The Canada Revenue Agency (CRA) has been upheld by a Federal Court decision in its imposition of late-filing penalties on a taxpayer who failed to submit foreign property disclosure forms on time, despite owing no tax for the year in question.

The case involved a couple who missed the deadline for filing their 2021 tax returns and associated Form T1135, the Foreign Income Verification Statement. This form must be filed by taxpayers who own specified foreign property with a total cost exceeding CAD 100,000 at any point during the year, including U.S. bank accounts and shares of foreign corporations held in non-registered accounts. Personal use property and assets held in registered accounts are excluded. Failure to file Form T1135 by the deadline triggers a penalty of CAD 25 per day, up to a maximum of CAD 2,500, plus interest.

The taxpayer, who owns commercial property in the United States through limited liability partnerships, had sold one such property in 2020 resulting in a capital gain. While his accountant initially calculated the gain using an estimated amount he considered inflated, the taxpayer filed the 2020 tax return on time based on the accountant’s figure to avoid late-filing penalties. He then filed an adjustment request in April 2022 to correct the capital gain, which allowed him to modify his Registered Retirement Savings Plan (RRSP) deductions and carry forward unused contribution room to 2021.

When preparing their 2021 tax returns, the taxpayer sought guidance from the CRA about the consequences of filing late while awaiting the 2020 reassessment. A CRA agent told him penalties only apply if a balance owing exists. Based on this advice, the couple did not file their 2021 returns or T1135 forms by the April 30, 2022 deadline. They eventually submitted both in December 2022, receiving refunds for 2021.

In January 2023, the CRA assessed the couple with the maximum CAD 2,500 penalties each for late filing of their T1135s, along with arrears interest. The taxpayer requested relief from the penalties, arguing he had been misled by CRA agents and that the penalty for late filing of Form T1135 was not clearly communicated on the agency’s website. He contended that, unlike the general late-filing penalty applied only when tax is owed, Form T1135 carries a separate penalty that is not widely known.

The CRA denied relief, stating that “oversight, lack of knowledge, or unintentional error” do not constitute circumstances beyond a taxpayer’s control. The taxpayer then sought judicial review of the decision.

In July 2024, the Federal Court judge dismissed the case, ruling the CRA’s decision was reasonable. The court noted that the taxpayer had not specifically asked about penalties related to Form T1135 during his inquiry, but only about late-filing penalties in general. The judge also found that the CRA’s penalty information, though accessed through several hyperlinks, was sufficiently available on the agency’s website. The ruling reinforces the obligation on taxpayers to adhere to filing deadlines for foreign property disclosures regardless of whether a tax balance is owing, and clarifies the limited scope for penalty relief based on claimed misinformation or misunderstanding.