Penalties are something that really makes errors, even accidental errors, a real concern when dealing with the Canada Revenue Agency (CRA). I have to admit, as a former income tax auditor with what was then called the Canada Customs and Revenue Agency, I have some feeling for the issues that have led to stricter rules and more aggressive penalties and interest. Having said that, it does appear the power has gone to CRA’s head.
The most egregious example is the penalty on missed T-slips. If a taxpayer should happen to miss a T-slip in one year, there is no penalty other than paying interest on any increased debt. If, however, that taxpayer misses a second T-slip in the next three years the penalty is 20% (10% federal and 10% provincial) on the gross income amount of the T-slip, even if no tax is owing! For example:
2011: Missed T5 with Interest of $100 -No Penalty
2012: Miss another T5 with interest of $3,000-Penalty $600.
This is an automatic penalty calculated once the matching process starts at CRA, usually in late August or September. There is no forgiveness if the T-slip has been lost. We did have one lady that came to us that missed a small T-slip the year her husband died after a long illness and two years later missed a small but significant T4 from an employer who went bankrupt. The former employer sent the salary information to CRA but she said she never received the slip. The penalty was around $800.
One client of ours received a T5 for approximately $10 and it had made very little difference so she thought she would wait until next year. Luckily CRA did not notify her, but had recorded the information. We were able to amend her record before they had notified her. A second miss could have been extremely painful. In another instance a client had not received a T4 but we estimated the amount because we could not get the information from her former employer. It is very important that even if the amount is not large that you report it and amend a return as soon as possible.
Not controversial, in my opinion, are penalties for fraud and evasion. I don’t know of any good accountant who will do work for a client that they know is committing fraud or evading tax. So, if your accountant is doing your returns knowing there is fraud, you are getting what you deserve.
The penalties are very severe:
1. For tax evasion or making false or deceptive statements, keeping deceptive records, etc. the fine is not less than 50% and not more than 200% of the tax evaded plus the possibility of imprisonment for up to two years.
2. If successfully indicted for tax evasion a fine of not less than 100% and not more than 200% in addition to any other penalty.
Other penalties exist for not filing, for example, but space is limited, so I have one last example. There are probably thousands of people that have worked under the table, not paying income tax or Canada Pension. These individuals cannot buy RRSPs (no earned income reported), could not have any recorded income so they cannot invest and now, at an age in the 60s cannot work. The total income for the future is the Old Age Security and the Supplement. Rather meagre! Then there are numerous cases where they have been caught and the actual tax bill looks quite small compared to the final debt.
There will always be tax evaders and there will always be tax evaders who are caught. People who are caught seldom identify themselves.
Terry Robert B.A., C.M.A., C.G.A.
R. T. Robert Certified General Accountant
Please note that this column deals with details and circumstances in a general way and comments are meant solely as a guide. For your protection, a professional accountant is recommended and should be consulted before making any decisions regarding anything discussed in this column.