Tag: Tax filing

Filing your 2012 taxes – What’s new, what’s noteworthy

It’s just about time for your annual re-acquaintance with the Canada Revenue Agency (CRA).  Circle Tuesday, April 30th to get your return and tax payment in, though if you or your spouse runs a business, the return itself may not be due until Monday, June 17th.

Below is a very brief summary of some key federal tax items to look out for.  Compared with other years, there are relatively few substantive changes.  However, the process of filing tax returns is evolving, with wind-down and elimination of traditional modes and expansion of online capacity as we move further into the digital era.

Substantive developments

While obviously of relevance and value to the affected taxpayers, there are only a handful of substantive developments this year.  CRA itself notes these items:

  • Family caregiver amount – An additional $2,000 amount for claiming this tax credit where the taxpayer has a dependant with a physical or mental impairment
  • Medical expenses – Anti-coagulation therapy now eligible
  • Investment credit – Eligibility for the mineral exploration tax credit has been extended to flow-through share agreements entered into before April 1, 2013
  • Employees profit-sharing (EPSP) – Plan beneficiaries should consult a tax advisor to determine if a new tax applies to certain employer contributions 
  • Canada Pension Plan (CPP) working beneficiaries – Rule changes beginning in 2012 could affect premium obligations, pension credits and filing requirements.

The filing process

Filing online with CRA Netfile

In past years a filer required a web access code to reach the Netfile service, but the process has been changed so that a social insurance number and date of birth will suffice.  Be aware however that the taxpayer’s personal information and address must be up to date.  CRA’s My Account service can be consulted to verify such information and make changes if necessary.

Online filing for 2012 returns has been open since Monday, February 11, and will remain open until Saturday, November 30.  Returns must be prepared using CRA-certified tax preparation software or Web application.  

According to the CRA website, taxpayers who file online and subscribe to direct deposit may receive their refunds in as little as eight days.

Logging on to other e-Services

Three CRA services have had their logon access made more flexible: 

  • My Account for Individuals 
  • My Business Account
  • Represent a Client

In all cases, there is a process to create a CRA user ID and password to access the respective service.  It involves completing sufficient identification information for the Agency to mail out (in 5-10 days) a CRA security code which can then be used to complete the registration process.

In an effort to seek out and implement more cost‑effective online security systems, the CRA established the Sign-in Partners program.  Users of My Account and My Business Account may log in using their online banking information with one of the participating Sign-in Partners: BMO Financial Group, TD Bank Group or Scotiabank.  Further information is available on the CRA website or with the respective bank.

Discontinued filing support

As of this filing season, CRA will no longer mail out paper-based tax packages, though paper returns will continue to be accepted.  Those wishing to file in this manner may obtain a tax package from Canada Post outlets, Service Canada offices, by download from the CRA website or by calling the CRA at 1-800-959-8281.

Elimination of Telefile 

In June 2012, CRA announced that the Telefile service will be discontinued.  

The service allowed the filing of simple tax returns over the phone, but usage has declined by about 10% annually in recent years.  Based on the trajectory, less than 1% of the $25+ million tax filers would have used the service to file 2012 returns.

Waiting for your refund to come?

Donations to gifting tax shelters

On October 30, 2012, CRA introduced a new policy for a taxpayer claiming a credit by participating in a gifting tax shelter scheme.  The schemes in issue are those where a tax receipt may have been issued for a larger amount than the taxpayer’s donation or payment.

The stated purpose of the policy is to avoid the issuance of invalid refunds and discourage participation in these abusive schemes. Assessments and refunds of such returns will be put on hold until the audit of the tax shelter is completed, which may take up to two years.  A taxpayer whose return is on hold may be able to have their return assessed by removing the claim.

Appealing penalties for unreported income

At issue

There is an inherent danger in a self-reporting tax system that an individual may fail to report income.  Checks and balances in the system expose such gaps and/or influence taxpayers to diligently report their income, for example the requirement for employers to report employee income directly to the Canada Revenue Agency.

In situations where income has been unreported, it may be possible for a taxpayer to rectify the situation and request that penalties be waived.  While courts may get involved, such a waiver remains in the discretion of the Minister of Revenue as represented by CRA.

Dunlop v. The Queen, 2009 TCC 177

Where there has been unreported income in any of the three preceding years, a penalty of 10% applies to any current year’s unreported amount.

Dunlop was a university student employed on a part-time basis with a supermarket franchise.  For 2005 tax reporting, he did not receive a T4 slip and did not report the income.  CRA received its copy of the T4 and reassessed Dunlop, and the tax was eventually paid.

For 2006, he again had not received his T4 by April 2007, and attended at the employer’s location to obtain it.  The franchisor lived in another city and did not deliver the T4 prior to April 30, so Dunlop estimated $5,250 as the income in filing his return.  He was reassessed in October 2007, about the same time as the T4 arrived in the mail.  The actual income was $5,526, and the penalty on the reassessment was $646.

The court allowed the taxpayer’s appeal based on his diligence in reporting the source and nature of his income, though obviously not the exact figure.  The penalty was reversed.

CRA 2010-0356361I7 (E) – Due Diligence Defence to a S. 163 Penalty

The taxpayer was reassessed for failure to report some interest income for the 2004 taxation year.  With respect to the 2005 taxation year, the taxpayer discovered an error late in 2006 and requested an adjustment to dividend income due to attribution from property transferred to his minor child.  On reassessment, a 10% penalty was added.

The taxpayer sent an email to CRA requesting that the penalty be vacated.  The request was granted, with the official citing that it would not be reasonable to assess such a penalty when it was the taxpayer who initiated the steps to rectify the omission.  

Spence v. Canada Revenue Agency, 2012 FCA 58

Spence had a small amount of unreported income in 2004.  A tax preparation firm prepared his 2006 return but failed to include a T4 slip, resulting in reporting income of $21,696 when it should have been $57,915.  Once source deductions had been accounted for, the reassessment reduced his tax refund by $123.98 to $2,419.10, but also assessed penalties and interest related to the unreported income in the amount of $7,623.85.

With the support of the tax preparation firm, the taxpayer made a request to the CRA fairness committee, but it was denied.  The taxpayer then applied for judicial review by the Federal Court, and an order was made in 2010 setting aside the committee’s decision and referring the matter to a different ministerial representative for redetermination.

On reconsideration, CRA again refused to exercise discretion to cancel the penalty.  An appeal to the Federal Court was dismissed, and this was upheld on appeal to the Federal Court of Appeal.  A factor in determining the reasonableness of the decision was the substantial discrepancy in the reported amount that Mr. Spence “ought to have noticed” before being detected by CRA.

Practice points

  1. Be sure that all T4 slips are in hand well prior to the tax filing deadline, so as not to be in the position of having to file an incomplete return.
  2. If unsatisfied, appeal may be made through CRA channels, and if unsuccessful then on to the court system.
  3. A court may only order the Minister of Revenue to reconsider exercising discretion to waive the penalty, so a clear record of one’s due diligence is important. 

Canadian Retirement Income Calculator – Starter kit to the planning process

Last month we looked at the Canada Pension Plan component of My Service Canada Account (MySCA). This service offers a window on a person’s CPP contribution history as well as a snapshot of what pension may be anticipated based on some simple inputs.

In this article, we turn to the federal government’s Canadian Retirement Income Calculator (CRIC). The CRIC combines those CPP figures with other savings information to give a rough sketch of current savings progress and future retirement expectations.

Accessing CRIC

As covered in last month’s article, an option within MySCA is to estimate one’s CPP retirement pension. In the “Notes” section below the calculated figures on the results page, there is hyperlink that can be clicked to move over to the CRIC.

Alternatively, if a person already has the CPP contribution details, the login to MySCA can be skipped. Starting instead at the general Service Canada home page, there are a few routes that can be followed. The most direct is to click on “Retirement Planning” on the left margin “Life Events” list, with the link to CRIC then being shown in the middle column when the page refreshes. 

Income sources and output

The usual public and personal retirement income sources are canvassed:

  • Old Age Security (OAS) 
  • Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) 
  • Employer registered pension plans (RPPs) 
  • Registered Retirement Savings Plans (RRSPs) 
  • Other revenue sources such as foreign pensions, business income and rental income 

Existing actual figures are to be entered, so on top of the CPP contributions statement, RRSP and RPP statements should also be handy. Some basic sensitivity analysis is available, including adjusting future earnings expectations and savings intentions, comparing results at different retirement/drawdown ages, and projecting potential investment-return rates. 

Once all entries are completed, a grid summary is generated that shows monthly income by source in three time frames: under 60, 60 to 64 and 65+. To assist understandability, figures are expressed in today’s dollars, and there is a brief discussion of why and how required income in retirement may be less than during working years.   

Evaluating the results

The whole process is suggested to take “approximately 30 minutes,” which is indeed quite manageable. Keep in mind that, as with any retirement income calculator, the reliability of the output is dependent on the quantity and quality of the input. With this in mind, three aspects of the calculator warrant specific mention.

First, the CRIC operates on an individual basis, which is to say that for those who are married or living in a common-law relationship, each person must use the calculator separately and compare results to understand the overall situation. No guidance is given as to how to approach this comparison.

Second, there is a separate calculator for the new post-retirement benefit for people who work while receiving a CPP retirement pension. Apart from this being a novel concept to comprehend, it is unfortunate that the results are not integrated within the main model.  

Third, generally entries are requested and results expressed in pre-tax dollars. Of course the translation of this into spendable cash would depend on income level, the arithmetic for which would be a tall task for a significant proportion of the population. Furthermore, there are no instructions on how to address tax-free savings accounts, being after-tax at both the savings and drawdown stages. Indeed, there is no mention of the TFSA at all as far as I could find – a significant omission.

These limitations in mind, it remains a worthwhile exercise to gather financial information, review savings habits and consider potential retirement implications. In that context, the CRIC can be a useful tool to shed light on retirement issues and to motivate action, but the results should ideally be reviewed with a professional familiar with financial planning matters before any actual steps are undertaken.

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Reference MySCA web address: www.servicecanada.gc.ca/eng/online/mysca.shtml