Many taxpayers are unaware of the stiff penalty the CRA will impose on a taxpayer if they fail to report income from a T-slip on their tax return. This penalty is imposed whether the omission was intentional or not. The way the penalty works is the CRA will impose a penalty of 20% on the unreported income for failure to report income twice in a four year period. The amount of income not reported the first time is not relevant – the second unreported amount in the four year period will be assessed the penalty.
What taxpayers need to be aware of is that the CRA has a sophisticated T-slip matching program whereby they check the amounts and slips reported on your tax return against the slips filed with the CRA. This makes the penalty inevitable if a slip is not reported on your tax return.
For example, Ms. Z has several investment accounts and as a result receives several T-slips each year. Ms. Z unintentionally excludes a T5 slip with interest income of $50 from her 2010 tax return. After running its slip matching program the CRA notices that this sip was not reported. The CRA reassess Ms. Z’s 2010 return and includes the income.
Now in 2011 Ms. Z, again, unintentionally forgets to include a T5, but this time it’s for $10,000. Again, the CRAs slip matching program uncovers this omission and reassess her return. However, because she had failed to report income twice in a four year period she is assessed a penalty of $2,000 plus interest ($10,000 x 20%). Even though the first missed slip was only for $50, because she do not report income twice in a four year period the amount from the second missed slip is assessed the penalty.
It is important that the taxpayer know how many slips they should receive each year and ensure that they report them or provide them to their tax preparer. If the taxpayer has investment accounts they should have a conversation with their broker or financial representative to ensure that know how many slips they can expect and when.
If you have any questions, please contact one of our qualified professionals.
Rob Brown, CA
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