Tag: Tax filing

File your return on time … whether refund, tax or nothing is due

Tax filing season — It’s an annual ritual that some look forward to, some dread and some simply forget or ignore.  

According to the Canada Revenue Agency (CRA):

  • About 50% of tax-filers receive a refund
  • Between 12.5 million and 14.4 million refunds are issued every year
  • The average refund for 2009 income tax returns was about $1,500

Whatever your personal perspective, prompt filing is a legal obligation for those who owe, and can still be a valuable opportunity for those who don’t.

The deadline

Individual tax returns are generally due on April 30, though in years when that day lands on a weekend — such as this year — the deadline is the following business day. Thus, CRA will consider your return as filed on time and your payment to be made on time if it is in their hands or is postmarked by midnight on Monday, May 2, 2011.

Where you or your spouse/common-law partner runs a business, your return is not due until June15, 2011, but any tax payment remains due by May 2.

Costs of non-compliance

Late-filing – If you owe tax and you’re even a day late filing a return, the penalties can be significant. The penalty is 5% of your 2010 balance owing, plus 1% of your balance owing for each full month that your return is late, to a maximum of 12 months.

Repeat late-filing – It’s worse if you are a repeat offender. Specifically, if you had to pay a late-filing penalty in 2007, 2008 or 2009, the respective penalty rates for 2010 can be 10% for the base rate, plus 2% per month to a maximum of 20 months.

Failure to report income and false reporting – If you fail to report an amount on your return for 2010 and you also failed to report an amount on your return for 2007, 2008 or 2009, you may face a penalty of 10% of the 2010 unreported amount. As well, if you knowingly make an omission or false statement on your return, you could be hit with a penalty of the greater of $100 and 50% of any reduced taxes or overstated credits.

Interest charges – Apart from the requirement to file a return, starting May 3, 2011, CRA charges compound daily interest (currently 5%) on outstanding taxes. This includes the balance showing on a notice of assessment or due to a reassessment. In addition, interest is charged on any penalties starting the day after the balance is due. 

Relief

If your late filing was due to circumstances beyond your control, you may complete CRA Form RC4288 to request a waiver of penalties and interest.  

With respect to a failure to report income or false reporting, CRA may waive the penalties if you now voluntarily report the income pursuant the Voluntary Disclosures Program.  

On the interest front, if you cannot pay your whole tax debt you can contact CRA to discuss payment arrangements and clarify instalment payment obligations. At the very least if you file your return on time, the reporting penalties can be avoided despite interest likely still being charged. 

No taxes due?

Even if you have no taxes due, filing a return will assure that you continue to receive certain credits and benefits including:

  • GST/HST credit, Canada Child Tax Benefit, Universal Child Care Benefit, and the Children’s Fitness Tax Credit
  • Guaranteed income supplement
  • Spouses splitting pension income must file a joint election using form T1032, and both must file returns, again even if one or both owe no taxes

Whatever your tax situation, it’s makes good financial sense to file your return on time. And, of course, the same applies to your clients as well.

Let me tell you about My Account: Not mine, but yours … or rather, CRA’s

Confusing though it may be to say aloud, April seems like a good time to shout out a word or two about the continuing evolution of the “My Account” service available for communicating with the Canada Revenue Agency (CRA).  

In fact, it’s timely to get a better understanding of the service, as the Federal Budget 2010 proposes some legislative amendments that will bring us and CRA further into the digital age, hopefully making our dealings with our tax authority easier and more effective.

The service

If you’re not familiar with it, My Account (and My Business Account on the commercial side) is the secure online platform where taxpayers can manage their tax affairs with CRA. Among the current functions on the personal side, you can:

Apply for tax benefits such as the Canada Child Tax Benefit, the GST/HST credit, the Universal Child Care Benefit and the Working Income Tax Benefit

File income tax returns in coordination with the NetFile program and review past years’ returns (even for years before you opened your My Account)

Track important balances such as RRSP and TFSA contribution room, and outstanding amounts under the Home Buyers’ Plan and Lifelong Learning Plan

Access certain tax slips, including CPP, OAS and EI statements

Establish wire connections, both to pay amounts due to CRA more securely and receive amounts due to you more expeditiously

You can even use it to register a formal dispute if you differ with CRA on tax matters. 

New developments

The Personal Information Protection and Electronic Documents Act became law in 2000, prescribing requirements and limits of communications between the government and ourselves. While it allowed for a number of technological advances, it could not reasonably anticipate all the digital developments of the past decade.  

In the tax realm, assessments have had to be communicated in writing and by regular mail, until now. The Federal Budget 2010 proposes to allow taxpayers to direct CRA to provide such assessments digitally, likely as a posting to My Account. Apart from speeding and simplifying communications for many of us, presumably this will cut down on paper, processing activities and other hard resources. 

In the end

Though the recurring calculation and payment of tax ranks below certain dental procedures for most of us, it’s not going away. As such, the easier it is to complete, the better. 

In my case, I filed online, was assessed within 48 hours and had cash directly deposited to my account – that is, my own account – by the end of the following week. Not bad 

Sometimes you can beat City Hall, or rather CRA

As we close out the year and head into RRSP season (I know that term makes some bristle, but it’s a practical reality for many others), here’s an exasperating decade-long battle to mull over.

Where it all began

Back in September 1997, Lindsay Kerr received her Notice of Assessment for her 1996 tax year.  The NOA showed her 1997 RRSP contribution limit to be about four times what it had been in recent years, even though nothing had happened in her employment, income sources or other circumstances that would have explained the jump.  

While she suspected a possible error, Lindsay proceeded to contribute $8,121 into her RRSP in February 2008.  As it turned out, this was far in excess of the $794 she was actually entitled to, though it would be years before this came to full light.  Complicating the arithmetic, and potentially compounding the problem, Lindsay had earlier exercised her prerogative to make a one-time over-contribution of $2,000 so that in total she had made excess contributions of $9,327.

Then Lindsay took a break.  Having no taxes owing in the following years, she did not file tax returns from 1997 to 2002.

The early correspondence

A couple of years on, Lindsay was solicited by CRA to file returns for those missing years.  The letter, received in February 1999, advised her that all taxpayers are required to file an annual tax return in specific situations, none of which applied to her. Specifically, she did not owe any taxes for those years.

Lindsay spoke to CRA on a number of occasions by phone to obtain filing extensions, but eventually she was served with arbitrary tax assessments for 1999 and 2000.  Faced with the prospect of paying taxes she knew she did not owe, in November 2003 Lindsay filed returns for 1997-2002.  As it turned out, indeed there were no taxes owing; in fact, refunds were paid for all the years.

Error discovered, penalty tax assessed

On filing the 1997 return in 2003, Lindsay properly recorded the $794 contribution limit, though there was no paper trail to explain how she came upon this information. 

Still, as a result of this disclosure, Lindsay was assessed the 1% monthly penalty tax for the duration of the over-contribution.  By the time the matter was heard in court in the fall of 2008, she had paid $11,270 in taxes, penalties and interest.

The odyssey: Requesting a waiver

While it would be difficult to say that Lindsay was completely innocent of knowledge of the error, the fact is that she relied on the official documents as she was entitled to do.  On that basis, she applied for a waiver of the penalty tax in September, 2004.

The first CRA response explicitly stated that each individual may make RRSP contributions within the limit “provided on the Notice of Assessment each year.”  A later internal report in 2007 found that CRA “had originally provided an incorrect amount and (it appears) we had never advised the taxpayer, in writing, that her revised 1997 RRSP deduction limit was $794.”

On her second request in September 2005, an administrative review, the content of the denial letter included a comment that “you should have been aware that the amount in Box 52 of your T4 slip is required to be reported on your return.”  Again, the 2007 report found fault: “This statement is of concern because, according to the copy of the 1996 return provided to us by the taxpayer, she did report the correct amount in box 206.”  Box 52 is the pension adjustment to be reported in Line 206: Lindsay entered it correctly; CRA transcribed it incorrectly and then apparently still blamed her for its error. 

On her third request in June 2006, Lindsay specifically asked for a different tax office to handle the review – No doubt there had been some acrimony over the years of wrangling.  That earlier mentioned 2007 internal report was the basis for the ultimate decision in July 2007, at which time Lindsay was again denied, this time on the basis she had not made “reasonable errors” in failing to report the appropriate amounts.  This was despite that the only official record was acknowledged by CRA to be that original erroneous NOA.

Oh, that independent 2007 report?  Despite Lindsay’s request (and CRA’s assurance) for an independent review, it was first approved by an official at the original office before being given to the senior official who wrote to Lindsay.  And to boot, a memorandum obtained from a Privacy Act request revealed that that final writer had some critical misapprehensions of the facts, and appeared to show a bias against Lindsay for not having filed returns in those interevening years … years she was not obligated to file returns.

Judgment for the Applicant    

Incredibly, there were even more twists and turns in this case, but in the end the court was convinced that Lindsay was entitled to the relief she sought.  An order was issued in September ’08 stating that her errors were reasonable, as were her corrective steps, and as a result she was entitled to the return of her $11,270.

Your own resolutions?  Pay close attention to your Notice of Assessment (checkin’ it twice?), keep good written records of your communications with CRA, and maybe hug a judge this new year’s.