http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/143038/index.do
Kokanee Placer Ltd. v. The Queen (March 14, 2016 – 2016 TCC 63, Paris J.).
Précis: The Minister imposed a $1,000 penalty upon the taxpayer for failure to file electronically (the taxpayer was a “prescribed corporation” which was required to file electronically under the provisions of the Income Tax Act (the “Act”)). The taxpayer argued that no penalty could be imposed since no tax was payable for that taxation year. The Court rejected this argument and also found that the taxpayer had not successfully raised a due diligence defence.
The appeal was dismissed. There was no order as to costs since this was an informal procedure appeal.
Decision: The taxpayer was a “prescribed corporation” for the purposes of the Act and, as such, required to file electronically:
[2] Subsection 162(7.2) provides for a penalty in cases where a prescribed corporation fails to file its return of income for a taxation year by way of electronic filing, as required by subsection 150.1(2.1) of the Act.
[3] The relevant provisions of the Act read as follows:
150.1(2.1) If a corporation is, in respect of a taxation year, a prescribed corporation, the corporation shall file its return of income for the taxation year by way of electronic filing.
162 (7.2) Every person who fails to file a return of income for a taxation year as required by subsection 150.1(2.1) is liable to a penalty equal to $1,000.
[4] Subsection 250.1(2) of the Income Tax Regulations sets out the definition of a prescribed corporation, which includes any corporation whose gross revenue exceeds $1 million. That provision reads:
205.1(2) For purposes of subsection 150.1(2.1) of the Act, a prescribed corporation is any corporation whose gross revenue exceeds $1 million except
(a) an insurance corporation as defined in subsection 248(1) of the Act;
(b) a non-resident corporation;
(c) a corporation reporting in functional currency as defined in subsection 261(1) of the Act; or
(d) a corporation that is exempt under section 149 of the Act from tax payable.
The Court first rejected the argument that no penalty could be imposed since no tax was payable:
[11] The wording of subsection 162(7.2), however, does not make the penalty for failing to file an electronic return conditional in any way on tax being payable by the corporation. The only condition to the imposition of the penalty is a failure to file an electronic return as required by subsection 150.1(2.1) which applies where the taxpayer is a prescribed corporation as defined in subsection 205.1(2) of the Income Tax Regulations.
The Court then found that the taxpayer was a prescribed corporation:
[13] The next question is whether the Appellant was a prescribed corporation as defined in subsection 205.1(2) of the Regulations. In the Reply to the Notice of Appeal, the Respondent has pleaded that one of the assumptions made by the Minister in assessing the penalty was that the Appellant had revenues in excess of $1 million in its 2014 taxation year. Therefore, in order to show that it was not a prescribed corporation, the Appellant bears the onus of proving that its revenue did not exceed $1 million. Despite Mr. Stephenson’s suggestion that the revenue was misreported in the Appellant’s return, no clear or convincing evidence on this point was presented to the Court, and I find that the Appellant has not refuted the Minister’s assumption.
The Court also dealt with the defence of due diligence although it had not been specifically pleaded:
[16] The only question that remains is whether Mr. Stephenson, acting on behalf of the Appellant, took reasonable precautions to avoid the events leading to the penalty. I find that it has not been shown that he did. The evidence shows that prior to Mr. Stephenson filing the Appellant’s 2014 tax return, the Canada Revenue Agency had assessed a subsection 162(7.2) penalty on the Appellant for its 2012 taxation year, and it was only because Mr. Stephenson was away from Canada for an extended period that he did not become aware of the Notice of Assessment for 2012 or the electronic filing requirement. There was no evidence that Mr. Stephenson had put in place any system to deal with matters like the 2012 Notice of Assessment during his absence or to have them brought to his attention. If he had, it is clear that he would have learned of the electronic filing requirement. Finally, there was no evidence that Mr. Stephenson sought any professional assistance in handling the Appellant’s tax matters, or made any efforts to keep his knowledge of tax filing requirements up-to-date.
Consequently the appeal was dismissed. There was no order as to costs since this was an informal procedure appeal.