T1161 Late Filing Penalty and Late Departure Tax Forms

What penalties apply to late departure forms?

Each late departure form carries its own consequence. Form T1161 has a flat daily penalty; the departure return has the ordinary late-filing penalty on any unpaid tax; Form T1244 has no penalty of its own, but filing it late can cost the deferral unless the CRA agrees to extend the deadline.

Sources: CRA on emigrant property, Income Tax Act s. 162, s. 220.

A case is not simple when departure tax is large (private shares, a business, real estate abroad), several years have passed, the CRA has already written to you, or you missed the deferral election. Gather: your departure date and proof of it, a list of what you owned that day with values (valuations for private shares or real estate), any CRA letters, copies of whatever you did file, and proof of anything that stopped you filing (illness, disaster, CRA advice).

What is the T1161 late filing penalty, and does it apply if I owe no tax?

Yes, the T1161 penalty applies even when no tax is owing. The CRA charges $25 for each day Form T1161 is late, with a minimum of $100 and a maximum of $2,500 (CRA). The penalty stops growing after 100 days (s. 162(7)), so a T1161 filed more than 100 days late faces the maximum.

The duty comes from Income Tax Act s. 128.1(9): an emigrant whose reportable property is worth more than $25,000 must file the list by the filing due date for the departure year. The CRA says the form is due on that date even if you do not otherwise have to file a return.

If you lived in Canada for five years or less in the ten years before leaving, property you brought with you or inherited is left off the list unless it is taxable Canadian property, and Canadian cash and bank deposits never count. Both can put you under the threshold. What counts as reportable property is covered in the T1161 form guide.

What if my departure return is late and departure tax is owing?

A late departure return with tax owing triggers the ordinary late-filing penalty: 5% of the tax unpaid on the due date, plus 1% of that tax for each complete month late, up to 12 months (s. 162(1)). If the CRA sent a demand to file and you were charged a late-filing penalty in any of the three previous years, it rises to 10% plus 2% a month, up to 20 months (s. 162(2)). Interest also runs on unpaid tax from the balance-due day, April 30 of the year after you left.

If no tax is owing on the return, the late-filing penalty works out to zero. The return is still required, since the deemed sale on leaving is a disposition of capital property (s. 150(1.1)), and a late T1161 is still penalized on its own. Departure tax is the tax on the gain from the deemed sale of your property on the day you left; see leaving Canada for how it is worked out.

Is there a separate penalty for a late T1243?

No separate late-filing penalty applies to Form T1243. It is the worksheet that calculates the deemed sale, and its gains carry to Schedule 3 of the departure return (CRA). The risk is the gain itself: a deemed gain left off the return is unreported income, with the tax, interest and penalties that follow. How to complete it is in the T1243 guide.

I missed the T1244 deadline: can I still defer departure tax?

Possibly, but only if the CRA agrees. The deferral election under s. 220(4.5) must be made by your balance-due day for the departure year, which the CRA states as April 30 of the year after departure.

The general late-election power in s. 220(3.2) does not cover this election, because s. 220(4.5) is not listed in Regulation 600. But s. 220(4.54) lets the CRA extend the time for the T1244 election, and for posting security, at any time if it considers that just and equitable. The decision is discretionary: ask in writing, explain why the election was late, and do not count on deferral until the CRA agrees.

The trap: waiting to pay departure tax because you meant to defer it. If the election was never made, the tax was due on the balance-due day, and interest has been running since.

Was security required, and what if I never posted it?

Security is required when federal tax on the deemed sale is more than $16,500, or $13,777.50 for former residents of Quebec (CRA). Below that amount, a valid T1244 election alone treats the tax as secured (s. 220(4.51)). Provincial tax may need security too.

The CRA must accept adequate security posted by the balance-due day of the departure year, and under s. 220(4.54) it may extend that time if it considers this just and equitable. Without an extension, unsecured tax above that amount was payable on the balance-due day, with interest since. For posting security, see deferring departure tax.

Can the CRA cancel the penalties and interest?

The CRA may cancel penalties and interest under the taxpayer relief rules in s. 220(3.1). For a penalty, ask within 10 years after the end of the calendar year in which the tax year ended. For interest, the CRA can cancel what accrued in the 10 calendar years before the year you ask, so an older departure year can still get relief on recent interest. Relief is discretionary.

Source: IC07-1R1. The grounds are examples, not a closed list, and the CRA also weighs your filing history; not knowing about the T1161 is not among its examples.

Relief is for a penalty that is correct. If the CRA charged a T1161 penalty in error (your reportable property was under $25,000, or the form was on time), file a notice of objection within 90 days of the notice or 1 year after the filing due date, whichever is later (s. 165(1)). General relief rules are in penalties, interest and relief.

Should I fix it myself or use the Voluntary Disclosures Program?

Filing the missing forms directly fits when the main problem is lateness and the tax can be paid. The Voluntary Disclosures Program (VDP) fits when there is an unreported gain or income with penalties or interest at stake, and the tax year is at least one year past its filing due date (IC00-1R7).

The VDP does not cover penalties or interest the CRA has already assessed, so a T1161 penalty already charged needs a taxpayer relief request instead. How to apply is in unreported income and voluntary disclosure.

What to send with a late T1161 and a relief request

Send the late forms first, then the relief request with the facts behind it. The CRA asks that your first relief request include every circumstance you rely on (IC07-1R1).

1. Form T1161 listing property owned right after you left, with fair market values on that day.
2. The departure return with Form T1243 and Schedule 3, if not yet filed, or an adjustment request if the gain was left off.
3. Payment of tax owing, or a payment arrangement.
4. Form RC4288 or a letter: your identification number, the tax year, the penalties at issue, what happened and when, why it stopped you from filing, and supporting documents.
5. If you want to defer: the late Form T1244 with a request under s. 220(4.54) to extend the election deadline, the reasons for the delay, and a security proposal if federal tax on the deemed sale is more than $16,500.

Example

These examples are illustrative; figures are in Canadian dollars.

Investments, no tax owing, T1161 forgotten

A teacher moves to Japan and files her departure return on time, but forgets Form T1161 for C$90,000 of investments. She files it eight months late. More than 100 days have passed, so the penalty is at its maximum. She can ask for relief. The CRA decides case by case: its examples are events such as serious illness, and it also weighs her filing history. Not knowing about the form is not one of its examples.

Private shares, nothing filed

A founder moves to the UK owning private shares with a C$1,000,000 deemed gain and files nothing. Departure tax was due on April 30 of the following year. He faces the late-filing penalty on the unpaid tax, interest from the balance-due day, the T1161 penalty, and no deferral unless the CRA agrees to extend the election deadline under s. 220(4.54). If the CRA has not contacted him, an unprompted VDP application may cancel the penalties and part of the interest; the tax itself stays payable.

Below the T1161 threshold

A retiree's only property on leaving is C$20,000 of shares. That is under the T1161 threshold, so no T1161 is required and no T1161 penalty applies. The deemed gain on the shares still belongs on her departure return.

Different for you?

• Large gain on private shares or a business, or several years late: the penalties, interest and deferral question interact; get individual tax help.
• The CRA has already sent you a letter: VDP relief is smaller once prompted; see voluntary disclosure and get individual tax help.
• You moved to the US and want to defer with security: see deferring departure tax.
• You never told the CRA you left: see left Canada without telling the CRA.
• You kept filing resident returns after moving: see filed resident returns after leaving.
• You still need to fill in the forms: see the T1161 guide and the T1243 guide.