The Importance of Filing Tax Returns on Time
As we have blogged before, one of the duties of an executor or representative of an estate is to prepare and ensure the timely filing of the final income tax return(s) of the deceased to the date of death and income tax returns for the estate annually until wound up.
The recent Federal Court decision in Rosenberg Estate v. Canada (National Revenue), 2011 FC 445, is a cautionary reminder to all persons engaged in estate and trust administration to be vigilant in ensuring that tax returns are filed on time, even where there may be insufficient information available to prepare the return, or risk facing significant late filing penalties.
In the case, the deceased died intestate in Quebec in June 2003. A liquidator (Quebec term equivalent to “estate trustee”) was appointed to administer the estate in November 2003. The liquidator retained an accountant and provided instructions for the preparation of the deceased’s final tax return. The accountant, unfortunately, failed to prepare the final return and a new accountant was retained. Also, difficulties between heirs of the Estate and the discovery of assets that had not been previously declared by the deceased to the Canada Revenue Agency (“CRA”) resulted in further delays. The liquidator did not have sufficient information to accurately determine the amount of tax owing by the time the final return was due on April 30, 2004 and, consequently, did not file the return by the deadline. The final return was ultimately filed in September 2004.
A significant late filing penalty was assessed by the CRA in respect of the final return. The liquidator’s request for relief of the late filing penalty was denied by the CRA, and the liquidator brought an application to the Federal Court for judicial review of the CRA decision.
The Court held that no credible explanation was provided by the liquidator as to why the final return could not have been filed on time and dismissed the liquidator’s application. The Court made the following significant findings:
- Notwithstanding incomplete information, the liquidator was required to file the return on time. While the liquidator may not have had all the information required to calculate the tax accurately, the liquidator was in a position to file a timely return estimating the tax due and should have done so by the filing deadline.
- It was the liquidator’s responsibility to diligently ensure that the Estate’s accountant was discharging his duty in preparing and filing the tax return.
- The complicated administration, disputes between the heirs, and undeclared assets did not constitute extraordinary circumstances sufficient to justify relief of the late filing penalty.
Thanks for reading,
