My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned. Please note the blog posts are time sensitive and subject to changes in legislation or law.

Wednesday, September 11, 2013

The 20% CRA Penalty for Missing T-Slip Information - Two Solutions to Minimize the Issue

On Monday, I discussed the 20% penalty that thousands of Canadians are assessed each year for not reporting income that the CRA already has on hand from the country’s employers and financial institutions. I think I made it clear, I'm of the view the penalty is excessive in most cases.

The CRA’s matching program is designed to ensure taxpayers have reported all the income reflected on their T-slips. I have no issue with this objective. However, I do have an issue with taxpayers being penalized for failing to report this income. More specifically, I am perplexed as to how you can be deemed to not have reported income if it is already sitting in the CRA's database courtesy of your employer or financial institution? Should taxpayers be subject to 20% penalties for  failing to confirm income already reported?

Today, rather than continuing to rant about this issue, I offer two solutions.

1. The CRA should populate (with T-slip tax data) a draft online tax return for each and every Canadian. Taxpayers would access this draft return through their CRA “ My Account”. This tax return would reflect all T-slip information provided to the CRA for each individual by their employer and financial institutions. Initially, this return could be informational only. By this I mean, the return would only reflect your income information and would not calculate your income tax liability.

2. A more practical solution would be to provide full real-time access to all T-slips issued to each taxpayer. Currently your "My Account" only allows you to view T4 related slips such as T4's, T4A's, T4A(P), T4A(OAS) etc. However, it does not contain any other T3, T5 or T5013 information.

These solutions would ensure Canadians are aware of any and all income they earned in any given year that was reportable to the CRA (obviously this would exclude capital gains, rental income, self-employment income etc. that relies on taxpayer self-reporting). This solution would avoid any issues with lost mail or slips addressed to old addresses.

As I am not a software developer, I have no idea how difficult it would be to develop a simple return for each individual that is updated for any T-slip data on a real-time basis? However, it would not seem to require a large technological advancement.

If I ignore the potential lost revenue I would have as a personal tax preparer (which I could easily live without since each tax season takes a month or two off my life) and think long-term; if the CRA created an online informational only tax return, this return could eventually be enhanced such that it could become each Canadian’s actual online personal tax return.

Maybe I am missing the complexities of creating an online tax return? On the other hand, maybe this is not such a far-fetched solution.

P.S. Yesterday a reader sent me a copy of an email they sent to their MP about the "unfairness" of the 20% penalty. Good for them. Who would have thought the BBC would be the catalyst for tax policy changes :)

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs. Please note the blog post is time sensitive and subject to changes in legislation or law.