23 - Procedures & Administration

7/25/2019 23 - Procedures & Administration

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Procedures & Administration


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Administration of the

Canadian Tax SystemParliament

Minister of National Revenue

Canada Revenue Agency15 memer !oard of Management

"11 memers nominated y the #rovinces$one of %hom is the Commissioner of CRA


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Procedures

'o% does the government collect

income tax revenues(


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Collection of )ncome Tax Revenues

)ncome Taxes are collected from*

+)ndividuals

+Cor#orations

+Trusts


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)ncome Tax Remittance

for )ndividuals


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)ndividuals

,m#loyed y aCor#oration

Self-,m#loyed or earnsustantial other income

,m#loyer must %ithholdthe income tax ")TA 15.

"a/a Source 0eductions

)ndividual must ma/einstallment #ayments of

income tax


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Source 0eductions y ,m#loyer

,stimated amount of income taxes must e %ithheld from

the em#loyee2s gross #ay y the em#loyer through #ayroll

deductions

Amount of deduction is ased on the T0-1 formcom#leted y em#loyee - this amount may e incorrect

3ther amounts must also e %ithheld* CPP4PP$ ,)"alsoestimated taxes on retiring allo%ances$ death enefits$ #ayments

from RRSP4R,SP$ #ayments to non-residents$ etc6

Amounts are remitted to the Receiver 7eneral


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)ndividuals Ma/ing their o%n

)nstallment Payments

)ndividuals must #ay installments %hen*

+they are self-em#loyed$ or

+%hen the difference et%een the federal 8

#rovincial taxes #ayale is more than 9.$:::

greater than the amounts %ithheld through

source deductions in the current year and either

of the t%o #receding years )nstallment #ayments are ;uarterly*

"due on March 15$


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0etermining Amounts of

)nstallments for )ndividuals

There are . methods for calculating the re;uired installments*


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+A##roach . is the method used y the tax authoritieson the ;uarterly )nstallment Notices

ecause the amounts are certain$ not estimates$ and

no interest or #enalties are charged on any deficiencies

+The tax#ayer may choose any one of the three

a##roaches for remitting during the year$ ho%everinterest is charged on any deficiencies if they choosealternatives 1 or =


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)nterest on >ate or 0eficient

)nstallments y )ndividuals )nterest is charged if installments are not #aid

%hen due or if they are deficient

Regulation ?.:1 #rescries the rate of interest$

ased on the average rate on @:-day T- ills

)nterest is levied in the follo%ing manner*+ Regular rate is the #rescried rate

+ Regular Rate 8 = is used y the tax authorities %hen#aying interest on refunds to tax#ayers

+ Regular Rate 8 ? is charged on late or deficient

installments y tax#ayers


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)ncome Tax Remittance

for Cor#orations


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Cor#orate Tax Payments

Cor#orations remit = ty#es of taxes to the government*

Source

0eductions

%ithheld from

the em#loyees

Taxes o%ing

on their o%n

cor#orate

income


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Remitting

Source 0eductions


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Remitting Source 0eductions

!ased on Class of ,m#loyer+Class is determined y the average amount of

monthly %ithholdings from em#loyees

Bour Classes of ,m#loyers*


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Quarterly

Remitters

Regular

Remitters

Accelerated

Remitters

Threshold 1

Accelerated

Remitters

Threshold 2

Average

MonthlyWithholding

9.$:::

)n 1st

or =nd

#receding

year &

#erfect

com#liance

history

9=5$:::

#er month in=nd#receding

calendar year

9=5$::: - 9@@$@@@ 91::$::: or more

Due Date of

Remittance

15thof A#ril$


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Bailure of an ,m#loyer to Remit

Source 0eductions Bailure to remit amounts in excess of 95::

incur the follo%ing #enalties*

+. days late or less* . #enalty+? or 5 days late* 5 #enalty

+F or E days late* E #enalty

+G or more days late* 1: #enalty Bor a second offence$ #enalties can douleH

Also all late #ayments are suIect to interest


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Remitting the

Cor#orate Taxes Payale


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)nstallment Payments

for a Cor#oration2s 3%n Taxes Cor#orations generally ma/e monthly installment

#ayments to%ards their o%n tax liaility

+ unless the estimated taxes #ayale for the current year or the

taxes #aid in the #receding taxation year do not exceed 9.$:::

)nstallments #ayments must e made on or efore the

last day of each month

All taxes #ayale must e #aid %ith = months of the

fiscal cor#orate year of year end ". months for a CCPCeligile for the Small !usiness 0eduction


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0etermining Amounts of

)nstallments for Cor#orationsApproach 1 Approach 2 Approach 3

1= )nstallments*

141= of the estimatedtaxes #ayale in the

current year

1= )nstallments*

141= of the taxes#ayale last year

1= )nstallments*

Birst = )nstallments ased on141= of taxes #ayale = years

ago

>ast 1: installments ased on

141: of the amount y %hich

the taxes #aid = years agoexceeds the sum of the first t%o

installments


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)nterest on >ate or 0eficient )nstallments

y Cor#orations

)nterest and Penalties on late or deficient

#ayments are the same as for individuals

+Regular rate is the #rescried rate

+Regular Rate 8 = is used y the tax authorities

%hen #aying interest on refunds to tax#ayers

+Regular Rate 8 ? is charged on late or deficient

installments y tax#ayers


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Biling )ncome Tax Returns

Interesting acts!

,stimated total cost of filing #ersonal income taxes"time$ soft%are$ tax #re#arers*

[email protected]@ !illionCRA s#ends J 9.6E !illion4year collecting taxes

Provinces s#ends another 9= !illion 3tta%a CitiKen$ A#ril =:4:G


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)ndividuals2 Biling 0eadlines

)ndividuals must file on or efore A#ril .: inthe year follo%ing the taxation year

)ndividuals %ith self-em#loyment income

must file y


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Cor#oration2s 0eadlines

Cor#orate Tax Returns are due F months

after the end of the cor#orate fiscal year

"'o%ever$ all taxes o%ing must e #aid %ithin =months of the end of the fiscal yearH

Bile form T=


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Penalties for BilingA >ate )ncome Tax Return

!oth individuals and cor#orations %ho file their returnslate incur #enalties of*+ 5 of the tax not #aid %hen due$ #lus+ 1 for each com#lete month the tax remains outstanding "to a

max of 1= months 3n suse;uent offences "late %ithin the #receding .years$ the #enalties doule "1: #lus = for a max of=: months

Cor#orations also #ay an extra #enalty of 6:5 #ermonth of the cor#oration2s Taxale Ca#ital ,m#loyed inCanada for u# to ?: months

Advice* Bile on Time to avoid #enaltiesH Ln#aid taxesincur interest ut there are no #enalties for not eing ale

to #ay6


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Boreign Re#orting Re;uirements

Canadians must re#ort on %orld-%ide income

The tax authorities %ere concerned that

tax#ayers %ere not ma/ing disclosures aout

foreign sources of income "an/ accounts$shares$ tangile and intangile assets$ mutual

funds$ interest-earning loans$ and #artnershi#s

Pro#erty outside of Canada$ %ith a total cost ofmore than 91::$::: at any time during the tax

year must e disclosed on Borm T11.5$

Boreign )ncome erification StatementO


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Bailure to 0isclose

Boreign Pro#erty

A #enalty of 95:: #er month for u# to =?

months can e assessed This #enalty can doule once a demand to

file is served

A further #enalty of 5 of the cost of anyunre#orted #ro#erty can also e assessed


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The Tax Biling Procedure


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Tax#ayer files a tax return & #ays tax

"according to filing deadlines and deadlines for #ayment ofinstallments & taxes o%ing

CRA examines & assesses the tax return & sends the

tax#ayer a Notice of Assessment

Tax#ayer has @: days from the date of mailing of the

Notice of Assessment to file a Notice of 3Iection

"must #rovide reasons for oIection and a descri#tion of the facts

The Minister considers his assessment

"This can ta/e monthsH


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)f the Tax#ayer2s oIection is unsuccessful$ the

tax#ayer has @: days from the mailing to a##eal to

the Tax Court of Canada

.: days from the date of the Tax Court decision$ thecase can e a##ealed to the Bederal Court of A##eal

Su#reme Court of Canada


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Tax Planning$ Tax Avoidance andTax ,vasion


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3Iect and S#iritof Tax >a%

Tax Planning

Tax Avoidance

"Civil Drongdoing

Tax ,vasion

"Criminal 3ffence

Acce#tale !ehavior

Lnacce#tale !ehavior


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Ta" #lanning

The courts have held that tax#ayers have aright to organiKe their affairs to minimiKetax

Therefore$ the tax#ayer can use #rovisions%ithin the )ncome Tax la% to legally reduceor eliminate tax$ such as*

RRSPs and TBSAs

)ncome s#litting salary and dividend o#timiKation

incor#oration of a #ro#rietorshi#

etc6


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Ta" Avoidance The delierate aggressive #lanning of events &

transactions in order to reduce taxes #ayale ery difficult to determine %hat is mere

#lanning2 and %hat is aggressive2

The tax authorities have introduced #rovisions to#revent aggressive #lanning2*+)TA F@* 7eneral Anti-Avoidance Rule "7AAR

re;uires that a legitimate usiness #ur#ose2 underlie

a transaction+A Reasonale ,x#ectation of Profit


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Ta" $vasion

The %illful and delierate misre#resentation offacts %ith the intent to deceive

This is a criminal act earning interest & #enalties

under civil la%$ A%Dfines and #ossileim#risonment under

criminal la%


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Tax Advisors and Pre#arers &e'are(

)TA 1F.6="?levies a #enalty for #artici#ating in

a misre#resentation "commission or omission in

the #re#aration of a return The #enalty is the greater of 91$:::$ or the

#enalty assessed against the client

The client2s #enalty is e;ual to 5: of theamount of tax avoided$ ca##ed at 91::$:::

Ti f St d t fil t f t d i f


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Ti#s for Students* file your taxes efore studying for examsJamie Golombek

Ottawa CitizenMarch 27, 2010

With fnal exams jst weeks awa!, it"s nlikel! that flin# an income tax retrn is atthe to$ o% most st&ents" min&s' (t st&ents ma! fn& themsel)es with someextra cash this s$rin# i% the! take the time to com$lete a retrn' While there is#enerall! no obli#ation to fle a tax retrn i% no taxes are owe&, there are a %ewreasons wh! st&ents shol& consi&er flin#'*irst, i% the!"re at least 1+, st&ents shol& fle a retrn to establish their rightto collect the GST/HST credit, which is a tax%ree -arterl! $a!ment meant to

assist in&i)i&als with low incomes to o.set all or $art o% the G// the! $a!'

o recei)e the G// cre&it, Cana&ians mst a$$l! %or it each !ear, e)en i% the!recei)e& it last !ear' 3n& to a$$l!, the! mst fle a tax retrn, e)en i% the! ha)e noincome to re$ort'

he a$$lication %or the G// cre&it can be %on& on 4a#e 1 o% the retrn' oestimate how mch the cre&it ma! be worth to them, flers can #o to the Cana&a

5e)ene 3#enc!"s Web site an& check ot the Chil& an& *amil! (enefts OnlineCalclator'

)


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3nother #oo& reason to fle a retrn is to get a refund of any tax withheld atsource' 6% st&ents ha& a $arttime or smmer job, chances are #oo& theirem$lo!er atomaticall! withhel& some income tax %rom their $a!' /ince mostst&ents are in a nontaxable $osition owin# to the m!ria& cre&its a)ailable tost&ents, flin# a retrn to #et back the amonts withhel& at sorce ma! well be

worth the e.ort'

3s well, flin# a retrn to re$ort $arttime or smmer earnin#s will generateRRSP contribution room for use in future years' he 55/4 contribtion limitis base& on 18 o% earne& income %rom the $re)ios !ear' /ince there is no limitto how mch nse& 55/4 contribtion room can be carrie& %orwar&, flin# aretrn now to re$ort earne& income will allow st&ents to make more o% an 55/4

contribtion later in li%e, when the!"re in a hi#her tax bracket an& thecorres$on&in# &e&ction is worth more'

Once st&ents ha)e &eci&e& to fle, the! shol& be sre to claim all availablecredits to reduce any tax owing to zero' he! can start with the basic$ersonal amont, a)ailable to e)er! Cana&ian, which is 910,:20 %or 200+' 6n

a&&ition, %lltime st&ents shol& be able to claim the e&cation amont o% 9;00%or each eli#ible month o% atten&ance

23 - Procedures & Administration

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