On September 1, 2012, you started in your new position as manager of taxation for Malic Corporation, a large public company with a December 31 year-end. On the second day into the job, Maureen Smythe, the VP Finance, comes into your office with a folder entitled "Outstanding Items". She tells you that the folder was found in the bottom drawer of your desk when the office was cleaned up after the previous manager of taxation left. She is concerned about the following items found in the file:
(a) A letter from the CRA, paper-clipped to the corporation's notice of assessment for the 2006 taxation year (dated September 30, 2007), is a reassessment, dated April 30, 2012, and states that the corporation has been assessed additional tax for the 2006 taxation year in the amount of $722,500.
(b) A memo to the tax files from the previous manager stating that for the 2011 taxation year minimum installments were made for January to October, no installment was made in November, and an installment of $1.45 million was made in December.
(c) A partially completed tax return for the 2011 taxation year indicating taxes payable of $10.76 million. The return had not been filed.
Ms. Smythe leaves the file with you and asks you to do the following.
REQUIRED
(A) Determine the validity of the CRA letters and the threat of seizure.
(B) Determine if the corporation owes any additional tax and/or penalty with respect to the 2011 taxation year and, if so, the amount of the tax and/or penalty. Previous tax returns indicate the tax liabilities for the 2008 to 2010 taxation years were $7.5 million, $5.4 million, and $9.2 million, respectively. Ignore the effects of the leap year.
Assume that the prescribed interest rate required by Regulation 4301, to be used for the purpose of computing imputed interest on employee and shareholder loans, is 6% for all of 2011 and 5% for all of 2012. Assume also that for the purposes of the section 163.1 penalty the amount of interest which would have been payable if no installments were paid is $350,000.