No slip, no excuses…

(May 2006) As clients clamour to finalize their tax returns by the end of the month, it may be a good time to remind them that just because they may be missing a slip or two, doesn’t mean they should avoid reporting the income on that slip on their tax returns.

According to the Canada Revenue Agency, “even if you are missing information that is needed to complete your tax return, you should still file your return on time.” The filing date for most individuals is May 1, 2006.

If clients owe tax for 2005, they must file their returns on time and pay any amounts owing by the filing due date, to avoid paying interest and a late-filing penalty.

Advise clients that may still not have received their information slips that the first step is to contact their payer. If they still don’t expect to receive their slips by the May 1st deadline, encourage them to use their pay stubs, bank statements, or other financial records to estimate the income required to reported.

Clients who file a paper return should attach a note to the return telling the CRA which slips are missing. If they file electronically and the CRA asks for the slips at a later date, a simple explanation will suffice.

A recent tax case decided in January (Samson v The Queen, 2006 TCC 15) emphasizes the importance of reporting all one’s income, despite a lack of slips, and the dire consequences of failing to do so.

Steve Samson found himself in court challenging the imposition of penalties assessed by the CRA for his 1998 and 1999 taxation years. The penalties were assessed for the failure “to report an amount required to be included in his income for a taxation year and who has failed to report an amount required to be included in his income for any of the three preceding taxation years.” The CRA brought evidence that income was not reported by Samson in 1997.

For 1998, Samson omitted to report amounts totalling over $24,000 withdrawn from his RRSP. For 1999, Samson filed a nil tax return. In that year, he withdrew amounts from his RRSP with Sun Life and did not report them. He also failed to report employment income of over $163,000 from his employer.

Samson argued that “he did not receive the T4 and T4 RSP slips and that he had thought it better not to declare anything than to estimate amounts of income.” As the judge said, “this obviously was not a good argument.”

Samson further maintained that the slips were mailed to his old address. The judge countered, “it is the taxpayer’s responsibility to take action to collect all the necessary information in order to be able to report his income correctly in his tax return…. He has the same responsibility with regard to his change of address. It is his duty to advise the payer of this change so as to ensure that the information slips are sent to the right address.”

The judge ordered that the penalties be upheld, concluding: “that it was (Samson’s) responsibility to report all his income and take the necessary steps to ensure that he had all the documents in hand that he needed in order to fill in his tax returns correctly, and that he did not take all these steps as he did not advise the payers of his change of address and did not try to estimate his income.”

This case serves as a valuable lesson worth sharing with your clients as we approach the tax-filing deadline.

This article originally appeared in Advisor’s Edge Report. Jamie Golombek, CA, CPA, CFP, CLU, TEP is the vice-president, taxation & estate planning, at AIM Trimark Investments in Toronto. He can be reached at Jamie.Golombek@aimtrimark.com.