied the provisions of the Income Tax Act. The Court, however, felt that it was unfair for a taxpayer to have to pay a late-filing penalty when all the tax due had been paid.


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