Tax season is behind us and you’ve likely already received your 2014 Notice of Assessment. But what if you forgot to include some income on your return, perhaps because of an errant T5 slip that recently turned up during some summer cleaning? Is it really worth amending your return? Surely the CRA, under its slip-matching program, will simply adjust your return for the unreported income and send you a bill for any amount owing, plus some arrears interest.
The reason you may want to correct the problem on your own is that under the Income Tax Act, penalties may apply if you fail to report all of your income, including income from investments. Specifically, if you fail to report some income in a tax year and you also failed to report income in any of the three preceding tax years, you’re automatically liable for a “repeated failure to report income” penalty of 10 per cent of the unreported income for that year.
Another penalty, referred to as the “gross negligence” penalty, can apply if you knew — or, “under circumstances amounting to gross negligence,” ought to have known — that income should have been reported on your return. This penalty is generally equal to 50 per cent of the understatement of tax payable (or the overstatement of tax credits claimed) related to the omitted income.
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