2012 PERSONAL INCOME TAX RETURN CHECKLIST

Newletter Winter 2013

95(1)

COMMON-LAW PARTNER

In an April 11, 2011 Technical Interpretation, CRA notes that a “common-law partner” means a person who cohabits in a conjugal relationship with the taxpayer and, either has cohabited with the taxpayer for a continuous period of at least one year, or is considered to be a “parent” of a child of whom the taxpayer is also a parent.

This is relevant for income tax and other purposes.

MEDICAL EXPENSE TAX CREDIT (METC) - COSMETIC PROCEDURES

In an April 4, 2011 Technical Interpretation, CRA notes that eligible medical expenses exclude amounts paid for purely cosmetic purposes, unless necessary for medical or reconstructive purposes.

CRA opined that expenditures such as liposuction, hair replacement procedures, botulinum toxin injections, and teeth whitening would generally not qualify for the METC.

A cosmetic procedure will qualify for the METC if it is required for medical or reconstructive purposes such as expenditures that would ameliorate a deformity arising from a congenital abnormality, a personal injury resulting from an accident or trauma, or a disfiguring disease.

CRA notes that a general statement on a receipt indicating that the procedure was “not purely for cosmetic procedures” would not, by itself, be determinative.  It may be necessary to provide additional information to determine that a cosmetic procedure qualifies for the METC such as a description of the nature and purpose of the procedure.

MOVING EXPENSES - NEW SALES TERRITORY

In a May 12, 2011 Technical Interpretation, CRA reviewed a situation where the employee’s sales territory was expanded such that the individual’s most southerly point in her sales territory was now over a two hour drive from her home.

CRA concluded that the expansion of the sales territory was significant enough to conclude that it resulted in a new work location for purposes of the moving expense deduction.  Even though there was a two year gap between the time the individual began servicing her new expanded territories and her move, there was a sufficient nexus between the move and the commencement of employment at the new work location to qualify as an eligible relocation.  Therefore, the moving expenses would be deductible.

95(2)

MOTOR VEHICLE EXPENSES

In an April 4, 2011 Technical Interpretation, CRA notes that employees may deduct motor vehicle travel expenses if required to carry out his/her employment duties away from the employer’s regular place of business and the employee is required by the contract of employment to pay such expenses.  A completed Form T2200 is also required.

EMPLOYMENT VS. INDEPENDENT CONTRACTOR STATUS

In an April 20, 2011 Tax Court of Canada case, the Court concluded that this bicycle courier was an employee, not an independent contractor, but noted that this is a very fine line.

The Court compared this case to a previous case which had found the courier to be an independent contractor because:

1.    The courier could sign on and off at will.

2.    The courier was responsible for the loss of deliveries.

3.    The courier could negotiate a better pay rate.

4.    The courier could employ others.

5.    The pay was based on volume.

6.    The courier admitted that he entered into something other than an employment arrangement.

The Court noted that the facts require little tweaking to shift the balance.  It remains a grey area of the law between independent contractor and employee.

95(3)

ACQUISITION OF AUTOMOBILE

In a 2011 Technical Interpretation, CRA commented on the tax implications of purchasing an automobile which is made available to an employee.

They noted that the taxable standby charge to the employee is based on 2% of the original cost of the automobile per month or, in the case of a leased automobile, two-thirds of the lease cost, excluding insurance, minus amounts paid by the employee to the employer for the use of the automobile.

A reduced standby charge is available if the vehicle is used primarily for business purposes (a 50% test) and the employee’s personal use does not exceed 20,004 kilometres per year.

CRA noted that the original cost of the vehicle is the purchase price including options, accessories, GST/HST and PST, but does not include, obviously, the trade-in.  Additions made to the automobile after it is purchased which are capitalized are also included (including the GST/HST and the PST).  Also included are the tire and battery levies.

SIMPLIFIED LOG BOOK

CRA recently announced the introduction of a new simplified log book for motor vehicle expense provisions.

Self-employed individuals can now choose to maintain a full log book for one complete year to establish the business use of a vehicle in a base year.  After one complete year of keeping the log book to establish a base year, a three-month sample log book can be used to establish business use for the entire year, providing the usage is within the same range (within 10%) of the results of the base year.

95(4)

SALARY PAID TO FAMILY MEMBERS - EMPLOYMENT INSURANCE (EI)

In an April 20, 2011 Tax Court of Canada case, the taxpayer was the son of the owner of the corporation and received a salary from that corporation.  The Court found that the salary was not subject to EI on the basis that the employment conditions were different than that which would have been provided to an arm’s length employee.

The Court noted that it is difficult for individuals who work for family members to have insurable employment because the personal relationship almost inevitably manifests itself in some way in the employment relationship.

Also, in an April 6, 2011 Tax Court of Canada case, the Court determined that the salary paid by a corporation to the owner’s spouse was not subject to EI on the basis that it was not reasonable to conclude that the payer and the Appellant would have entered into a substantially similar contract of employment if they had been dealing with each other at arm’s length.

PERSONAL LIABILITY FOR UNPAID GST/HST

In an April 18, 2011 Tax Court of Canada case, the taxpayer was a director of a corporation that did not remit its GST because the spouse of the shareholder/director was responsible for remitting GST and, due to her ill health, she was unable to make the remittance.

The Court noted that the director did not exercise the degree of care, diligence and skill to prevent the failure to remit the GST that a reasonably prudent person would have exercised in comparable circumstances and, therefore, was personally liable for the unpaid GST.

However, the Court did recommend that the taxpayer discuss the possibility of the waiver of the penalties and interest with the CRA under the Taxpayer Relief Provisions on the basis that the spouse’s illness caused the unremittance of the GST.

95(5)

EXCESS RRSP CONTRIBUTIONS

In a February 23, 2011 Tax Court of Canada case, the taxpayer was successfully assessed by CRA tax and penalties of $1,040 and $177 for the 2004 taxation year and $1,099 and $187 for the 2005 taxation year for excess RRSP contributions.

TAXPAYER RELIEF

In a May 30, 2011 CRA Newswire  Release, the Honourable Gail Shea, the new Minister of National Revenue, noted that taxpayers that cannot meet their tax obligations due to a natural disaster (such as spring flooding in Quebec, Manitoba, Saskatchewan and Alberta and forest fires in the Slave Lake area) may apply for penalty and/or interest relief by completing Form RC4288.

For details, Google “Tax Relief Measures Available to Victims of Natural Disasters in Canada”.

OLD AGE SECURITY PENSION (OAS)

The OAS is available to Canadians aged 65 or over who have lived in Canada for at least ten years after age 18.  If a Canadian is living outside Canada, the OAS may still be available if they were residents of Canada for at least 20 years after age 18.

Seniors must apply to receive the OAS.  This could be done 6 months before turning age 65 to allow Service Canada time to process the application for payment on the month that the person turns age 65.

OLD AGE SECURITY (OAS) - CLAWBACK

The maximum monthly OAS benefit is $533.70 for the third quarter of 2011.  The 2011 clawback of OAS benefits starts at 15% of net income over $67,668 and is completely eliminated at income of $110,038.

In addition, there will be a repayment of “clawed back” OAS for the next year based on 1/12 of the total estimated repayment on the previous year commencing in July of the next year.  If the next year’s income is going to be significantly less, a waiver for this clawback could be requested.

This repayment is called a Recovery Tax.  The Recovery Tax is indicated in Box 22 of the T4-OAS and this can be claimed as a tax payment on the return for that year.

95(6)

Prezi.com – online presentation software

When looking to improve visua l presentations and simply make them sparkle, consider using Prezi.

The traditional method for creating a presentation consists of making a series of slides.  With Prezi, only one very large slide is used.   Information and pictures are posted onto it in whichever area the user wants (similar to putting yellow sticky notes on a whiteboard).  The user than determines the order in which they would like the information to appear.  When showing the presentation, the visual focus simply slides from one posted piece to the next based on the creators preference.

95(7)

SOME GST/HST POINTS TO CONSIDER

Even though GST has been around for 20 years, there are still a few areas that CRA always seems to assess upon audit as mistakes and oversights often occur in these areas.

1.      Supporting Documentation for ITCs

There are rules that require certain pieces of information be obtained (usually from the invoice) before you can claim an Input Tax Credit (an “ITC”) for the GST/HST that you pay.

2.      Meals & Entertainment

Where meal and entertainment expenses are subject to a 50% limitation for income tax, the GST/HST is also limited to 50%.

3.      Reimbursement of Employee Expenses

Don’t forget that when you reimburse an employee for business expenses, you may be eligible to claim an ITC for the GST/HST that was paid by the employee.

Professional advice may be needed in these GST/HST areas.

CHARITIES

CRA Guide GI-067 provides basic GST/HST guidelines for charities including special charity GST/HST rules, registration details, and small supplier rules.

CRA Guide GI-066 provides information on how a charity calculates the net GST/HST tax.

95(8)

On June 6, 2011 a new Federal Budget for the 2011 fiscal period was presented.

On March 22, 2011 the original edition of the Budget was presented.  However, on March 26, 2011 Parliament was dissolved and, therefore, the Budget was not adopted.

Most items included in the March 22, 2011 Federal Budget were kept fully intact.

The Government's fiscal positions include deficits in the years 2010/2011 ($40.5 billion), 2011/2012 ($29.6 billion), 2012/2013 ($19.4 billion), 2013/2014 ($9.5 billion), 2014/2015 ($0.3 billion), and a surplus in 2015/2016 ($4.2 billion).

The Federal Government notes that it will:

• provide $80 million in new funding over three years to help small and medium-sized businesses accelerate their adoption of key information and communications technologies,
• provide nearly $870 million over two years to address climate change and air quality, including the extension of the ecoENERGY Retrofit-Homes program,
• introduce a 15-per-cent Children’s Arts Tax Credit, provided on up to $500 of eligible expenditures,
• provide a temporary Hiring Credit for Small Business of up to $1,000 against a small firm’s increase in its 2011 Employment Insurance (EI) premiums to encourage hiring,
• limit deferral opportunities for corporations with investments in partnerships,
• enhance the Guaranteed Income Supplement (GIS) via a top-up benefit of up to $600 annually for single seniors and $840 for couples,

There were no new corporate or individual tax rates introduced.

95(9)

NEW FILING REQUIREMENTS

On September 17, 2010, CRA announced that, effective for fiscal periods ending after December 31, 2010, a Canadian Partnership, or a Partnership that carries on a business in Canada, must file a T5013 Partnership Information Return where one of the following conditions are met:

•    At the end of the fiscal period the revenues plus expenses are greater than $2 million or, the Partnership has more than $5 million in assets.

•    At any time during the fiscal period the Partnership was either a tiered Partnership, had a Partner that was a corporation or a Trust, invested in flow-through shares of a principal business corporation that incurred Canadian resource expenses and renounced these expenses to the Partnership or had received a written request from CRA to file a T5013 Information Return.

HIGH-NET-WORTH INDIVIDUALS

In February, 2011 CRA introduced a new audit program called the “related party initiative” (RPI) which identifies high-net-worth individuals and their related economic entities for CRA risk assessment reviews.

Individuals with net asset value of over $50 million, and related groups comprising of 30 or more entities, were the target of this project.

CRA is asking for the completion within 30 days of a 20-page questionnaire asking for information about related economic entities, Corporations, Trusts, Joint Ventures, and Private Foundations.  Information requested includes copies of the Minutes of Corporate Board of Directors Meetings, correspondence, legal and accounting firms files used, and tax-planning documents.

U.S. SOCIAL SECURITY BENEFITS

Changes made to the Canada-U.S. Tax Convention beginning in 1996 increased the inclusion rate for U.S. Social Security benefits to 85% from 50%.  The 2010 Federal Budget reinstated the 50% inclusion rate for Canadian residents who have been in receipt of U.S. Social Security benefits since January 1, 1996 and for their spouses and common-law partners who are eligible to receive survivor benefits.  These changes apply to benefits received on or after January 1, 2010.

Two quarterly newsletters have been added—one about personal issues, and one about corporate issues. They can be accessed below.

Corporate:

Issue #24 Corporate

Personal:

Issue #24 Personal

Canadians have a well-deserved reputation for supporting charitable causes, through donations of money and goods. Our tax system supports that generosity by providing a tax credit, at both the federal and provincial/territorial levels, for donations made. Federally, taxpayers can claim a credit of 15% of the first $200 in donations plus 29% of donations over the $200 threshold. The tax credit provided by the provinces and territories works in much the same way, in that a tax credit is provided on the first $200 in donations at the lowest tax rate imposed by that province or territory, and a credit on donations above the $200 level at the province or territory’s highest tax rate. The only exceptions are the provinces of Alberta and Quebec. Alberta provides a credit of 10% on the first $200 in donations, and a credit of 21% on the balance. Quebec provides a charitable donations tax credit on the first $200 of donations at the 20% rate applicable to its middle income bracket. Donations above the $200 threshold are eligible for credit at the province’s top tax rate of 24%.

An announcement in this year’s federal Budget will provide a one-time opportunity for those who have not been particularly charitably inclined in recent years, for whatever reason, to remedy that situation and to gain some significant tax benefit for doing so.

That benefit arises from what the budget papers termed the “First-Time Donors Super- Credit”. The name is somewhat misleading, as the credit is not available just to first-time donors, but to anyone who has not claimed a charitable donations tax credit since 2007. So where no charitable donations were claimed by a taxpayer or his or her spouse on the 2008, 2009, 2010, 2011, or 2012 tax return, the one-time “super-credit” will be claimable for any such donations made after March 20, 2013 and before 2018.

Calling the new initiative a “super-credit” is not an exaggeration. While the usual federal tax credit rate for donations under and above the $200 threshold is 15% and 29% respectively, the super-credit will provide such credit at the rates of 40% (for donations under $200) and 54% (for donations over $200, to a maximum of $1,000 in donations).

There are a couple of restrictions on donations which qualify for the super-credit. Only donations of money (not goods) will qualify for the super-credit, and that super-credit can only be claimed once. That claim can be made on any tax return for the 2013, 2014, 2015, 2016, or 2017 tax years. As is the usual rule for charitable donations tax credit claims, the super-credit can be claimed solely by one spouse for donations made by either, or can be shared between spouses. However, if the super-credit is divided, it can be claimed on only $1,000 in total donations.

As is the case with any charitable donation, the super-credit will be claimable only for donations of money to registered charities. Any charity seeking or receiving a donation should be able to provide a registered charitable number, and a searchable current listing of registered charities can be found on the Canada Revenue Agency Web site at http://www.cra-arc.gc.ca/chrts-gvng/lstngs/menu-eng.html.

Beginning July 1, 2013, Canadians who are 65 years of age will, for the first time, need to decide when they want to begin receiving their Old Age Security benefit.

Beginning July 1, 2013, Canadians who are 65 years of age will, for the first time, need to decide when they want to begin receiving their Old Age Security benefit.

To make sense of the change, a bit of background is required. The OAS program is one of two federal government programs which provide income to Canadians during retirement, the other such program being the Canada Pension Plan (CPP). While the CPP is funded by contributions made by Canadians and their employers during the working lives of those Canadians, the OAS is a non-contributory plan, for which benefits are paid out of federal government general revenues. Eligibility for OAS benefits is based on an individual’s age and number of years of Canadian residence. Anyone who is 65 years of age or older and has lived in Canada for at least 40 years after the age of 18 is eligible to receive the maximum benefit. As of April 2013, that maximum monthly benefit is $546.

As everyone knows by now, the Canadian population is aging and as a result, more and more Canadians will be receiving OAS benefits. In the federal government’s view, the approaching increase in the number of OAS recipients creates a risk to the long-term financial viability of the OAS system. The federal government responded with a number of changes to that system, all announced as part of the 2012 federal Budget.

At the time the changes were announced, most attention was focused on the gradual increase in the eligibility age for OAS benefits from age 65 to age 67, which will affect Canadians born on April 1, 1958 or later. Another budgetary change, however, provided that, as of July 1, 2013, Canadians eligible to receive OAS benefits would be able to defer receipt of those benefits for up to five years, when they turned 70 years of age. For each month that an individual Canadian deferred receipt of those benefits, the amount of benefit eventually received would increase by 0.6%. The longer the period of deferral, the greater the amount of monthly benefit eventually received. Where receipt of OAS benefits is deferred for a full 5 years, until age 70, the monthly benefit received is increased by 36%. The dollar figure effect of short-term and longer-term deferrals is shown in the following examples prepared by Service Canada.

Example: One-Year OAS Deferral

Michael will be turning 65 in September 2013.

Instead of taking up his OAS pension at age 65, he plans to continue working a year longer and defer the pension until age 66.

When he takes up his OAS pension at age 66, his annual pension will be $6,948 instead of $6,481 (in 2012 dollars).

Example: Five-Year OAS Deferral

Rita will be turning 65 in December 2013.

She plans to continue working as long as she can. She prefers to forgo her OAS pension for the maximum deferral period of five years so that she can have a substantially higher annual pension amount, starting at age 70.

When she takes up her OAS pension at age 70, her annual pension will be $8,814 instead of $6,481 (in 2012 dollars).

The decision of whether to defer receipt of OAS benefits and for how long is very much an individual one—there really aren’t any “one size fits all” rules. There are, however, some general considerations which are common to most taxpayers. Essentially, the first consideration in determining when to begin receiving OAS benefits requires the taxpayer who is turning 65 to consider how much total income is needed to finance current needs and the extent to which other sources of income are available to him or her to meet those needs. It’s also necessary to determine what other sources of income (Canada Pension Plan retirement benefits, employer-sponsored pension plan benefits, required RRSP withdrawals, etc.) will become available in the future and when receipt of those income amounts will commence. Once income needs and sources and the possible timing of each is clear, it’s necessary to consider the income tax implications of how receipt of those sources of income is structured. In doing so, taxpayers need to be aware of the following income tax thresholds and cut-offs.

• Income in the first federal tax bracket is taxed at 15%, while income in the second bracket is taxed at 22%. For 2013, that second income tax bracket begins at taxable income of $43,561.
• The Canadian tax system provides (for 2013) a non-refundable tax credit of $6,854 for taxpayers who are over the age of 65 at the end of the tax year. That amount of that credit is reduced once the taxpayer’s net income for the year exceeds $34,562, and disappears entirely for taxpayers with net income over $80,256.
• Individuals can receive a GST/HST refundable tax credit, which is paid quarterly. For 2013, the full credit is payable to individual taxpayers whose net income is less than $34,561.
• Taxpayers who receive Old Age Security benefits and have income over a prescribed amount are required to repay a portion of those benefits. Benefits begin to be “clawed back” when taxpayer income for 2013 is more than $70,954. Taxpayers having income of over $114,640 are not eligible for OAS and must repay any OAS benefits received.

The goal, as always, is to ensure sufficient income to finance a comfortable lifestyle while at the same time minimizing both the tax bite and the potential loss of tax credits (or the need to repay benefits received). Taxpayers who are trying to decide when to begin receiving OAS benefits could, depending on their circumstances, be affected by one or more of the following considerations.

What other sources of income are currently available?

More and more, Canadians are not automatically leaving the work force at the age of 65. Those who continue to work at paid employment and whose employment income is sufficient to finance their chosen lifestyle may well prefer to defer receipt of OAS. Similarly, a taxpayer who begins receiving benefits from an employer’s pension plan when he or she turns 65, may be able to postpone receipt of OAS benefits.

Is the taxpayer eligible for Canada Pension Plan retirement benefits, and at what age will those benefits commence?

Nearly all Canadians who were employed or self-employed after the age of 18 paid into the Canada Pension Plan and are eligible to receive CPP retirement benefits. While such retirement benefits can be received as early as age 60, receipt can also be deferred until the age of 70. As is about to be the case with OAS benefits, CPP retirement benefits increase with each month that receipt of the benefits is deferred. Taxpayers who are eligible for both OAS and CPP will need to consider the impact of accelerating or deferring the receipt of each benefit in structuring retirement income. 

Does the taxpayer have private retirement savings through an RRSP?

Taxpayers who were not members of an employer-sponsored pension plan during their working lives generally save for retirement through a registered retirement savings plan (RRSP). While taxpayers can choose to withdraw amounts from such plans at any age, they are required to collapse their RRSPs by the end of the year in which they turn 71, and to begin receiving income from those savings. There are a number of options available for structuring that income, and, whatever the option chosen (usually, converting the RRSP into a registered retirement income fund or RRIF, or purchasing an annuity) will mean that the taxpayer will begin receiving income amounts from those RRSP funds in the following year. Taxpayers who have significant retirement savings in RRSPs should, in determining when to begin receiving OAS benefits, consider that they will have an additional (taxable) income amount for each year after they turn 71.

Finally, not all of the factors in deciding how to structure retirement income are based on purely financial and tax considerations. There are other, more personal issues and choices which come into play. Those include the state of one’s health at age 65 and the consequent implications for longevity, which might argue for accelerating receipt of any available income. Conversely, individuals who have a family history of longevity and who plan to continue working for as long as they can may be better off deferring receipt of retirement income where such deferral is possible.

Many Canadians put off plans, like a desire to travel, until their retirement years. Realistically, from a health standpoint, such plans are more likely to be possible earlier rather than later in retirement. Generally speaking, the early years of retirement are the most active years, and the years in which expenses for activities are likely to be highest. Having such plans might argue for accelerating income into the early retirement years, when it can be used to make those plans possible.

The ability to defer receipt of OAS benefits does provide Canadians with more flexibility when it comes to structuring retirement income. The price of that flexibility is increased complexity, particularly where, as is the case for most retirees, multiple sources of income and the timing of each of those income sources must be considered, and none of them can be considered in isolation from the others.

Individuals who are facing that decision- making process will find some assistance on the Service Canada Web site. That site provides a Retirement Income Calculator, which, based on information input by the user, will calculate the amount of OAS which would be payable at different ages. The calculator will also determine, based on current RRSP savings, the monthly income amount which those RRSP funds will provide during retirement. Finally, taxpayers who have a Canada Pension Plan Statement of Contributions which outlines their CPP entitlement at age 65 will be able to determine the monthly benefit which would be payable where CPP retirement benefits commence at different ages between 60 and 70.

The Retirement Income Calculator can be found at http://www.servicecanada.gc.ca/eng/isp/common/cricinfo.shtml.

As of the middle of April, the Canada Revenue Agency (CRA) had received just under 10 million individual income tax returns for the 2012 tax year. It’s a near certainty that some number of those 10 million tax filers will discover, after the return is filed, that a mistake was made—that information on some sources of income was inadvertently omitted, that figures were stated or added incorrectly, or that a deductible or creditable expense or expenses were overlooked.

As of the middle of April, the Canada Revenue Agency (CRA) had received just under 10 million individual income tax returns for the 2012 tax year. It’s a near certainty that some number of those 10 million tax filers will discover, after the return is filed, that a mistake was made—that information on some sources of income was inadvertently omitted, that figures were stated or added incorrectly, or that a deductible or creditable expense or expenses were overlooked.

Errors on a tax return can be made for any number of reasons. Those who file early may receive an information slip or receipt after the return has already been sent in. (Although filing of 2012 tax returns was possible as early as February 11, 2013, the deadline by which information slips had to be issued was not until the end of that month.) In other cases, taxpayers may simply have overlooked or misplaced one or more slips of paper, or just written or inputted a figure incorrectly.

This year, the potential for individual tax filing errors is perhaps greater than usual. As of January 2013, the CRA ceased mailing personalized income tax return packages to Canadians, and so more than the usual number of taxpayers may be scrambling at the last minute to obtain and complete a return form for 2012. Where information is gathered and returns prepared just in time to meet the filing deadline, those returns are more likely to contain filing errors. Perhaps more significantly, as of the 2012 filing season, the CRA no longer provides a simplified tax return form (the T1 Special) for taxpayers who have straightforward tax situations. Taxpayers who previously filed using a T1 Special will, therefore, have to deal with completing a tax return form which is both unfamiliar and more complex than the one they used in previous years, increasing the likelihood that an error will be made in completing that return.

Some errors made on filing are corrected by the CRA as part of their assessing process. Where an arithmetical error has been made in adding up a column of figures, the CRA’s computers will calculate the correct result. As well, in some limited instances, the CRA will identify amounts to which the taxpayer is entitled (e.g., an overpayment of Canada Pension Plan premiums) and assess on that basis. In most cases, however, the CRA must assess a return based on the information provided by the taxpayer. Where that information is incorrect, it’s up to the taxpayer to notify the CRA of the mistake and to provide corrected information.

Most taxpayers who discover that an incorrect return has been filed, are at a loss to know how to fix it. The first reaction of such taxpayers is often to file another return which contains the correct information, but that’s not the right answer. Where a taxpayer realizes that a mistake has been made on an already-filed return, the correct course of action is to wait until the return has been processed and a Notice of Assessment has been received from the CRA. Once that Notice of Assessment is received, the taxpayer can act to correct the error.

There are a couple of means by which an error made on a return can be corrected after the Notice of Assessment is received. Taxpayers who are already registered for the CRA’s online service My Account can make that change through the “Change my return” option on My Account. It’s also possible to register for My Account for the first time in order to make the correction. Registering for My Account isn’t difficult (the steps to be taken to do so are outlined on the Web site at http://www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/myccnt/menu-eng.html; however, it does take a few weeks to complete the process. Although the CRA does provide a more streamlined service feature for obtaining individual tax information (“Quick Access”), it is not possible to amend a tax return using that feature.

Taxpayers who don’t want to deal with the CRA through the Web site, or who don’t think it’s worth registering for My Account just to deal with the Agency on a single issue can obtain a hard copy of a T1 Adjustment form from the CRA Web site at http://www.cra-arc.gc.ca/E/pbg/tf/t1-adj/t1-adj-12e.pdf or by calling the CRA’s Individual Income Tax Enquiries service at 1-800-959-8281. The use of the actual form isn’t mandatory—a letter to the CRA signed by the taxpayer is an acceptable alternative—but using a standardized form has two benefits. First, it makes it clear to the CRA that an adjustment is being requested. Secondly, filling out the form will ensure that the CRA is provided with all the information needed to process the requested adjustment. Once the form or letter is completed, it should be mailed or faxed to the Tax Centre to which the original return was sent. A taxpayer who isn’t sure anymore where that was can go on the CRA Web site at http://www.cra-arc.gc.ca/cntct/tso-bsf-eng.html and, by selecting his or her location from a drop-down menu of provinces and cities, can obtain the address of the Tax Centre (not the Tax Services Office) to which the adjustment request should be sent.

Sometimes, it’s the CRA which discovers that a return is incomplete or that further information is needed to properly assess the return. In such circumstances, the CRA will contact the taxpayer even before the return is assessed, to request further information or documentation of deductions or credits claimed (for example, information on the custody of a child where one parent has claimed an equivalent to spouse deduction, or receipts documenting child care expenses claimed). In all cases, the best thing to do is respond to such requests promptly, and to provide the requested documents or information. The CRA can assess only on the basis of information with which it is provided, and where a request for information or supporting documents for a deduction or credit claimed is ignored by the taxpayer, the assessment will proceed on the basis that that such support does not exist. Providing the requested information or supporting documents can often resolve the question to the CRA’s satisfaction, and the assessment of the taxpayer’s return can then proceed.

A little-noticed provision contained in this year’s federal budget could result in some business owners not receiving their GST/HST refunds as expected.

Virtually all businesses in Canada must register for GST/HST purposes. Excluding businesses in certain specialized sectors (like charities), all businesses which have annual taxable sales of goods and/or services (that is, sales on which harmonized sales tax (HST) or goods and services tax (GST) must be charged) totaling more than $30,000 must register their business for GST/HST purposes.

A little-noticed provision contained in this year’s federal budget could result in some business owners not receiving their GST/HST refunds as expected.

Virtually all businesses in Canada must register for GST/HST purposes. Excluding businesses in certain specialized sectors (like charities), all businesses which have annual taxable sales of goods and/or services (that is, sales on which harmonized sales tax (HST) or goods and services tax (GST) must be charged) totaling more than $30,000 must register their business for GST/HST purposes.

As part of that registration process, the business owner must provide information about the business, including the following:

• how the business is structured;
• the legal name of the business;
• the operating or trade name of the business;
• the effective date of registration;
• the full name of at least one owner, partner, or director and, where the business is a sole proprietorship, the owner’s social insurance number;
• the physical location (i.e., address) of the business; and
• the business activity and fiscal year-end of the business.

Once registration is done, businesses must file GST/HST returns on a prescribed schedule, reporting the amount of GST/HST collected and claiming input tax credits (or, for businesses using the streamline quick method, a prescribed percentage of HST or GST-included sales) on HST or GST amounts paid for supplies and services used by the business. While the information requirements for registration purposes seem fairly straightforward, there is apparently a significant amount of non-compliance with those requirements, at least in the view of the Canada Revenue Agency (CRA).

Under pre-budget rules, businesses which did not comply with the business information requirements could be assessed a penalty of $100 for such failure. In the government’s view, however, it seems that that penalty has not been a sufficient deterrent to prevent non-compliance, and it has concluded that stronger sanctions are needed.

In order to ensure such compliance, the budget provides that, where a business has failed to provide business identification information as required, the CRA will have the authority to withhold any GST/HST refunds which the business has claimed, without limit and for an indefinite period, until such time as that business brings itself into compliance with the business identification information requirements.

The budget papers indicate that “[t]he Minister of National Revenue will exercise this authority to withhold refunds in a fair and judicious manner”. However, no further details on how the provision will be administered—for instance, whether there will be a grace period during which non-compliant businesses can bring themselves into compliance, or whether any notice to affected businesses will be provided before GST/HST refunds are withheld—are contained in the budget.

There is, however, time for businesses which have not in the past complied with the rules to do so, as the new penalty provision will not take effect until the enacting legislation is passed by Parliament and completes the legislative process, which is likely to take at least several weeks. 

Many business owners are likely not sure whether they are in fact in compliance with the GST/HST business information disclosure requirements. Finding out, however, is a straightforward process—a business owner can simply call the CRA’s business enquiries line at 1-800-959-5525 to enquire as to the status of his or her account. Before doing so, it’s necessary to have at hand information on the business—at a minimum, the business number, the business owner’s social insurance number, and the business address and telephone number. As well, the business owner may possibly be asked to provide information from previous GST/HST filings for the business. Such information will be needed to satisfy the CRA’s information security requirements. Where there is business information outstanding, that information can be provided to the CRA’s client services agent, in order to bring the business into compliance with the federal government’s requirements.

The new penalty provisions will take effect when the enabling legislation receives Royal Assent, which will likely be a few months from now. Business owners would be well advised to ensure, in the meantime, that they are in compliance with all information requirements. Failing or neglecting to do so may result in a delay in receiving anticipated GST/HST refunds, something no business owner wants. 

Two quarterly newsletters have been added—one about personal issues, and one about corporate issues. They can be accessed below.

 Corporate:

Issue #22 Corporate

Personal:

Issue #22 Personal