Due to error, oversight or willful blindness, it’s not uncommon for Canadians to fail to report income at tax time. Most people don’t miss a T4 slip (though it can and does happen). It’s far more common to miss a T5 or T3 slip (reporting investment income) as there are often several coming in. Just what are the penalties for Canadians who fail to report income? And what happens to repeat offenders who claim it was an honest mistake? The Canada Revenue Agency (CRA) has come down hard on those who fail to report income. In plain English, this article describes the CRA penalties that can really pack a punch – as well as a way to avoid prosecution for your (ahem) slips.
Let’s say that for tax year 2012 you missed a T5 slip (a statement reporting investment income). The T5 arrived after you’d filed your tax return so you let it go. After all, you received a handful of T5’s and this one was only for $60.00 of investment income from one GIC.
Then in 2013, you moved residence and a previous part-time employer sent a T4 slip for employment income totaling $2,000.00 to your previous address. As a part-time job held a year ago, this income slipped your mind.
Behind the scenes, the CRA is busy matching slips. They easily determine that you have failed to report income two years in a row. This repeated failure could result in a CRA penalty of 20% of the income you failed to report on your return for 2013! Thus you owe:
The penalty portion comes out to $400 plus interest that you would not have owed had you had filed all of your slips on time.
The lessons are clear:
• Don’t ignore your slips! No matter how insignificant the amount
• If you’ve already sent in your return and you receive a slip, ask your accountant to amend your return by preparing a T1 Adjustment