Published: August 21, 2026
Overview: Missing Income on Your Tax Return? Kryski Shows How CRA Penalties Can Arise
In Kryski v. The King, 2026 TCC 145, the Tax Court of Canada upheld a repeated-failure-to-report-income penalty under subsection 163(1) of the Income Tax Act. The case is important because it shows how easily the penalty can arise once a taxpayer has one prior omission of at least $500 and then misses another reportable amount within the next three taxation years. It also shows that a taxpayer cannot simply file an incomplete return and assume the CRA will fix it later.
As David J. Rotfleisch, founding tax lawyer, CPA, and Law Society of Ontario Certified Specialist in Taxation, cautions, waiting for the CRA to correct a return is not a filing strategy. It is an invitation to penalties.
Facts of the case of Kryski v. The King
Joanne Kryski appealed a penalty assessed for her 2023 taxation year under subsection 163(1). She was a retired chartered accountant with substantial tax knowledge and prepared her own T1 returns. Her income in 2022 and 2023 came from many investments, and she testified that she had to work from about 150 slips, mostly T3 and T5 slips.
In 2022, she also earned $501 as a movie extra through a talent agency. She said the agency was difficult to deal with and she could not obtain the T4A slip, so she did not report that $501. The Court noted that it did not receive a clear explanation for why she did not use her own bank records or estimate the amount on her return. That $501 omission mattered because it was just over the $500 threshold that can trigger subsection 163(1) in a later year.
In 2023, Ms. Kryski failed to report $12,715 of income. She testified that she had longstanding difficulty obtaining all of her T3 slips before the filing deadline and that this had been a recurring issue. She also said she found CRA My Account overwhelming, especially because she suffered from ADHD, and she was unsure whether the information there was complete. Her evidence was that her general approach was: “I just wait for CRA to assess me.”
The Legal Issue in Kryski v. The King
The only issue was whether Ms. Kryski had exercised due diligence in filing her 2022 and 2023 returns. Under subsection 163(1), a penalty applies where:
- the taxpayer fails to report an amount of at least $500 required to be included in income for the year;
- the taxpayer had also failed to report an amount of at least $500 in one of the three preceding taxation years; and
- the taxpayer is not liable to a gross negligence penalty under subsection 163(2) for the same unreported amount.
Subsection 163(1.1) sets the penalty at the lesser of 10% of the unreported amount and a formula-based amount tied to the tax effect of the omission. Most provinces charge a parallel provincial penalty on top of the federal one; Ontario, for example, has charged an equivalent penalty since October 1, 2020. Combined federal and provincial exposure is therefore often closer to 20% of the unreported amount, not 10%.
The Tax Court’s Reasoning in Kryski v. The King
The Court accepted that Ms. Kryski made some efforts to gather information. But that was not enough. The judge found that she knowingly filed incorrect returns in both 2022 and 2023 and simply waited for the CRA to correct them. That was fatal to the due diligence defence.
The Court relied on the due diligence framework summarized in Greenstreet v. The Queen, 2019 TCC 237, as quoted in the judgment: a taxpayer can avoid the penalty by showing either reasonable precautions to avoid the event, or a reasonable mistake of fact that would have made the omission innocent if the facts had been as believed.
As David J. Rotfleisch cautions, due diligence requires more than frustration with missing slips. It requires real follow-up, reasonable substitutes, and corrective action.
The Court also stressed that due diligence does not end when the return is filed. There must be continued effort to ensure the filing is correct. Ms. Kryski provided little evidence of that continued effort.
Implications for Canadian Taxpayers
This case has broad implications for taxpayers, especially those with many investment slips, self-prepared returns, or late-arriving tax information. First, if income is known or reasonably knowable, a taxpayer should not omit it merely because a slip has not arrived. Bank records, broker statements, prior communications, and reasonable estimates may all be relevant.
Second, once a taxpayer has one omission of $500 or more, the next three years become risk years for subsection 163(1) of the Income Tax Act. That makes careful review essential. Subsection 163(1) is not a fraud penalty; it is a repeated-reporting penalty with a due diligence escape hatch.
Third, the taxpayer’s sophistication matters in practice. Here, the Court emphasized Ms. Kryski’s accounting background and tax knowledge. A knowledgeable taxpayer who knowingly files incomplete returns will face a harder time proving due diligence.
For related discussion, see Repeated Failure to Report Income Tax Penalty: Canadian Tax Penalties, Income Tax Gross Negligence Penalties, and Tax Appeals: Notice of Objection CRA & Fighting Tax Assessment.
As David J. Rotfleisch notes, the more tax knowledge a taxpayer has, the harder it becomes to argue that an incomplete return was reasonable.
Takeaway: Repeated Unreported Income Can Trigger CRA Penalties Under Subsection 163(1) of the Income Tax Act
Kryski is a cautionary case. The Tax Court confirmed that a taxpayer cannot knowingly file incomplete returns and rely on the CRA to sort things out later. Where there is one prior omission over $500 and another omission within three years, subsection 163(1) of the Income Tax Act is engaged unless the taxpayer proves due diligence. On these facts, Ms. Kryski did not. The appeal was dismissed.
PRO TAX TIPS: Canadian Taxpayer Due Diligence: Document Missing Tax Information and Correct Filing Errors
If important tax information is unavailable, document every reasonable effort you make to obtain it. Keep emails, letters, telephone records, account statements, requests to brokers, and other correspondence showing when and how you tried to obtain the missing information. In Kryski, the Court found that the evidence demonstrating the taxpayer’s due diligence was insufficient. Our experienced Canadian tax lawyers can help taxpayers create a proper documentary record, identify additional reasonable steps that should be taken, and present that evidence effectively if the CRA later imposes a penalty that the taxpayer wishes to challenge.
Furthermore, the taxpayer’s responsibility does not necessarily end when the tax return is submitted. The court in Kryski expressly stated that demonstrating due diligence requires a “continued effort to properly file, even after the initial filing.” Therefore, if a missing T3, T5, or other slip arrives after filing and reveals unreported income, taxpayers should consider promptly correcting the return rather than waiting for CRA tax reassessment.
An experienced Canadian tax lawyer can advise whether an adjustment, amended return, voluntary disclosure, or another corrective procedure is appropriate and can assist in communicating with the CRA before the problem develops into a penalty dispute.
Frequently Asked Questions
If you were not given a T4A, what are you expected to do?
Simply omitting the income because you were not given a T4A is not enough. The Court in Kryski v. The King specifically noted that Ms. Kryski did not clearly explain why she did not use her own bank statement or estimate the amount earned. So, at minimum, reasonable effort to determine or approximate the income and report it is expected. Furthermore, taxpayers should later amend the amount to actual income when the relevant information becomes available.
What is the meaning of the $500 threshold of unreported income?
Subsection 163(1) of the Income Tax Act applies only if the taxpayer failed to report an amount equal to or greater than $500 in the current year, and also failed to report an amount equal to or greater than $500 in one of the three preceding taxation years.
What does section 163(1) of the Income Tax Act state?
Subsection 163(1) imposes a penalty where a person:
- fails to report an amount of at least $500 required to be included in income for a year,
- had failed to report an amount of at least $500 in one of the three preceding taxation years, and
- is not liable to a subsection 163(2) penalty for the same unreported amount.
Why is Subsection 163(1) of the Income Tax Act categorized as a strict liability Penalty?
Subsection 163(1) is categorized as a strict liability penalty because it imposes a civil penalty once the statutory conditions are met, without requiring the Minister to prove intent, knowledge, or gross negligence. In other words, the Minister need only prove the objective facts of repeated non-reporting, not a guilty mind.
What is the authority for due diligence under section 163(1), and how does it come into play?
Subsection 163(1) is drafted as a strict liability penalty; this means that the taxpayer will not be penalized if she demonstrates due diligence. The due diligence defence has its origin in case law. The court in Kryski v. The King cited Greenstreet (2019 TCC 237) for the due diligence framework.
When do gross negligence penalties under section 163(2) apply?
Subsection 163(2) of the Income Tax Act applies where a person, knowingly or under circumstances amounting to gross negligence, makes or participates in a false statement or omission in a return or similar document. The penalty is different from subsection 163(1) and requires a higher level of fault.
What is the amount of the penalties under section 163(1)?
Under subsection 163(1.1) of the Income Tax Act, the penalty is the lesser of:
- 10% of the unreported amount, and
- a formula-based amount equal to 0.5 × (A − B), where A reflects the tax and benefit impact described in subsection 163(2)(a) to (g), and B reflects source deductions or withholdings reasonably attributable to the unreported amount.
This 10% figure is the federal penalty only. Most provinces charge an equivalent provincial penalty on top of it (Ontario has done so since October 1, 2020), so combined exposure is often closer to 20% of the unreported amount.
What is the amount of the gross negligence penalties under section 163(2)?
Subsection 163(2) of the Income Tax Act imposes a penalty equal to the greater of $100 and 50% of the total of the tax and certain credit or benefit overstatements attributable to the false statement or omission.
When is the 163(1) penalty assessed?
It is assessed when the statutory conditions are met: a current-year omission of at least $500, a prior omission of at least $500 in one of the previous three years, and no subsection 163(2) penalty on the same amount.
Does it mean that the 163(1) penalties and the 163(2) penalties cannot be assessed at the same time?
For the same unreported amount, subsection 163(1) does not apply if the taxpayer is liable to a subsection 163(2) penalty in respect of that amount. That is expressly stated in paragraph 163(1)(c) of the Income Tax Act.
How can the taxpayer satisfy the due diligence test under section 163?
According to the Greenstreet decision (2019 TCC 237), there are two ways:
- show reasonable precautions were taken to avoid the event leading to the penalty; or
- show a mistake of fact that, if true, would have made the omission innocent, and that the mistake was one a reasonable person would have made in the same circumstances.
When does the taxpayer’s due diligence obligation end for section 163(1)? Does it end after filing?
No. There must be continued effort by the taxpayer to properly file, even after the initial filing, to ensure the taxpayer meets filing obligations. So the obligation does not end simply because a return was submitted.
What kind of effort does the Court expect to be convinced that you were duly diligent?
The Court expects meaningful efforts to obtain information, use available alternative records, and take further steps to correct or verify the return. Minimal evidence of difficulty obtaining slips may not be enough.
Does the taxpayer’s station in life contribute to the due diligence assessment under section 163(1) of the Income Tax Act?
Yes. In Kryski v. The King, the Court emphasized Ms. Kryski’s chartered accounting designation and substantial tax knowledge in assessing whether the conduct was duly diligent.
DISCLAIMER: This article provides broad information. It is only accurate as of the posting date. It has not been updated and may be out-of-date. It does not give legal advice and should not be relied on as tax advice. Every tax scenario is unique to its circumstances and will differ from the instances described in the article. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.
About the Author
