7 January 2026 Internal T.I. 2024-1007421I7 - Subsections 163(5) and (6) - multiple assessments

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether more than one person can be assessed a penalty under subsection 163(5) with respect to a return of income for a taxation year of a trust required to be filed by subsection 150(1).

Position: While technically there is the authority to assess more than one person under the legislation, we consider the better view to be to assess the trust for the compliance infractions described in subsection 163(5).

Reasons: The scheme of the Act is to generally to assess penalties to enforce compliance under the Act, with one penalty being assessed with respect to the same failure. The enactment of subsections 163(5) and (6) appear to be to intended to allow for a more effective penalty to be assessed of the trust in the situations described than those that may have been assessed of the trust or its trustees under the previous legislation. Other provisions in the Act, such as subsection 159(1), 159(3) and 160(1) support the CRA in the ability to effectively enforce a penalty under subsections 163(5) and (6).

January 7, 2026

Paul Wilson						HEADQUARTERS
XXXXXXXXXX						Income Tax Rulings Directorate
Small and Medium Enterprises Directorate		J. Clarkson
Compliance Programs Branch

2024-100742

Re: Penalty under subsections 163(5) and (6)

We are replying to your request for guidance on whether more than one person can be assessed a penalty under subsections 163(5) and (6) (the Penalty) with respect to a return of income for a taxation year of a trust (T3 return) as required under section 150.

We apologize our delay in responding to your request.

All statutory references in this document are to the Income Tax Act, R.S.C. 1985, (5th Suppl.) c.1, as amended (the Act), unless stated otherwise.

Your request arose due to comments that you received from Chartered Professional Accountants of Canada (CPA Canada), who expressed concern that the Penalty might be assessed against trustees in their personal capacities, or imposed against multiple persons in respect of the same infraction.

Our comments

Subsection 163(5) states:

“A person or partnership is liable to a penalty if the person or partnership

(a) knowingly or under circumstances amounting to gross negligence

(i) makes — or participates in, assents to or acquiesces in, the making of — a false statement or omission in a return of income of a trust that is not subject to one of the exceptions listed in paragraphs 150(1.2)(a) to (o) for a taxation year, or

(ii) fails to file a return described in subparagraph (i); or

(b) fails to comply with a demand under subsection 150(2) or 231.2(1) to file a return described in subparagraph (a)(i).” (footnote 1)

The calculation of the Penalty is described in subsection 163(6) as the greater of:

“(a) $2,500, and

(b) 5% of the highest amount at any time in the year that is equal to the total fair market value of all the property held by the trust referred to in subsection (5) at that time.”

Based on its text, the Penalty essentially arises where certain infractions have occurred with respect to a T3 return.

The purpose of a penalty is to enforce compliance with the self-reporting and self-assessing scheme of the Act. The magnitude of the penalty assessed is generally indicative of the potential amount of tax avoided by committing the failure being penalized. The enactment of subsections 163(5) and (6), which overlap with other penalty provisions for the same or similar failures under the Act, indicates that Parliament intended that penalties for certain failures with respect to T3 returns be potentially higher, and therefore more effective at enforcing compliance, than the penalties that would have applied before their enactment.

The inclusion of the word “partnership” in the preamble to subsection 163(5) indicates an intention to potentially penalize a person or entity other than the taxpayer (person that is the trust). Based on its text, and subsections 104(1), 104(2) and 248(1), it is our view that the person or partnership referred to in subsection 163(5) could be the trust or a trustee (footnote 2) (or legal representative as defined in subsection 248(1)) having ownership or control over the trust’s property. The possibility of a liability for a penalty under the Act to be imposed on a person other than the taxpayer, including employers, banks, and other entities, encourages these parties to comply with their obligation to file information returns and to provide information in order to verify taxpayer compliance, which is an integral part of the Act’s regulatory regime. (footnote 3)

Currently, the legislation is ambiguous as to which parties are intended to be assessed the Penalty. In accordance with section 12 of the Interpretation Act and a fundamental principle of common law, penal provisions must be interpreted strictly. In cases of ambiguity, the construction favouring a single penalty per infraction should be preferred. If there is more than one reasonable interpretation, we must apply the more lenient one. (footnote 4)

A trust has a requirement to file a return of income for a taxation year under paragraph 150(1)(c). Its trustee has that same requirement under subsection 150(3). However, there can only be one failure to meet that section 150 requirement each taxation year, as only one return of income is requested. A demand to file that return of income issued under subsection 150(2) or 231.2(1) has a different filing deadline, being the one noted in the demand, and therefore arguably represents a different failure. While a subsection 150(2) demand for a return may be made even if a return of income has already been filed by the taxpayer, only one return of income would be demanded under subsection 150(2) or 231.2(1).

Therefore, we consider that there would be only one failure creating a liability to the Penalty under subparagraph 163(5)(a)(ii) (being a failure to file a return of income as required by section 150) or paragraph 163(5)(b) ((being a failure to file a return of income as demanded by subsection 150(2) or 231.2(1)). It is our view that one party would be assessed the Penalty in respect of such a failure.

In contrast, there could be more than one false statement or omission with respect to a return of income. If one person or partnership was responsible for multiple false statements or omissions in a return of income that were made knowingly, or under circumstances amount to gross negligence, in our view there would only be one Penalty assessed. However, there could also be one person or partnership responsible for one (or more) false statements or omissions, and another person or partnership responsible for one (or more) other false statements and omissions. As a result, it is our view that there is a potential for more than one person or partnership to be liable to the Penalty under subparagraph 163(5)(a)(i).

While the liability to the Penalty is dependent upon the facts, it seems reasonable to consider that the trust (being the taxpayer) would most likely be the person assessed a Penalty.

This view is consistent with our understanding of the procedures for assessing penalties and the scheme of the Act to generally assess one person a penalty per failure in order to sufficiently enforce compliance under the Act. For example, a trust may be assessed a penalty under subsection 162(1) for a failing to file a return of income by its filing deadline under paragraph 150(1)(c), but its trustee would not be assessed a penalty under subsection 162(3) for that same failure. In addition, a person may be liable to a penalty under subsection 163.2(4) with respect to each false statement that could be used by or on behalf of another person, with the calculation of the penalty considering the potential subsection 163(2) penalty of each other person under subparagraph 163.2(5)(b)(i). (footnote 5)

This view is also consistent with the courts guidance to avoid disproportionate penalties, (footnote 6) ensuring that the assessment of penalties is both appropriate based on the relevant facts of a situation (not unduly harsh to the person assessed) and equitable to the tax community as a whole (not rewarding non-compliant taxpayers while punishing compliant taxpayers).

Applying this interpretation to the Penalty seems reasonable given all of the following:

• A liability to a penalty may arise under section 163.2 with respect to tax planning or tax preparation that resulted in a false statement or omission in a T3 return.
• The Minister has the authorization to hold a legal representative (including a trustee) of a trust jointly and severally, and solitarily, liable under subsection 159(1) with respect to amounts payable by the trust to the extent of the trust’s property that it controls.
• Additional collection measures may be taken against a trustee or beneficiary under subsections 159(3) and 160(1).

Subsections 163(5) and (6) are arguably more specific than subsections 162(1), (2), and (7), 163(2) and possibly subsection 238(1), in that they are restricted to failures with respect to a T3 return, not any return of income required under section 150 or information required under subsection 231.2(1). Therefore, the Penalty should take precedence over penalties in those less specific provisions.

While more than one person or partnership may, in principle, meet the statutory conditions for liability to the Penalty under subsection 163(5), our view remains that a single assessment to the trust would reasonably be sufficient and appropriate to carry out the legislative scheme of the Act and enforce compliance, barring egregious or independent fault by others.

We trust that these comments will be of assistance.

Unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency’s electronic library. After a 90-day waiting period, a severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. You may request an extension of this 90-day period. The severing process removes all content that is not subject to disclosure, including information that could reveal the identity of the taxpayer. The taxpayer may ask for a version that has been severed using the Privacy Act criteria, which does not remove taxpayer identity. You can request this by e-mailing us at: ITRACCESSG@cra-arc.gc.ca. A copy will be sent to you for delivery to the taxpayer.

Yours truly,

Gillian Godson
Section Manager
Specialty Tax Division
Income Tax Rulings Directorate
Legislation Policy and Regulatory Affairs Branch

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1. On August 14, 2024, draft legislation was issued to amend subparagraph 163(5)(a)(ii) to state “fails to file a return described in subparagraph (i) as and when required by this Act; or…” This proposed amendment was not reintroduced on August 15, 2025. However, a proposal to amend subparagraph 163(5)(a)(i) to refer to paragraphs 150(1.2)(a) to (r) was included in clause 78(3) of Bill C-15, which received second reading on December 10, 2025. Neither of these proposed amendments has an impact on this analysis.

2. The term trustee is intended to be considered a reference to any type of person listed in subsection 104(1) or 150(3).

3. See paragraph 70 of Guindon v The Queen et al, (2015 SCC 41).

4. See the decision for The Queen v Pongrantz ([1983] 1 FC 72), which is citing the case of Tuck & Sons v Priester (1887) (QBD 629).

5. This result is evident in the decision for Guindon v The Queen (2012 TCC 287), which includes details that the subsection 163.2 penalty was calculated considering the potential subsection 163(2) penalty of 135 other taxpayers. This penalty was later affirmed by the Supreme Court of Canada (2015 SCC 41).

6. See Takenaka v AGC (2018 FC 347), Suissa et al v AGC (2013 FC 897), Lipson et al v The Queen (2012 TCC 20), and Home Depot of Canada Inc. v The Queen (2009 TCC 281), and paragraph 77 of Guindon v The Queen et al, (2015 SCC 41), for example.