Feb
13
By Fin MacDonald
As we start a new year I'd like to wish all my readers and clients a safe, healthy and prosperous 2013. Through my lens of Helping You Keep More of YOUR Money! I will strive to help and inform you in your dealings with the Canada Revenue Agency. This month - three topics to get started with.
Talking to the Tax Department
I was in a lineup at Thrifty's recently talking with a client. I had just returned from dropping off an Adjustment Request at the CRA office on Vancouver St. Another lady, overhearing our conversation, spoke of her frustration in attempting to talk to the Tax Dept.; of that @#$^%$#@ automated message one gets after dialing 1 - 800 - 959 - 8281. I told her what to do: Once the message comes on - Press the * (Star) key. This puts your call in the queue to talk to an agent. If you are requesting information about your file the agent will need to satisfy her (him)self that you are who you say you are. To do this, they will ask for your Social Insurance Number, Date of Birth, Address and information from your last Income Tax Return. So, it is wise to have a copy of your last return so that you may pass this confidentiality screening.
The CRA's personal information line is open 8:15 AM - 5:00 PM Monday to Friday. Starting Feb. 18 to April 30 the hours are extended to 9 PM; and from 9 AM to 5 PM on Saturdays except for the Easter Weekend.
Important Dates
Jan 4/13 - Last HST Credit Payment
Feb 11/13 - First Day for E-file and Netfile
Feb 28/13 - Last Day for Information (T) Slips (except T3 slips from mutual funds - Mar 31 for them) to be mailed
March 1/13 - RRSP Contribution Deadline for 2012 Tax Returns
April 1/13 - First Day of return of Provincial Sales Tax; End of the Harmonized Sales Tax (HST)
April 5/13 - First GST Credit Payment (more about this in next month's column)
April 30/13 - Deadline to file Tax Return and pay balance outstanding without penalty and interest
June 15/13 - Deadline for self-employed (and spouse) to file 2012 Return (balance owing due by April 30 to avoid interest)
Penalties
Canada, like the United States but unlike countries such as the United Kingdom, has a self-reporting income tax system. This means that each year Canadian residents are required to report, in an income tax return, their worldwide income for the previous year. To help insure the integrity of this system the Parliament of Canada has provided the CRA with certain tools and the power to assess certain penalties on taxpayers. Some penalties require the assistance of the Courts to be imposed; most do not. What follows are examples of the penalties and interest the CRA may impose.
Late Filing
These are the most common penalties imposed. If you do not file your tax return by April 30 of the following year, and there is Income Tax owing, the CRA will assess a penalty of 5% of the tax owing. In addition, a penalty of 1% per month will also be charged. An example: On your 2012 tax return you have a balance outstanding of $1,000. You do not file until December 1, 2013. The penalty for late filing would be $50 for being late (5% of $1,000) and $80 for being 8 months late (1% x 8 months x $1,000) for a total of $130. In addition to the $130 you would owe Interest at the rate of 5%, compounded daily, until the balance is paid.
To continue the example, if any of the 2009, 2010 or 2011 tax returns were late, tax was owing and penalties assessed, and the 2012 was also late the penalty may rise. The CRA may charge 10% late filing penalty plus 2% per month for up to 20 months. So, if the taxpayer waited until Dec 2014 to file the 2012 return, the penalty for late filing would be 10% for being late plus 40% for being 20 months late for a total penalty of $500 on the $1,000 outstanding (plus interest).
Unreported Income
Each year employers, banks, pension agencies, mutual fund companies and other entities who pay income to Canadians are required to report this income on an information slip. For example, Bank Interest is reported on a T5, Employment Income on a T4, Pension Income on a T4A and Mutual Fund Income on a T3. With a majority of Canadians now owning mutual funds, and with mutual fund companies not required to issue the T3 slip until the end of March, some people fail to report this income when they file their tax return.
The CRA runs a Matching Program which, later in the year, matches the T slips issued with those reported. If they find that income has not been reported they will issue a Notice of Re-Assessment to add the income and assess any extra tax and interest payable. To avoid this happening a taxpayer, when finally receiving that late T3 or T5 or other information slip, can send the slip to the CRA with a note explaining it was late and ask the CRA to re-assess their return.
If you repeatedly fail to report income the CRA may charge a penalty of 10% Federally and 10% Provincially on the unreported amount. For example: your mutual fund T3 shows income of $1,000 in 2011 and again in 2012 and you failed to report it both times. For 2011 the CRA will re-assess it and you will have the tax and interest to pay. For 2012 the CRA will assess penalties of $100 federally and $100 provincially plus tax owing and interest.
RRSP and TFSA Over contributions
Registered Retirement Savings Plans (RRSP) and Tax Free Savings Accounts (TFSA) are subject to contribution limits. Your RRSP limit is shown on your Notice of Assessment. An over contribution of $2,000 is allowed on RRSPs but not on TFSAs. Over contributions of more than that are subject to a 1% per month penalty. TFSA over contributions are also subject to a 1% per month penalty.
With such a wide range of penalties at their disposal the CRA has the tools to help ensure complete and timely reporting of income. However, some people still fail to file on time or report their income completely. Doing this causes what they owe to increase.
Next month: changes on the 2012 return, end of the HST and tax tips.