Vol. 139, No. 19 — May 7, 2005

Regulations Amending the Income Tax Regulations

Statutory authority

Income Tax Act

Sponsoring agency

Canada Customs and Revenue Agency

REGULATORY IMPACT
ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Description

Section 205.1 was added to the Income Tax Regulations (the Regulations) in 1999. Until 2001, as a transitional measure, the Canada Revenue Agency (CRA) did not issue penalties for the failure to comply with this new requirement. In 2001, taxpayers were notified that the penalties provided for in subsection 162(7) of the Income Tax Act (the Act) would be applied for the failure to file these large returns electronically.

At that time, and for the first time, CRA officials realized that a strict interpretation of the provisions of section 205.1 of the Regulations, taken with the penalty provisions of subsection 162(7) of the Act, would result in the imposition of minimum penalties of $5,000 per day, to a maximum of $1.25 million, for the failure by a taxpayer to file returns electronically.

Owing to the obvious excess of this penalty, the CRA limited the penalty to $100 per day, to a maximum of $2,500, by characterizing the transmission itself as one information return and applying the provisions of subsection 162(7) against that return. This penalty reduction was made using the authority of the Minister to waive all or part of a penalty, as set out in subsection 220(3.1) of the Act.

This amendment to section 205.1 of the Regulations will make it clear in law that the "failure" that will attract a penalty is the failure to file the "package" of returns electronically; it is not the failure to file each of the individual information returns included in the package.

Alternatives

No alternative was considered to these amendments.

This is the only manner in which the Regulations can be amended to address the unintended consequence of the failure to comply with section 205.1 of the Regulations.

Benefits and costs

There are no costs of these amendments to taxpayers, tax practitioners or the CCRA.

Taxpayers will benefit, as this amendment clarifies the original intent of the CRA with respect to a failure to comply with section 205.1 of the Regulations. Taxpayers will also benefit since the "reduced penalty" will no longer be subject to the discretionary application of a Ministerial waiver.

Consultation

Officials of the Department of Finance were consulted on this amendment.

Compliance and enforcement

The CCRA administers the provisions of the Income Tax Act and the Regulations. The Act contains penalty provisions if these provisions are not complied with. Compliance with these amendments will be ensured through the mechanisms currently in place.

Contact

Mr. Grant Wilkinson, Legislative Policy Directorate, Place de Ville, Tower A, 22nd floor, 320 Queen Street, Ottawa, Ontario K1A 0L5, (613) 957-2079 (telephone), grant.wilkinson@ccra-adrc.gc.ca (electronic mail).

PROPOSED REGULATORY TEXT

Notice is hereby given that the Governor in Council, pursuant to section 221(see footnote a) of the Income Tax Act (see footnote b), proposes to make the annexed Regulations Amending the Income Tax Regulations.

Interested persons may make representations with respect to the proposed Regulations within 30 days after the date of publication of this notice. All such representations must cite the Canada Gazette, Part I, and the date of publication of this notice, and be addressed to Mr. Grant Wilkinson, Policy and Planning Branch, Canada Customs and Revenue Agency, 22nd Floor, Tower A, Place de Ville, 320 Queen Street, Ottawa, Ontario K1A 0L5.

Persons making representations should identify any of those representations, the disclosure of which should be refused under the Access to Information Act, in particular under sections 19 and 20 of that Act, and should indicate the reasons why and the period during which the representations should not be disclosed. They should also identify any representations for which there is consent to disclosure for the purposes of that Act.

Ottawa, May 2, 2005

EILEEN BOYD
Assistant Clerk of the Privy Council

REGULATIONS AMENDING THE INCOME TAX REGULATIONS

1. (1) Section 205.1 of the Income Tax Regulations (see footnote 1) is replaced by the following:

205.1 (1) A person who is required to make an information return under this Part, or who files an information return on behalf of a person who is required to make an information return under this Part, shall transmit the information return to the Minister in the prescribed electronic form if more than 500 information returns are to be filed by that person for the calendar year.

(2) Every transmission referred to in subsection (1) shall include, in the prescribed electronic form, a summary of the information returns contained in the transmission.

(3) For the purposes of subsections 162(7) to (8) of the Act, failure to make a transmission as required by subsections (1) and (2) is deemed to be failure to file an information return as and when required by the Act or these Regulations.

(2) Subsection (1) applies to the 2001 and subsequent taxation years.

[19-1-o]

Footnote a

S.C. 2000, c. 12, s. 142 (Sch. 2, par. 1(z.34))

Footnote b

R.S., c. 1 (5th Supp.)

Footnote 1

C.R.C., c. 945

NOTICE:
The format of the electronic version of this issue of the Canada Gazette was modified in order to be compatible with hypertext language (HTML). Its content is very similar except for the footnotes, the symbols and the tables.

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