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Final

Chapter 14 summary notes Summary of chapter 14 of the textbook. Useful to look over quickly before an exam.


Department
Accounting & Financial Management
Course Code
AFM 461
Professor
Stanley Laiken
Study Guide
Final

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Chapter 14
Penalties
Failure to file a return
o 5% of the tax (not interest) unpaid at the date on which the return was to be filed
o Extra 1% of unpaid tax is levied for each complete month that the return was late up to
12 months
o If you are a repeated late filer (within the past 3 years), the percentages raise to 10%
and 2%
Failure to report an amount of income
o 10% of income failed to report if there had been a previous failure to report in the past
3 years
False statements or omission
o Knowingly or due to gross negligence made errors will impose penalty of the greater of
(1) $100 or (2) 50% of the difference in tax liability
Late or deficient instalments (sec163.1)
o 50% of the interest charged on late or unpaid instalments in excess of the greater of (1)
1000 or (2) 25% of the interest calculated as if no instalments have been paid
meaning if your instalment charges are less than 1,000, then there will be no
penalty (BUT THERE IS STILL INTEREST!)
Civil penalties for misrepresentation of a third party
o Planners penalty where the third party professional participates in the making of a
false statement for the person in the course of planning activity
The lower limit of 1,000 and higher limit of the fee charged for planning
o Preparer’s penalty –imposed on a third party person who makes/participates in the
making of a false statement on behalf of another person
Can be lower limit of $1,000 and upper limit of $100,000 + fee charged
Limited to 50% on the tax on unreported income
Questions to determine civil penalties
Did the tax payer know, or REASONABLE should have known?
Did he intend to under report?
Did he show indifference to incompliance with the act?
Did he show wilful, reckless disregard of the law?
Waived or cancelled interested and penalties
CRA can cancel fines if:
o The taxpayer makes a voluntary disclosure
The taxes owing and the interest are still owed though
o Circumstances beyond the taxpayer’s control occur
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Natural disasters, postal strikes, illness
o Actions of the CRA
CRA delays, errors in CRA advice
o There is an inability to pay or where a reasonable repayment arrangement is not
possible due to heavy interest charges
Criminaloffenses
Fine of 1,000-25,000 for the following:
o Making false statement in a return
o Destroying books/records
o Faslfiying books/records
o Wilfully attempting to evade compliance
Individual Instalments
Must be paid the 15th day of each calendar quarter (march, june, September, December)
Penalties start from the day the instalment should have been made to the final payment of tax
due
Interest is compounded daily (1+ i/366)^days
Use the prescribed interest rates
Threshold of 3,000 of taxable liability from the two previous years
Quarterly instalments of CCPC
Balance of tax due 3 months after year end
These companies are eligible to make quarterly payments due last day of each quarter
Eligble CCPC requirements;
o Taxable income not exceeding 500,000 (SBD limit)
o Taxable capital employed in Canada for taxation year not exceeding 10 million
o SBD was claimed in calculating tax either this or last year
o Corporation has perfect compliance history (no irregularities for the past 12 months)
Options to determine quarterly instalments:
o Four instalments equal to ¼ of estimated tax payable
o Four installemnts equal to ¼ of the tax payable for previous year
o First instalment equal to ¼ of the tax payable for the 2nd precending year, 3 installments
equal to 1/3 of the amount in which the tax payable last year exceeds the first
instalment paid
**Total tax liability is due June 30th that’s why the 3rd method takes ¼ of tax payable from the 2nd
preceding year because in march 15, you don’t know what last year’s tax liability is yet.
Corporation installements
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