Paper over your missing tax paperwork
Avoid tax penalty time by reporting missing T4
Still missing a tax slip or receipts? Don't let that hold you up from filing your tax return on time.
As the Canada Revenue Agency states in the 2008 Guide: "If you know that you will not be able to get a slip by the due date, attach a note to your paper return stating the payer's name and address, the type of income involved and what you are doing to get the slip." The CRA then suggests that you can use any stubs you have to calculate the income to report.
Under the Income Tax Act, a person who has failed to report an amount in income for the current year, and who had failed to report such an amount in any of the three preceding years, could face a penalty of 10% of the current year's unreported amount. That penalty can actually double to 20% should the CRA also assess a parallel 10% provincial tax penalty, as they did in a tax case released last month.
The case dealt with then-university student David Dunlop, who in 2005 and 2006 worked part-time at Bulk Barn and did not report his employment income as he had not received copies of his T4 slips. The CRA did receive its copies, however, and Mr. Dunlop was reassessed and the tax owing was ultimately paid.
In 2006, Mr. Dunlop once again didn't receive his T4 slip, so he went into Bulk Barn before April 30 to try to get a copy but was unsuccessful.
Mr. Dunlop's father prepared his 2006 tax return and estimated the Bulk Barn income to be about $5,250. When the return was filed, this missing Bulk Barn T4 was disclosed by including a note above "Line 101 Employment income," which said, "T4 missing from Bulk Barn - will amend when received."
The CRA originally assessed the return as filed but then reassessed Mr. Dunlop in October, 2007, and included about $6,500 of Bulk Barn income. He was charged both a federal and provincial penalty of $650 for failure to report an amount in income.
The issue before the court was whether Mr. Dunlop's note to the CRA about the missing T4 demonstrated the appropriate level of due diligence to avoid the penalty.
The CRA's position was that the mere disclosure of the amount was insufficient. According to the CRA, due diligence required that the estimated amount actually be included in the return.
Luckily for Mr. Dunlop, the judge disagreed, reminding the CRA that nowhere in its Guide does it advise taxpayers to "put in a rough estimate" of the missing income. It says only to put in an amount if one had pay stubs to back it up.
The judge cancelled the federal penalty and asked the CRA to consider reversing the provincial one, as he lacked jurisdiction to waive that penalty as well.