Time’s Up: CRA’s 100 Day Mandate for Improvement

After years of frustration on the part of tax professionals and taxpayers alike, the Finance Minister ordered the Canada Revenue Agency to clean up its act in 100 days. Specifically, the improvement plan was to run from September 2 through December 11. Finance Minister and Minister of National Revenue, Francoise-Phillippe Champagne instructed CRA to fix “unacceptable wait times and service delays.” Time’s up this week and CRA has released an update on progress. What gets measured, gets done. Let’s see what CRA’s metrics show. 

The Canada Revenue Agency is scrutinizing eBay "PowerSellers", those who sell more than $3,000 a year on the site, to determine if they are reporting the full amount of revenues earned from the activities. Federal tax officials are expanding their review to users of eBay Canada to determine whether more than 10,000 sellers have included these revenues when they filed their income tax returns. The probe was launched approximately two years ago by the Canada Revenue Agency and initially focused on all eBay Canada PowerSellers in 2004 and 2005. The agency recently told eBay Canada it plans to expand the investigation to include all PowerSellers in 2006 and 2007 as well, putting several thousand more people under review. The CRA's investigation hit roadblocks with eBay Canada because they were allegedly refusing to turn over information about PowerSellers. Accordingly to eBay Canada officials, the information was stored on parent eBay Inc.'s computers in the U.S. and were therefore not within the CRA's jurisdiction.  They also felt the investigation was too broad and could be viewed as a "fishing expedition."   The Federal Court of Appeal dismissed eBay's arguments once the case was before them. The court ruled that e-Bay Canada has access to the records "with the click of a mouse," therefore putting them within the CRA's reach.  PowerSellers personal information such as names, addresses and gross sales revenues was ordered to be provided to the CRA, and the company advised it would comply with the decision.   Many of the PowerSellers affected by the court's decision feel the CRA's review is unfair as the sales on e-Bay Canada's site weren't run as a business, and the records they are requesting are not available.  The lesson in all this should be to keep your business records in order, as you never know when the tax man will come knocking at your door.   For more information on audit proofing your affairs and knowing the compliance requirements for both business and personal tax, subscribe to The Knowledge Bureau's online tax reference for taxpayers, financial advisors and their clients: EverGreen Explanatory Notes.

Budget 2009 increased the maximum amount that can be removed from a taxpayer's RRSP under the Home Buyers' Plan to $25,000 for withdrawals after January 27, 2009. Application for withdrawal of RRSP amounts is made on Form T1036 Home Buyers' Plan (HBP) Request to Withdraw Funds from an RRSP. The CRA has released an updated Form 1036, click here to access the form.   In the same budget a First Time Home Buyers' Tax Credit was introduced.  This credit is a non-refundable tax credit based on $5,000 for first time buyers who purchase a home after January 27, 2009 (closing date must be after that date). The credit is claimable in the year the home is acquired.   The Home Buyers' Plan allows first-time home buyers (or those who have not owned a home in the current year or preceding four years) to withdraw (under S. 146.01), on a tax-free basis, up to $25,000 (after January 27, 2009) of funds saved within their Registered Retirement Savings Plan (RRSP) for the purpose of buying or building a home. No tax will be withheld on such withdrawals. The withdrawals may be a single amount or the taxpayer may make a series of withdrawals throughout the year as long as the total does not exceed $25,000. Tax-free withdrawals from an RRSP may also be made for the purpose of making home renovations or purchasing a compatible home to meet the needs of a disabled person. The funds must be repaid back into the RRSP, over a period not exceeding 15 years, beginning in the second calendar year after the withdrawal. Amounts which are due and not repaid are included in the taxpayer's income under S. 56(1)(h.1) in the year they are due. The taxpayer and their spouse or common-law partner may each participate in the plan and together withdraw up to $50,000 after January 27, 2009 from their respective RRSPs. Disabled Persons For HBP purposes, a disabled person is an individual who qualifies for the disability amount or a person related by blood, marriage, or adoption to a person who is eligible to claim the disability amount for the year of the HBP withdrawal. Disabled persons need not be first-time homebuyers to participate in the HBP. Qualifying Homes A qualifying home is a housing unit located in Canada. This includes existing homes and those being constructed. Single-family homes, semi-detached homes, townhouses, mobile homes, condominium units, and apartments in duplexes, triplexes, fourplexes, or apartment buildings, all qualify. A share in a co-operative housing corporation that entitles the taxpayer to possess, and gives the taxpayer an equity interest in, a housing unit located in Canada also qualifies. Cancelling Participation If the taxpayer receives the funds from the RRSP but does not buy or build the home (and does not buy or build a replacement home), they may cancel their participation in the plan by contributing the funds back into the RRSP and notifying CRA of the cancellation. CRA provides a form in the Home Buyers' Plan Guide for this purpose. Any amount not recontributed to the RRSP will be considered income in the year received. Filing Requirements Members of the Home Buyers' Plan must file a tax return each year until their HBP balance is zero, regardless of whether they are otherwise required to file. Once payments begin, the taxpayer must report on Schedule 7 RRSP Unused Contributions, Transfers, and HBP or LLP Activities each year the amount of RRSP contributions designated as a repayment under the Home Buyers' Plan. These contributions are not considered to be an RRSP contribution and therefore do not require RRSP contribution room and are not deductible. If no contribution is made or the contributions are not designated as a HBP repayment, then the required repayment for the year will be included in the taxpayer's income on line 129. After the end of the year that the taxpayer turns 71, repayments can no longer be made to the HBP because the taxpayer may no longer contribute to his RRSP. Thus, in the year the taxpayer turns 71, if there is an outstanding HBP balance, the taxpayer must elect to pay the outstanding balance or include in income each year the required annual repayment. Emigration If a HBP participant becomes a non-resident, the outstanding balance must be repaid before the return for the year of emigration is filed but no later than 60 days after becoming a non-resident. Death of Participant In the year of death, the full outstanding amount under the Home Buyers' Plan must be repaid (or included in income of the taxpayer) unless, at the time of death, the taxpayer had a spouse or common-law partner and that individual elects (under S. 146.01(7)) jointly with the deceased's legal representative (often the same person) to make the payments under the Home Buyers' Plan and have the income inclusion not apply to the deceased taxpayer. This election may be made in the form of a letter attached to the deceased taxpayer's final return. If the election is made, the balance transferred must be repaid over the same period that applied to the deceased unless the survivor is also a participant under the HBP. If the survivor is a participant, the transferred amount must be repaid over the same period as the survivor's other HBP balance. Excerpted from EverGreen Explanatory Notes. For more information on tax planning provisions and compliance requirements, subscribe to The Knowledge Bureau's online tax reference for taxpayers, financial advisors and their clients: EverGreen Explanatory Notes.

The CRA has announced a filing extension for EFilers having difficulty SENDING or CORRECTING EFILE returns.  EFilers have until midnight Pacific Time on Wednesday, May 6, 2009 to transmit or retransmit them.  The returns will be considered as filed on time.   Most Canadians must file their tax returns by midnight April 30 or risk penalties and interest if they owe money to CRA. Proprietors may take until midnight June 15 to file, however, interest will be charged on outstanding balances as of May 1. For detailed explanations on penalties, prescribed interest rates, offences, audit-proofing, avoiding collection procedures, and voluntary disclosure, see EverGreen Explanatory Notes and the article below on Record Retention requirements.

The Federal Minister of Finance, The Honourable Jim Flaherty, has released a consultation paper requesting the views of Canadians on the subject of allowing banks and other federally regulated financial institutions to be a provider of leases for vehicles and other household properties. Due to the recent market meltdowns and the general economic downturn since 2007, the financing alternatives available for Canadians, from both a personal and professional standpoint, have diminished tremendously. This financing shortage was addressed by the 2009 Budget when the support of the Canadian Secured Credit Facility (CSCF) was announced. The CSCF will support up to $12 billion in asset backed securities which will be backed by loans and leases of both vehicles and equipment. Consideration must also be given to an ongoing supply of stable and diverse financing options for both consumers and businesses. The Government of Canada advised they would be approaching market participants to get their opinions on the merits of changing the rules regarding leasing by federally regulated institutions. In recent years in Canada, leasing agreements associated with vehicle sales have represented a large part of the market. In some years, vehicle lease sales represented up to half of all annual sales, but in late 2008 the number of leases dropped to around 20%. Lease and loan financing opportunities are increasingly hard for consumers and businesses alike to obtain from conventional sources, due to restrictions in funding in the marketplace. Federally regulated financial institutions are currently able to offer leases for personal property, with the exception of vehicles weighing less than 21 tonnes and personal household property. The consultations to be held by the Government will look to other sources for providing lease financing of these items. Some of the questions to be addressed in the consultations are: How do you view the role and prospects of lease financing of vehicles in the coming years? Are the existing restrictions on regulated financial institutions with regard to lease financing appropriate in the future financing environment? If not, how should these restrictions be amended to support broad access to financing in a stable environment? Does financial leasing of vehicles and personal household property pose risks to financial institutions? If so, how can those risks be managed? To read the entire consultation proposal, link to the Department of Finance news release here. We would like to hear your thoughts on the possibility of banks getting involved with lease financing to consumers and businesses for vehicles and household properties.   Please answer our poll question below to give us your opinion and viewpoints on this subject. Let us know what you are thinking about this change. Why is this occurring now, and is it good for the economy?

"This recession signals fundamental change for financial advisors" says industry expert and Knowledge Bureau faculty member, Jim Ruta. ìAdvisors who change their business model accordingly will prosper. Those who do not will become irrelevant.î "Those advisors who succumb to 'paradigm drag' and stick with their old ways despite the obvious necessity to change will have tremendous challenges in the post-recession marketplace. But, those who change appropriately will be the advisors of the future," said Ruta at the launch of his new book, "Master Your Money Management - How to manage the advisors who work for you", published by The Knowledge Bureau. Ruta is teaming up with internationally acclaimed life coach John Kanary to give advisors the tools to change their business and prosper as a "Post-Recession Advisor" at their Million Dollar Training Camp, May 23rd and 24th, 2009 in Toronto, sponsored in part by The Knowledge Bureau. Kanary helps advisors overcome fear, frustration and failure to prosper in these "interesting times". Ruta reveals the ideal post-recession business model that has caught national media attention. Check out the Million Dollar Training Camp website or call 1.866.546.7882 today for more details, the full agenda, early bird and new advisor pricing.

An experienced advisor in the industry seemed to hit it on the head when he declared May 1st as the start of the next phase of tax season ó adjustment and audit season! When it comes to taxes, it's not only about getting those returns filed on time, but most importantly, it's about storage and retrieval! The "off-season" is fraught with the potential for tax audit activity by CRA and the need to adjust returns for omissions, missed slips, and of course, the inevitable errors made during the rush! What should you do if you missed an important provision or document? Most advisors will tell their clients to come back and see them immediately upon discovery. They will also cover an important technique in avoiding expensive gross negligence or tax evasion penalties: voluntary compliance (you tell CRA about errors or omissions before they tell you, on that off-chance that you overstated deductions or credits, or understated income.) The following filing milestones should also be noted to answer these and other questions about tax compliance responsibilities all year long: Adjusting a return to correct an error or omission: 10 years following the end of the relevant taxation year. Appeals with the Tax Court: No later than 90 days from the date of mailing of a Notice of Reassessment or confirmation of an assessment No earlier than 90 days following the date of mailing of a Notice of Objection, if CRA has not responded to the Objection Collection of taxes owing: Generally, 10 years from the date of assessment. A collection action cannot generally be undertaken until 90 days after the related Notice of Assessment or Reassessment has been mailed. Where a Notice of Objection has been filed, or an appeal has been made to the Tax Court, collection of the tax debt will be suspended until the dispute is finalized. Filing Deadlines: Final Returns of Deceased Taxpayers: Where the individual (unless self-employed or the spouse of a self-employed taxpayer) dies before October, April 30 Where the individual dies after September, 6 months following death Where the individual is self-employed or the spouse of a self-employed individual, the later of June 15 and six months following death The due date for the surviving spouse is the same as the due date for the deceased taxpayer To defer payment of income tax by making up to 10 equal consecutive annual payments: first instalment must be paid on or before the day on which payment of tax was otherwise payable. Filing Deadlines: Trust Returns March 31 for inter vivos trusts No later than 12 months following death for testamentary trusts, and annually thereafter Filing Deadlines: Corporations: 6 months following the end of the taxation year Instalment Payments: Corporations: On or before the last day of each month Objection to a Notice of Assessment or Reassessment: Generally, 90 days from the date of mailing of the Notice Individuals and testamentary trusts can file within one year of the due date of the related return Record retention, Individuals: Generally, six years from the end of related taxation year. Record retention, Corporations: Permanent corporate records must be retained for two years following dissolution. Registered investments: Manage registered investment accounts around these milestones: Contributions, RRSP: During the calendar year or within 60 days of the year end Deduction, Refund of Unused RRSP Contributions: Form T746, with tax return filed for the year in which amounts were withdrawn. Refunds from the CRA: Generally, three years from the end of the related taxation year. However, individuals and testamentary trusts can apply for refunds for up to ten years following the end of the related taxation year. Where the application for a refund reflects a loss carryback, the application period is generally extended to six years, and to seven years for corporations that are not Canadian controlled private corporations. Refunds, Overdeducted CPP or EI Premiums: File separate from PD24 for each worker with T4 information return within the following time limits: CPP Contributions: no later than 4 years from end of year in which overpayment occurred EI Premiums: no later than 3 years from end of year in which overpayment occurred For more information on tax planning provisions and compliance requirements subscribe to The Knowledge Bureau's online tax reference for taxpayers, financial advisors and their clients: EverGreen Explanatory Notes.