CRA – Doug Carroll

The CRA app is here! – Well, maybe not just yet

I have been looking forward to the Canada Revenue Agency’s release of its new personal tax app.

This is of particular personal interest, as about a decade back I penned an academic paper comparing the effectiveness of the CRA’s website to the offering of the Australian Tax Office (ATO). In my opinion, it was clear that the Aussies had a much better grasp of the available technology at that time, and were using it much more ably to communicate with their constituents.

In the intervening years, I have continued to have an interest in the CRA’s communication practices and adoption of emerging technologies. The agency has been making some noticeable strides toward more effectively engaging with taxpayers, in particular in its online services like MyAccount.

While MyAccount houses a taxpayer’s detailed information, streamlined access is also available by logging in using the “My tax information” button on the MyCRA webpage. On that page, there are also buttons for “My Payment, Benefit payment dates, Help with my taxes and Charity information”. These latter resources are general in nature (ie., not specific to the taxpayer), and do not require logging in.

An underwhelming release

Now that we are into the tablet era, focus shifts toward the importance of the app as a key communications portal.

For months the CRA has been signaling toward the February 2015 release of the personal MyCRA app, but as that month came to a close the ‘Mobile apps’ landing page within the CRA site still only had a link to the MyCRA webpage. But in a March 2 news release, CRA stated that it was “proud to announce the release of its new mobile app – MyCRA – available for all mobile devices like smartphones and tablets.”

I checked the App Store, and could not find what I was looking for, but that is not all that uncommon. My second stop was that CRA Mobile apps landing page, but it still simply linked to the MyCRA webpage. On that page however, there was now a hyperlinked phrase “Add to home page instructions”. Tapping there brings up an overlay window with simple instructions for placing “this web app” on the tablet’s home screen.

After completing the task, I went to the MyCRA icon now on the surface of my tablet and … it simply re-launched my browser, opening to the same MyCRA webpage I had just been on.

Minimal content, for now

Now I’m not an information technology expert, but I’m generally able to distinguish between an app and a bookmark. One is left to wonder whether this is the intended end product, or if a true MyCRA app could not be developed in time, and this became the fallback.

Still, perhaps I was getting too mired in the process. Perhaps the substance of the change was waiting behind the “My tax information” button, so I logged in. This gave me expected access to the status of my 2014 return (not yet filed), related notices of assessment and RRSP and TFSA contribution limits, and that was all.

While I would not dispute that this is important and useful information, in my opinion the experience falls short of the expectations the lead-up generated. Indeed, many of the items highlighted in the news release are those general information categories available without need to log in, let alone employ the “app” to launch the page in the first place.

In fairness, it appears that the MyCRA site (and the real app to follow?) is intended to be a platform for future communications (stating that it will house returns and assessments from 2014 on), and no doubt it will evolve. For the present though, this is a disappointing baby step as the CRA strives to improve its service delivery to taxpayers.

CRA auditors fail in their duty to taxpayer – But do damages follow?

It can be a scary proposition to face-off with the Canada Revenue Agency. With the size and power of such a large agency, the consequences of failing to make your case can be financially debilitating.

At the very least a taxpayer should be able to expect fair treatment. Indeed, the Taxpayer Bill of Rights, as published on the CRA website, expresses the duties incumbent on the CRA.

However, as a taxpayer learned in a recent case from the BC Supreme Court, proving that the CRA did not live up to those duties does not guarantee ultimate success in court.

Mr. L and the RV Park

In 1989 Mr. L purchased forested land in the British Columbia interior that he felt would be suitable for establishing an RV Park business. By 1993 he had begun clearing the land for the intended use, selling the logs to a local sawmill. The following year he cleared more land that he eventually subdivided and sold, in part to finance the business.

In 1996, Mr. L was the subject of a GST audit for his 1993, 1994 and 1995 tax years. The investigation of the business records led to a review of his income tax returns as well. Eventually Mr. L received a letter in September 1997 proposing adjustments to both the GST and income tax returns.

Some of the dispute was about personal versus business expenses, but a large part dealt with whether the logging activity was capital or business income.

After a series of CRA collections procedures, liens and sale of the property under receivership, Mr. L succeeded on appeal to the Tax Court in 2005. However, it took a “fairness” application in 2006 to obtain a waiver of the remaining interest and penalties, resting in part on CRA delays during audit and objection.

Suing the CRA

Later in 2006 Mr. L launched an action for negligence against the CRA, focused on the three auditors he had dealt with over the years. In order to succeed, he would have to prove:

a duty of care was owed to him from CRA,
breach of the standard of care,
a causal link between the breaches and a loss, and
a quantification of those losses, or ’damages’.

Given the clear and potentially devastating consequences for Mr. L, the judge held there was a duty to take reasonable care to avoid doing him harm. The appropriate standard to measure against was that of “a reasonably competent tax auditor in the circumstances.”

While the judge found that the assessment of the logging activities was based on “erroneous and unsupported assumptions”, Mr. L did not fulfil his own onus to clarify the record. And though that characterization turned out to be wrong, it was “not a breach of the standard of care, given the information available to [the auditors] at the time.”

However, the judge saw the penalties in a different light:

The assessment was based on what Mr. L “ought to have known”, whereas the relevant section of the Income Tax Act uses the words “knowingly” or “grossly negligent”.
Penalties were assessed on the whole of the income rather than on each alleged offending issue. For 1995, it was $51,682 on $5,787 tax due — a 900% penalty.
Finally (or firstly?), the original auditor threatened Mr. L with gross negligence penalties if he did not sign a waiver allowing for the audit of the (otherwise statute-barred)1993 tax year.

And damages for the taxpayer?

Despite showing breach of the standard of care, Mr. L could not succeed unless he could show a causal connection between that and his losses. Much of that rested on the registration of income tax and GST judgments against the property.

On the evidence, the judge determined that the business was in difficult financial straits even before any judgments were registered. On top of that, Mr. L’s own delays worked against him, in particular failing to file his income tax appeal on time. And in the case of the GST, matters would have been resolved sooner if he had better records and disclosed them sooner.

Thus, though able to prove the CRA auditors breached the standard of care, Mr. L was not able to recover any damages.

Hello new retiree, it’s CRA calling

Beginning tax payments by instalment

We look forward to our lives being simpler in retirement. But when it comes to income taxes, there is a wrinkle that most retirees will not have experienced before – instalment payments.

Reminders for instalment payments are sent from the Canada Revenue Agency (CRA) semi-annually in February regarding March and June due dates, and in August for September and December.

While receiving unexpected correspondence from the CRA may be a bit of a shock, there’s no need to panic. Paying taxes by instalment is not a matter of being unfairly targeted. No, it is simply an extension of employers’ payroll withholding and remittance during working years, which responsibility later rests upon retirees personally through quarterly instalments.

Who has to pay?

A standing feature of our tax system is the requirement for payers of certain amounts subject to tax to withhold and remit a portion to the CRA. Where an insufficient amount has been withheld (usually because the payer has limited information about the payee), the obligation then falls upon that payee.

Common situations include income from rent, non-registered investments, self-employment, multiple employers and – for our purposes – pension payments of various sorts.

The obligation is triggered if a person’s net tax owing was more than $3,000 in either of the two preceding years, and is expected to exceed $3,000 in the current year. (In Quebec, the threshold is $1,800.)

Calculating the instalment amount

There are three options available for calculating the amount of the quarterly instalment payments:

Non-calculation option – By default, the instalment amount is based on the two preceding years’ income. The CRA will calculate this figure based on your tax records and include it in your semi-annual reminder correspondence. This option is most appropriate when income, deductions and tax credits are consistent from year to year.
Prior-year option – If the current year is expected to be much like the prior year but significantly different from two years ago, this option is a better choice. In this case, it is up to you to calculate the instalment amount yourself. With your prior year’s Notice of Assessment or tax return in hand, you can fill in the required data on a calculation chart available through the CRA website.
Current-year option – If the current year is unlike either of the two prior years, you can calculate the instalment amount using an estimate of your current year’s tax owing. For pensioners, this is likely most applicable in the first year or two of full retirement. As in option 2, the calculation chart can be used, though in this case as more of a guide in coming up with your estimate.

For options 2 and 3, any Canada Pension Plan (CPP) contributions for self-employment and voluntary employment insurance (EI) premiums must be added to the calculated tax owing. Of course, these will not apply to a full-time retiree.

The point of this exercise is not to come up with the least payment possible. Rather you are looking for the option that best estimates your actual/eventual tax liability. In fact, if you choose either option 2 or 3 and the instalment amounts are too low, CRA may charge interest and even levy penalties. (See Interest and penalties below.)

Making the payment

Payment can be made through online banking, by debit to CRA through My Account or My Payment, by mail or in person at your financial institution.

The mailed reminder from CRA will include Form INNS3, Instalment Remittance Voucher. This form is not required for online payment types, but should be stamped when paying at your financial institution and enclosed when making payment by mail (though a cover note with your Social Insurance Number may be sufficient to assist in proper processing of mail payments).

Instalments are due the 15th of March, June, September and December. If any of those dates fall on a weekend or public holiday, the due date moves to the next business day.

Mailed instalments are considered paid on the postmarked date, in-person payments at your financial institution on the date stamped on your INNS3 and online payments on the date the amount is credited to the CRA. If payment by any method is post-dated, it is the later negotiable date that applies.

Interest and penalties

Making a mistake on a calculation or remittance date could be costly. Instalment interest is charged on late and insufficient payments from the respective due date, compounded daily.

The prescribed interest rate for overdue income tax is 5% for January to March 2015, and additional instalment penalties apply if interest charges exceed $1,000. Prescribed rates are adjusted quarterly, based on economic conditions.