Background
Joanne Kryski appealed a penalty imposed under subsection 163(1) of the Income Tax Act for repeatedly failing to report income. She prepared her own returns and had substantial tax knowledge, including a chartered accounting designation. Her investment income required her to process approximately 150 information slips each year.
In 2022, Kryski omitted $501 earned as a movie extra after having difficulty obtaining a T4A slip from the talent agency. In 2023, she omitted $12,715 of investment income. She said that she had difficulty obtaining investment slips, found CRA My Account overwhelming in light of her ADHD, and was unsure whether its information was complete. The unreported amounts and the statutory prerequisites for the penalty were not disputed; the sole issue was whether she had exercised due diligence in filing her 2022 and 2023 returns.
The Court’s Holding
The Tax Court of Canada denied the appeal. It held that Kryski had not established due diligence for either taxation year. Although she made some efforts to collect the necessary information, she knowingly filed returns that understated her income and followed an approach she described as waiting for the CRA to assess her.
Justice MacPhee explained that due diligence requires reasonable precautions to avoid the omission or a reasonable mistake of fact that would have made the conduct innocent. It also requires continued efforts after filing to ensure compliance. Kryski offered little evidence of such efforts and did not explain why she could not use bank records, estimate the movie income, obtain assistance accessing CRA My Account, or correct the returns after filing. The Court therefore upheld the subsection 163(1) penalty for the 2023 taxation year.
Key Takeaways
- A taxpayer facing a repeated-failure-to-report penalty may avoid liability by proving due diligence, despite the penalty’s strict-liability character.
- Knowingly filing an inaccurate return and relying on the CRA to correct it does not establish due diligence.
- Difficulties obtaining tax slips do not end a taxpayer’s obligations; reasonable alternative and follow-up efforts may be required before and after filing.
Why It Matters
The decision underscores that the due diligence defence is fact-intensive and requires evidence of sustained, reasonable efforts to report income accurately. Taxpayers who know information is missing cannot simply file an incomplete return and wait for reassessment.
The ruling is particularly relevant where information slips are delayed or difficult to obtain: taxpayers should pursue other reliable records, seek assistance where necessary, and correct known omissions rather than treating CRA matching and reassessment as a substitute for accurate filing.