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The Importance of reporting ALL income from information slips

This penalty consists of a 10% Federal, and 10% Provincial amounts. Whereas some penalties are applied against the uncalculated tax, this penalty is applied to the unreported income. If you voluntarily tell CRA about an amount you forgot to report, they may waive this penalty.

For Example, John filed his 2008 tax return early and hadn't received all of his T slips yet. After he filed, he received a T5 slip reporting $3.50 in interest income and didn't bother to request an adjustment because he thought the amount was trivial. The CRA then reassessed his return later to include the unreported income with no further issues. When John filed his tax return in 2010 however, he had forgotten about and then failed to report $2000 of RRSP monies he had withdrawn for his RRSP when he was tight for cash earlier in the year. When the CRA reassessed his 2010 return to include the unreported income, John was charged a $400.00 penalty, $200.00 Federal and $200.00 Provincial for repeated failure to report income plus interest.This effectively taxed his current income at over 60% due to his negligence in reporting $3.50 two years earlier! Another scarier way to look at it, is tax at over 10,000% on the original $3.50!

The moral of the story is that no matter how trivial, always report income included on income tax information slips.

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Thursday, 24 September 2020
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