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.
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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 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.
.jpg)
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 :)
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Hi Mark,
ReplyDeleteNo doubt there are technical issues with making all T-slip information available to taxpayers in a convenient form, but I suspect there are those who think CRA should not do this. When CRA discloses all income information they have on a taxpayer, this tells the taxpayer which income he can safely fail to disclose.
Just to be clear, I don't think this reasoning should carry the day. While this is a problem in some cases, I think the bigger problem is honest people who make mistakes getting punished too severely. I'd prefer to have CRA disclose all the information they have. But no doubt there are others who argue against such full disclosure.
Hey Michael
DeleteLooking forward to meeting u in person at bloggers conference, although the BCM says not to expect too much (just joking)
Wow, I think that is a very negative perspective and that is coming from an accountant (I know that is not what you think should happen). The CRA should strive to make taxpayers lives easier and concern themselves with income that may not be reported as oppossed to income they just want confirmed.
I'd throw my support behind solution two (or both, really). The My Account infrastructure is already there, and employers already have to report T-slips to the CRA.
ReplyDeleteEmployers already have a large enough paperwork burden; even reducing the need to print and mail the employee T-slip would ease that burden slightly. Plus, a side-benefit would be that Canadians previously unaware of the information available in My Account would discover the joys of online access!
Hi Sandi
DeleteI agree, many people do not even avail themselves to the my account info as it is.
#2 would seem to be a very workable solution.
I think it would be nice to have a system that could do that. I have serious doubts about it happening soon, though.
ReplyDeleteIt would tie in nicely with one of my number 1 requests, which is to allow a taxpayer to file their tax returns directly on the CRA website. The taxpayer should be able to just type in the information they normally print on their T1s and various schedules and click to submit their taxes. I totally fail to see why the government makes us use 3rd party software to file even an extremely simple tax return.
I'm not holding my breath waiting for that one either.
I agree, but dont hold your breath or you may turn blue. But your #1 request seems to make so much sense,u really wonder why it cannot be done. Maybe the CRA has liability concerns of some kind, really have no idea.
DeleteI posted this on the Canadian Money Forum.
ReplyDeleteGoldstone's reply was especially interesting.
http://canadianmoneyforum.com/showthread.php/15217-Filing-using-CRA-s-information
Hi Anon
DeleteThx, the link in Goldstone's response was very interesting.
Is the penalty automatic, or does the CRA have the authority to waive it in appropriate cases? Do they ever waive it?
ReplyDeleteHey Anon
DeleteThe penalty is automatic, at least in the cases I have seen. You can try and have it waived by an application to the Fairness Committee, but typically it is not waived; although I have seen it waived on one occasion.
On what basis was the penalty waived? What did they plead?
Deletethey plead unfairness and now the fact that unfairness has been remedied by a change in law in respect to this penalty
Delete