by Jeff KirshenWhat is a T2202A Tuition and Enrolment Certificate?
A T2202A Tuition and Enrolment Certificate is a document that allows taxpayers to claim tax credits for amounts paid to certain schools, colleges, universities, etc.
During tax season, one of the most important inclusions for Canadian post-secondary students when filing their income tax returns is the T2202A. Issued by the post-secondary institution to the student, the T2202A provides the student and Canada Revenue Agency with a detailed snapshot of the student’s financial expenditure at the university for the taxation year in question and is pivotal in determining the student’s present and future access to tuition tax credits.
What Expenses are Covered by the T2202A?
A T2202A is a certificate issued to students of Canadian universities that provides the Canada Revenue Agency with salient information about the student’s post-secondary expenses. Among other things, the T2202A provides proof as to the enrolment of the student, the number of months spent at the post-secondary institution by the student, and the amount of eligible tuition money spent. The university also indicates whether the student was enrolled for full-time or part-time study. The T2202A may also include any charitable donations that the student contributed through the institution during the taxation year.
Who Gets a T2202A
T2202A forms are issued to all students who have expended in excess of $100 on post-secondary studies during a taxation year. Only amounts paid to institutions that are tax deductible will be listed on the T2202A. Fees such as health insurance, residence fees, meal plans, and books may not be eligible for the tuition credit and consequently, not listed by the post-secondary institution on the T2202A.
How does a Student File a T2202A?
The T2202A is used in conjunction with “Schedule 11” forms that indicate the maximum amounts of federal tuition, education and textbook amounts that can be transferred to a designated individual and that can be carried forward to a future year.
The T2202A is used in conjunction with the “Schedule (S11)” for students who lived outside the province of Quebec on December 31st of the taxation year to calculate the provincial or territorial amount that can be claimed and the maximum amount that can be transferred to a designated individual with respect to the personal education amounts incurred by the student during the taxation year.
Students living in Québec on December 31st receive “RL-8: Amount for post-secondary studies” slips that allow for the students to transfer tuition expenditures to their parents and also allow for the student to apply for the province of Québec’s tuition tax credit.
Is the T2202A Used to Transfer Tuition Credits?
Despite the fact that parents are eligible to have the tuition amounts apply as a tuition credit on their returns, the T2202A must be filed by the student. The student must complete and sign the transfer section of their T2202A certificate before giving it to their parent, grandparent or spouse. The recipient fills in the credit amount on line 324 their Schedule 1 in order to apply the credit to their income.
Tuition Tax Credits and T2202A
As of January 1st, 2017, Canadian students were no longer eligible for education and textbook tax credits, though still eligible for tuition tax credits. Any unused education and textbook tax credits incurred on or before December 31st, 2016 are still eligible for the education and textbook tax credit. For more detailed information on the new tuition tax credit deductions available to Canadian post-secondary students, click here.
If your tuition claims have been denied by the CRA, or you have questions about filing your taxes with these claims, call us today!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
by Jeff KirshenWhat are the Tax Brackets in Canada?
Canadian tax brackets are portions of Taxpayer’s income in Canada which get taxed at different rates.
The following is a breakdown of the Canadian Federal tax rates for 2019:
| 15% on the first $47,630 of taxable income | Income earned between $0 – $47,630 |
| 20.5% on the next $47,629 of taxable income | Income earned between $47,631 – $95,259 |
| 29% on the next $52,408 of taxable income | Income earned between $95,260 – $147,667 |
| 29% on the next $62,704 of taxable income | Income earned between $147,668 – $210,371 |
| 33% of taxable income over $210,371 | Income earned over $210,371 |
Canada Tax Bracket
You will notice from the Federal tax rate breakdown that the higher spectrum of a taxpayer’s income is taxed at a higher rate. This is by design as the Canadian tax system is a progressive system. In other words, the higher tax bracket is intended to make higher earned income pay more tax then the lower-earned income.
Your tax bracket is based on taxable income, which is your gross income from all sources, minus any tax deductions you may qualify for. This is your net income after you’ve claimed all your eligible deductions.
What Tax Bracket am I in?
It is important to note that higher earners only pay higher tax rates specifically on the portion of incomes within the aforementioned brackets
For instance, if a Taxpayer earns $47, 633 of income, that individual will get $47,630 of their income taxed at 15% and the remaining 3$ taxed at 20.5%. So, fear not, your whole income will not be exposed to a higher tax rate just because you are a couple of dollars over a lower tax bracket.
Canada Tax Brackets and Capital Gains
The Canadian tax system distinguishes between taxable income earned from a source and capital gains. Capital gains get a bit more preferential treatment then the latter. More specifically, only one half of the taxpayer’s capital gain from a disposition of property is taxed at the Federal tax rates.
How Can I Lower my Canada Tax Bracket?
Effective tax planning can help an individual save large amounts of money by virtue of paying less taxes. One such method is to decrease your tax bracket by using registered plans like the RRSP. RRSP contributions specifically lower your taxable income, which means you pay less taxes that you would if you did not contribute to your RRSP.
Canada Tax Brackets – Credits and Deductions
Furthermore, the Canadian Income Tax Act has many deductions and credits that can decrease a taxpayer’s tax liability. Ones that come immediately to mind are the disability tax credit, tuition credits, and motor vehicle expense deductions for businesses.
It is important to note that credits, unlike RRSP contributions and deductions, get factored in after applying the tax rate. This means that while deductions can potentially bump down your income to a lower tax bracket, credits bypass the bracket stage entirely and decrease your overall tax liability. In any event, both are very beneficial and effective tax planning can go a long way in saving a taxpayer their hard-earned money.
If you have any questions about how to classify your taxes to obtain favourable tax results, or any questions in general about filing taxes, call us today! We can help!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
by Jeff KirshenWhat is the Maximum CPP Benefit for 2018?
The Canada Pension Plan (“CPP”) are government payments representing a replacement of income where disability, retirement, or death are involved. It is also one of the three levels of Canada’s retirement income system. CPP is responsible for paying retirement funds and disability benefits. Established in 1966, the CPP aims to provide basic benefits for retirees and individuals with disabilities who contribute to the plan. If the recipient dies, their surviving family members can receive the plan’s benefits.
Contributing to the Canada Pension Plan
CPP is a similar concept to the U.S. Social Security program. Residents of Canada, other than those in Quebec, contribute and receive the CPP. If one is receiving CPP benefits, they will receive monthly amounts that are designed to replace approximately 25% of the contributor’s earnings on which initial contributions were based. Several rules govern the amount a person can receive upon their retirement, or if they have a disability. The amount is based on the Consumer Price Index and is based on the person’s age and how much they contributed to CPP while they worked. Unfortunately, CPP benefits are considered taxable income by the Canada Revenue Agency (the “CRA”).
Maximum CPP
The Canada Revenue Agency announced in late 2017 that the maximum pensionable earnings under the CPP for 2018 increased to $55,900, up from $55,300. As a result, the maximum employee CPP contribution for 2018 will increase to $2,593.80, up from $2,564.10. Additionally, the maximum self-employed contribution raised to $5,187.60.
The CRA announced in late 2018 that the maximum pensionable earnings under the CPP for 2019 would be increasing to $57,400, up from $55,900. As a result, the maximum employee CPP contribution for 2019 will increase to $2,748.90, up from $2,593.80. Additionally, the maximum self-employed contribution raised to $5,497.80.
The employee and employer contribution rates will rise to 5.1% in 2019, versus 4.95% in 2018, and the self-employed contribution rates are increasing to 10.2% in 2019, versus 9.9% in 2018. These increases in contribution rate were implemented on January 1, 2019.
Receiving CPP
When planning for retirement, it is essential to understand how much you have made in contributions over the years because that directly impacts the maximum CPP you will receive when retired. The best way to determine how much CPP a taxpayer qualifies for is to get their CPP Statement of Contributions. To do so, you simply call Service Canada at 1-800-277-9914 and request a CPP Statement of Contributions. Service Canada will then provide you with access to your online copy.
As mentioned above, your contributions directly relate to how much you will receive in CPP benefits once retired. Eligibility to obtain the maximum CPP benefit is based on two criteria, one being the contributions and the other being the amount of contributions.
The first criteria being that a taxpayer must contribute into CPP for at least 83% of the time that they are eligible to contribute. For the typical taxpayer, this means they can contribute to CPP from 18 to 65, which is 47 years. 83% of 47 years is 39 years. Therefore, to get the full maximum benefits from the CPP program, a taxpayer will need to contribute into the CPP for 39 years.
The second criteria being that a taxpayer adds to their benefit for every year they work and contribute to the CPP between the ages of 18 and 65. On top of just working and contributing, the taxpayer must contribute the prescribed amount in each of those years. The CPP uses the Yearly Maximum Pensionable Earnings (YMPE) chart to determine whether the taxpayer contributed enough. To review the amounts in previous years, please click here.
Essentially, you need to make a certain amount of money to be able to contribute enough to the CPP to qualify for the maximum payout when retired. For example, in 2019 a taxpayer has to make at least $57,400 of income to be eligible for maximum contributions. As an aside, once you make your full contributions for the year, you will notice your pay cheques increase in amounts. This is because you have paid the maximum amount of CPP into the program for that year; thus you are no longer deducted for that year.
Have questions about your CPP benefits, or not receiving them as you should be? Give us a call today. We would be happy to discuss your options and ensure that you receive your proper pension amount from the Canada Revenue Agency.
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
by Jeff KirshenIs Tax Deducted from CPP Payments?
The Canada Pension Plan (CPP) operates throughout Canada, except in Quebec, where the Quebec Pension Plan (QPP) exists, aiming to provide contributors and families with partial replacement of earnings in the case of retirement, disability, or death. With very few exceptions, every person over the age of 18 who works in Canada outside of Quebec and earns more than the minimum amount of $3,500 a year must contribute to the CPP. If you are employed, you pay half the required contributions and your employer pays the other half. If you are self-employed, you make the entire contribution. Ultimately, your contributions determine your eligibility for CPP payments and the amount of the benefit you will receive once you become eligible.
Are CPP Payments Considered to be Taxable Income?
Put simply, yes. The CPP retirement pension is considered taxable income. Therefore, tax is ultimately deducted from your CPP payments. The amount of your CPP payment, however, is not affected by the amount of any other income you receive.
Am I Eligible for CPP Payments?
You are eligible for a CPP retirement pension if:
- You have contributed to the plan; and
- You are 60 years of age or older.
While the minimum age for receiving CPP benefits can be as early as 60 years old, these benefits can be delayed up to the age of 70. However, it is worth noting that when early pension is taken, the amount you receive is reduced for each month you take your pension before the age of 65. This is due to the fact that you will be receiving pension for an additional 5 years. While it may seem advantageous to begin receiving CPP payments as early as possible, as one cannot predict how long you will live, there are various benefits which may be applicable to you by waiting until 65. For example, starting your CPP later means a higher income, which could increase your Old Age Security (OAS) clawback if you have high income, or reduce your eligibility for Guaranteed Income Security (GIS) benefits if you have low income.
If you wish to know more about your CPP benefits, and ensure that you do not miss out on, or sacrifice any benefits you are eligible for, contact us and we would be happy to help you strategize and determine the best course of action moving forward in claiming your pension! Call us today!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
by Jeff KirshenWhat is the Working Income Tax Benefit?
The Working Income Tax Benefit (“WITB”) is a refundable tax credit intended to provide tax relief for eligible working low-income individuals. Because it is a benefit / credit, taxpayers may be entitled to the Working Income Tax Benefit even if they do not pay federal income tax. It is designed to help individual families who have a low-income household.
Eligibility
The general rule is that a taxpayer is eligible for the Working Income Tax Benefit if their working income is over $3,000.00 for the year and they meet the following two requirements:
- The taxpayer must be at least 19-years-old on December 31st of the tax year; and
- Is a resident of Canada for income tax purposes during the same year in question.
A taxpayer may also be eligible for the Working Income Tax Benefit if they are 19-years-old, and have a common-law partner or spouse, or an eligible dependant on December 31st of the year in question.
Exceptions
Taxpayers are not eligible for the Working Income Tax Benefit if they do not have an eligible dependent and are enrolled full-time as a student at a designated school for more than 13 weeks in a year. Taxpayers are also not eligible if they are in prison for 90 days or more during the tax year in question. Finally, a taxpayer is not eligible if they do not have to pay tax in Canada because they are a foreign diplomat or officer, or a family member or employee of a person in that position.
What Amount will I Receive?
The amount of benefit a taxpayer qualifies for is based on their working income. The premise of the Working Income Tax Benefit is to help taxpayers who have a low income. Thus, if a taxpayer made more money than the threshold amount established by the Canada Revenue Agency (“CRA”), they will not receive a benefit amount.
The threshold amounts established by the CRA are based on the status of the taxpayer’s family and where they are located. The taxpayer’s marriage status, whether they have dependents, and what province they live in impact the amount received as a benefit as well.
The CRA provides a chart that explains the various working income thresholds by family makeup. This is the chart you use to determine whether you are eligible for the benefit or not. The chart for 2017 is found here.
How to Determine the Working Income Tax Benefit Amount I will Receive
The CRA provides a child and family benefit calculator to taxpayers, which can be found here.This calculator will provide the taxpayer with a fairly accurate estimate of the benefit amount with which they qualify for.
To use the calculator, you will need to answer questions about your working income for the year and your family makeup. After providing this information, the calculator will tell you whether you qualify for a benefit, and if so, how much you qualify for.
How do I Claim the Working Income Tax Benefit?
Another way to calculate your Working Income Tax Benefit refundable tax credit amount is by completing Schedule 6, Working Income Tax Benefit for your province or territory income tax specific return. As mentioned above, once this amount is calculated using the above-mentioned form, you then claim the amount on line 453 of your income tax return.
What if I am Disabled?
Taxpayers may also claim a “disability supplement” if they are eligible for the Working Income Tax Benefit and the disability amount. Further requirements for eligibility of this supplement can be found here.
If you have questions about the Working Income Tax Benefit, or the CRA is giving you trouble regarding yours, call us today! We can help!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
by Jeff KirshenWhat Kind of Medical Expenses are Tax Deductible in Canada?
While health care in Canada is publicly funded, there are various out-of-pocket medical expenses that taxpayers incur on a daily basis. Examples include over-the-counter medications, eyeglasses, vitamins and other items not covered by provincial or private health insurance. What many taxpayers do not know is that certain health expenses are tax deductible. This leads to taxpayers not keeping tax receipts for expenses they could be otherwise claiming.
CRA Medical Expenses
The CRA has a large list of health care expenses that are accepted as being tax deductible. This list can be found directly on the CRA website here. Some examples include assisted breathing devices, laser eye surgery, dental visits, braces for a limb, among many others. The cost of any health care expense that appears on the CRA’s list can be claimed on a taxpayer’s tax return.
As a reminder, for all expenses, a taxpayer can only claim the portion of the expense that the taxpayer or the person they are claiming the expense for, will not otherwise be reimbursed for. Alternatively, an expense can be claimed if the reimbursement is included in the taxpayer’s, or the other person’s income, and the reimbursement was not deducted somewhere else on the income tax and benefit return.
CRA Non-Medical Expenses
The CRA also has a long list of health care expenses that are not claimable. It is important the taxpayer ensures they review whether the expense is on the claimable list before claiming. Examples of non-claimable expenses include organic food, non-prescription birth control or similar devices, personal response systems, among various others. Again, it is imperative that you review the CRA’s list of allowable expenses before claiming them.
CRA Medical Expenses and Health Care Premiums
For many Canadians, health care premiums are often a question when it comes to medical expenses. Health care premiums paid to private health service plans are tax deductible medical expenses. Taxpayers can claim health care premiums paid to plans that offer a wide variety of benefits, including medical, hospital and dental visits.
Claiming CRA Medical Expenses on Tax Returns
The Canada Revenue Agency (the “CRA”) is fairly flexible about the length of time you can claim medical expenses. You do not necessarily need to claim medical expenses incurred between January 1st and December 31st of said year.
A taxpayer can claim eligible medical expenses on their tax return if incurred during any 12-month period, as long as it ends in the current tax year, and the taxpayer did not already claim the expenses in another tax year. As a general rule, a taxpayer can claim all amounts paid, even if they were not paid in Canada. As a strategy, taxpayers should consider choosing the 12-month period with the highest medical expenses to maximize their deduction.
If you have questions about what CRA allows as deductible medical expenses, or you are being audited for your medical expenses, contact us today!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
by Jeff KirshenDo You Have to Pay Tax on Rental Income?
What is Rental Income?
Rental income is any income earned for allowing others the use of a specific space. This includes houses, apartments, individual rooms, office space, or any other real or moveable property.
Do You Have to Pay Tax on Rental Income?
In short, yes. If a rental property is owned in your personal name, it must be accounted for on your personal tax return and will be taxed on your T1 personal income tax return. Therefore, the amount you will be required to pay will depend on your applicable marginal tax rate.
If the rental property is owned in the form of a partnership, then each partner must include their respective share of the property in their personal income. Like a sole proprietorship, a partnership is not a separate legal entity. Therefore, a separate tax return is not required.
If the rental property belongs to a corporation, different considerations come into play. The corporate tax rate is comprised of both the federal and provincial tax. The structure of the corporation will determine the ultimate taxation rate, given that the government may provide tax breaks, and will determine the tax credits you are eligible for.
Calculating your Rental Income or Loss
The Canada Revenue Agency (“CRA”) puts out Form T776, which is the form that taxpayers are supposed to complete when they have a rental property. It provides a step by step guide as to how to calculate the income and expenses.
In most cases, you would calculate your rental income using the accrual method. For this method you would:
- Include the rents in income for the year which they are due, whether or not you receive them; and
- Deduct your expenses in the year they are incurred, whether you pay them in that period or not.
If you have no amounts receivable and no expenses outstanding at the end of the year, then the cash method can be applied. This method can only be used if the net rental income or loss would be nearly equal if using the accrual method. In this method you would:
- Include rents in income the year you receive them; and
- Deduct expenses in the year you pay them.
What Expenses can you Deduct?
The following are expenses that you can deduct while owning a rental property:
- Expenses incurring to prepare the property to be rentable;
- General Cleaning and Maintenance;
- Repairs;
- Advertising Costs;
- Local Property Taxes;
- Depreciation;
- Commissions;
- Mortgage Interests;
- Insurance Premiums;
- Management Fees and Office Expenses;
- Utilities;
- Specific Travel/Vehicle Expenses; and
- Garbage Removal Fees.
Consequences of not Reporting Rental Income
If you do not declare your rental income, you are at risk of being audited, in addition to owing more than you would have.
Firstly, any tax owing from income that had been unreported can be subject to interest. This interest is compounded daily.
Secondly, you may be subject to large penalties and fines. The CRA has the ability to penalize you for late filing. This amount will be backdated to the period when the income should have been reported. This amount will also be subjected to interest as well. More broadly speaking, not reporting income to CRA is a form of tax evasion, which can result in extremely large fines, and incredible difficulty in repayment.
As we mentioned above, you should declare your rental income, and pay the taxes owing from it. How you are taxed, however, depends on the structure of ownership of the property in question. While it may at first seem beneficial to avoid declaring rental income, one must take into consideration the numerous monetary and legal consequences that may ensue as a result of this decision. Therefore, if you wish to reach a common ground between choosing not to declare your rental income, and the taxes associated with doing so, also take into consideration the numerous expenses that are deductible, and the potential tax breaks and credits that you may be eligible for by owning a property.
If you require any guidance on how to properly declare your rental income, have questions with regard to deducting expenses, or have been contacted by the CRA due to an audit on your income or rental property, we can help! Call us to learn more!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
by Jeff KirshenWhat is Wage Garnishment?
A wage garnishment is when a creditor seizes some, or all of your earnings to pay off your amount owing. It is often used by the Canada Revenue Agency (“CRA”) to collect outstanding balances owed to them. Garnishments are not just limited to your employer; a garnishment can be served on your bank, or your receivables in an effort to seize the money.
CRA Wage Garnishment
The CRA’s process by which they garnish wages is vastly different from the processes followed by other creditors. Other creditors must initially obtain a judgment against you in court, thus providing you with knowledge of the ensuing garnishment. Other creditors are also required to provide you with formal notice before they commence garnishments. Once formal notice has been provided, and your employer has been notified of the garnishment, they must begin to forward the appropriate portion of your wages to the appropriate creditor to pay off your debt.
Alternatively, with CRA garnishments, no Order of the court is required to commence garnishments on a taxpayer. Instead, a notice is sent directly to one’s employer notifying them of the garnishment. This is called a “requirement to pay”, or an “RTP”.
Your employer is then immediately required by law to comply with the garnishment of your wages. If one’s employer refuses to comply with the garnishment, they could face legal action. Unfortunately, this process leads to some taxpayers being unaware that the CRA has implemented garnishment until they receive a paycheque that is less than expected.
CRA Wage Garnishment – Employment or Independent Contractor
If you are an employee on payroll, with taxes deducted at source, the CRA can garnish up to 50% of your wages. Meanwhile, if you are a sub-contractor, or receive a different form of income, the CRA can garnish up to 100% of said income. An example of this, would be if you received pension income.
Other types of wages that can be garnished include severance or termination pay, because they arise as a result of your employment. For Ontario residents, the Ontario Works Act establishes that basic financial assistance is not subject to garnishment, attachment, execution or seizure by the CRA, as of right now. The only exception to this rule is support orders under s.20 of the Family Responsibility and Support Arrears Enforcement Act which can be garnished.
Long term disability payments provided through a “company disability pension” are considered by the law to be a replacement for lost wages. Thus, they are considered to be wages and can be garnished as deemed fit by the CRA. That said, income support under the Ontario Disability Support Program (ODSP) Act, is not subject to garnishment, attachment, execution or seizure, except for support orders as mentioned in the previous paragraph.
Important to note, for the most part, you will be notified of your tax debt to the CRA well in advance of any potential garnishments. Ample steps are normally taken before garnishments are taken from your income.
CRA Wage Garnishment – What can I do?
The best way to prevent garnishment of wages is to pay your debt in full. Often, this can be done by obtaining a loan to pay off the garnisheeing creditor in full. If you cannot pay your tax debt in full, you have other options. Two of which are making a consumer proposal or setting up a payment plan. Often, an experienced lawyer can help negotiate a repayment plan with your creditor or the CRA. Another option is bankruptcy, which also helps protect you from your debts.
If your wages are being garnished, or the CRA is threatening to garnish your wages, call us! We can help!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
by Jeff KirshenWhat is the CRA Reassessment Period?
The CRA Reassessment Period is the amount of time the Canada Revenue Agency is allowed to adjust a personal, corporate, GST/HST, or payroll return. Each of these returns have different CRA Reassessment Periods, and the Canada Revenue Agency may even extend the CRA Reassessment Period in certain circumstances.
Personal Taxes and the CRA Reassessment Period
Generally, the Canada Revenue Agency, sometimes referred to as the Minister, cannot reassess a taxation year (tax return from that specific year) after the normal reassessment period of three years has passed. The CRA Reassessment Period is the period after the date of the notice of assessment within which the CRA may reassess a taxpayer’s tax return.
A tax year is considered as statute barred three full years after the date of the original notice of assessment issued from the CRA, and not your reassessment dates.
As mentioned above, once a taxpayer files their tax return, they should receive a notice of assessment. The date of the taxpayer’s notice of assessment is important to track because the Canada Revenue Agency (the “CRA”) can reassess a tax return at any time for three years from the date on the notice of assessment.
The CRA Reassessment Period may be extended if the taxpayer has committed fraud or there was a misrepresentation on the tax return. If this is the situation, the CRA can review tax returns as far back as they choose to suffice their requirements.
Also, the taxpayer may sign a waiver which allows the CRA to ignore the CRA Reassessment Period and audit beyond the general three-year limit. If a waiver is requested by the CRA, you should consult a professional before signing. You may be able to make the waiver specific to particular issues or focus the waiver on something else.
Corporate Taxes and the CRA Reassessment Period
The normal reassessment period for a T2 (corporate) tax return depends on whether or not the corporation was a Canadian-controlled private corporation (CCPC) at the end of the tax year.
The CRA can usually reassess a return for a tax year:
- Within three years of the date they sent the original notice of assessment for the tax year, if the corporation was a CCPC at the end of the year; or
- Within four years of the date they sent the original notice of assessment for the tax year if the corporation was not a CCPC at the end of the year.
The normal CRA Reassessment Period can be extended for an extra three years for any of the following reasons:
- You want to carry back a loss or credit from a later tax year;
- A non-arm’s length transaction involving the corporation and a non-resident affects the corporation’s tax;
- The corporation pays an amount or receives a refund of foreign income or profits tax;
- A reassessment of another taxpayer’s tax for any of the above reasons affects the corporation’s tax;
- A reassessment of another tax year (it must be a prior tax year if the reassessment relates to the loss or credit carryback) for any of the above reasons affects the corporation’s tax;
- The reassessment results from a non-resident corporation’s allocation of revenue or expense for the Canadian business, or from a notional transaction, such a “branch advance”, between the non-resident corporation and its Canadian business or
- To give effect to the application of the non-resident trust rules in section 94 or to the application of the foreign investment rules under sections 94.1 and 94.2.
If the reassessment results from a provincial income reallocation, the normal CRA Reassessment Period can be extended for one year from the later of:
- The day on which the CRA is advised of the provincial reassessment; or
- 90 days after the notice of the provincial reassessment was sent.
If the CRA is trying to issue a notice of reassessment to you, outside of the allowed CRA Reassessment Period, you should contact Rosen Kirshen Tax Law today. We have experience fighting for you, and your rights. Don’t let the Canada Revenue Agency walk all over you. Call us to learn more.
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
by Jeff KirshenWhat are the Penalties for Tax Evasion?
What is CRA Tax Evasion?
The Canada Revenue Agency states that an individual or business engages in tax evasion when they intentionally ignore Canada’s tax laws. More specifically, it is the willful decision to suppress or avoid disclosing income required to be reported, inflating expenses, or falsifying records and claims.
What Qualifies as CRA Tax Evasion?
Does Owing Money Qualify as CRA Tax Evasion?
The short answer is no. Given that tax evasion is defined as the willful attempt to suppress or not disclose information required to be reported, simply owing money to the CRA would not fall under this category. Instead, this might require a payment arrangement with the CRA for tax arrears, objecting to the assessment or reassessment provided, or finding an alternative route to repay the debt.
Is Filing a Late Tax Return Considered Tax Evasion?
The short answer is maybe. Engaging in tax evasion is inherently reliant on a subjective analysis. What is key to its determination is whether the decision to file a late tax return was based on the willful decision to ignore Canada’s tax laws. Since the CRA is incapable of determining the subjective intention of another individual remotely, there may be times where the late filing of a tax return can be characterized by the CRA as an attempt to evade taxes.
Is Making a Mistake on a Tax Return Seen as Tax Evasion?
The short answer, once again, is maybe. Just like with filing a late tax return, the CRA is unable to determine remotely the intention of the taxpayer. Therefore, the CRA may characterize the mistake as an attempt to engage in tax evasion. This does not mean, however, that one is without recourse if such a situation were to arise.
CRA Tax Evasion Scenarios:
- Not filing tax returns;
- Filing tax returns, but willfully excluding income;
- Filing tax returns, but willfully misrepresenting the purpose of amount of income;
- Attempting to receive income in a way that would allow the willful exclusion of that income from a tax return; and / or
- Categorizing a transaction in a way that disguises the real purpose or benefit of the transaction.
Can CRA Tax Evasion Lead to Criminal Prosecution?
By law, tax evasion is a crime. To combat significant cases of tax evasions, the CRA makes use of its Criminal Investigations Program (CIP) to investigate and, where appropriate, refer the case to the Public Prosecution Service of Canada for criminal prosecution.
Most often, the CIP would investigate cases that meet one or more of the following criteria:
- Tax evasion cases of a serious nature with an international element
- Promoting complex tax scamming schemes intended to deceive the government
- Cases which involve commercial fraud investigated by the RCMP and other law enforcement agencies
- Income, GST or HST tax evasion cases of a serious or material nature, such as operating within the underground economy
What are the Consequences of being Convicted for CRA Tax Evasion?
Taxpayers convicted of tax evasion must repay the full amount that was owed, in addition to any interest and civil penalties assessed during this period by the CRA. Furthermore, the court may then fine the taxpayer between 50% to 200% of the taxes evaded and potentially up to two years imprisonment. If convicted under an indictment, one can face a fine between 100% to 200% of the evaded taxes and a jail term up to five years. Finally, if convicted of fraud under Section 380 of the Criminal Code of Canada, the sentence may lead to a term of imprisonment up to 14 years.
If you think you have a CRA tax evasion issue, give us a call today. CRA tax evasion could result in fines, penalties, and even jail time. Hiring an experienced tax lawyer to navigate these issues for you is your best way of minimizing potential issues with the CRA.
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.