Relying on CRA's Auto-fill can be costly as tax case over missing income shows

National Post

2024-02-15



No one wants to be late filing their tax return, but filing early can also be a problem, especially if you’re unsure whether you’ve received all your tax slips.

Tax season officially opens on Feb. 19, which is the earliest day you can file your 2023 tax return online. The risk of filing early, especially in February or early March, is that you may not have received all your tax slips yet, since the deadline for them to be sent out varies from the end of February (for T4s and T5s, among other slips) to April 2 (for some T3s, and T5013s). This can be a particular problem if you solely rely on the Canada Revenue Agency’s Auto-fill my return service.

Auto-fill, first introduced in 2016, allows individuals and authorized tax preparers to automatically fill in parts of their personal tax return with information the CRA has available at the time of the request, such as T-slips, registered retirement savings plan contributions and much more. To use the service, you must be registered for the CRA’s My Account program, and be using Netfile-certified software that offers the Auto-fill feature.

The CRA receives tax information from third parties, and will ultimately receive most (but not all) tax information slips and other tax-related information for the 2023 tax year by early April, if not sooner. Common tax information slips available online include T3, T4, T4A, T4A(OAS), T4A(P), T4E, T4RIF, T4RSP, T5, T5008 and RC62.

But even if you wait a bit longer to file, and you rely on Auto-fill to capture the income from all your tax slips, it’s still best to check your account statements to make sure no income is missing. A tax case decided in January dealt with just such a situation.

The case involved a Quebec taxpayer who filed his 2019 tax return just before the June 1, 2020, deadline (the April 30 deadline was extended as part of the COVID-19 relief measures). Since the taxpayer and his wife were not living at home at the time due to the pandemic, he didn’t have access to the majority of the tax slips he would normally receive by mail.

Instead, he turned to the CRA’s Auto-fill feature to download all available tax slips from his CRA My Account using the TurboTax software. He then Netfiled his tax return from a remote location.

In June 2020, the CRA issued a notice of assessment based on the information in his return, assessing his 2019 tax return “as filed.” Fast forward to December 2021 and the taxpayer, much to his surprise, received an “unreported income letter” from the CRA stating that, according to its records, the taxpayer had received investment income in 2019 that had not been fully reported on his filed return.

It seems that when the taxpayer prepared his 2019 tax return, certain T5 slips from Royal Bank of Canada did not appear in his CRA My Account, meaning the income reflected on those T5 slips was inadvertently omitted from his 2019 return. The income on the T5s, “which was substantial,” had accumulated over 10 years in an investment account, but only became taxable in the 2019 year “due to a legislative change.”

As soon as the taxpayer received the letter, he contacted the CRA and was advised to verify his return against the information showing in CRA My Account. He did so, and confirmed the T3 and T5 slips that he had used to prepare his 2019 tax return in May 2020 corresponded exactly with the data in CRA My Account in December 2021, so the taxpayer concluded everything must be in order.

But the CRA in June 2022 issued a Notice of Reassessment that included the omitted income from the RBC T5 slips. The agency also charged him more than $70,000 in arrears interest on the amount reassessed. (No penalty was imposed because it was the taxpayer’s first income omission in the prior four years.)

The taxpayer immediately requested relief from the arrears interest, but was rejected. He then submitted a second request for relief, explaining he had contacted RBC upon receiving the CRA reassessment and was told the unreported income had come from a long-term RBC mutual fund that had matured in 2019.

The taxpayer had opted not to receive annual statements from RBC, so he was unaware of this income. In addition, since the income was automatically reinvested by RBC, he had no knowledge of it.

The taxpayer argued he was relying on the CRA to provide all the required tax reporting via My Account, noting “the CRA encourages taxpayers to use the download facility to ensure no relevant income information is missed.” Since the RBC T5 slips weren’t posted in My Account at the time the taxpayer prepared and filed his 2019 return, they were honestly omitted.

Curiously, even as late as December 2021, when the taxpayer applied to the CRA for relief from the arrears interest, the T5 slips were still not posted online in My Account.

In order to pay the $70,000 of arrears interest assessed, the taxpayer and his wife, who were 70 years old and still working part time, were required to cash out the underlying investments “at the worst time possible.” Throughout, the taxpayer insisted he had no intention whatsoever to omit the RBC T5 slips from his income.

The taxpayer appealed the CRA’s decision to deny him relief to the Federal Court. As in prior cases of judicial review, the court’s role is not to substitute its decision for that of the CRA, but to determine whether the agency’s decision was “reasonable” considering the facts and evidence.

The judge concluded the CRA’s decision not to cancel the arrears interest was “not transparent or justified against the relevant facts and the principle of fairness.” While the taxpayer “was responsible for verifying his tax information,” the judge said, this must be weighed against the CRA’s error of not posting the T5 slip to My Account, “taking into account the exceptional circumstances of the early months of the pandemic.”

The judge ordered the matter be returned to the CRA for review by a different officer.