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TAXX301 (ch.2)
Procedures and Administration
| Question | Answer |
|---|---|
| What does ITA stand for? | Income Tax Act |
| What does ETA stand for? | Excise Tax Act |
| What does CRA stand for? | Canada Revenue Agency |
| CRA is responsible for administration of... | ITA and ETA |
| What is the purpose of the Canada Revenue Agency Act? | To establish authority of the CRA |
| What is the minister of national revenue responsible for? | Accountability for CRA to Parliament |
| How many members are in the CRA Board of Management? | 15 (11 represent provinces/territories) |
| What is an income tax return referred as in the ITA? | Return of Income |
| What are the 10 most common instances where an individual must file and income tax return? | 1) contributed CPP/EI 2) benefits eligible 3) CRA demand 4) income would increase Canada training credit 5) split pension w spouse 6) claim refund 7) allow RRSP cont. 8) disposed capital property 9) realized taxable capital gain 10) has income tax payable |
| You must file an income tax return before receiving what 4 benefits? | 1) Canada child benefit 2) Canada carbon rebate 3) GST/HST credit 4) guaranteed income supplement |
| What does GIS stand for? | guaranteed income supplement |
| What is the Federal Government's free tax prep service for low/fixed income individuals called? | "File my Return" Service (not successful, ~50k files/year) |
| What are the 2 CRA options for electronic filing? | NETFILE and EFILE |
| What is the difference between NETFILE and EFILE? | NETFILE - for individuals to file their own return EFILE - for tax prep providers to file for clients |
| What is the standard filing and balance deadline for individuals? | April 30th of the following year (or next business day) |
| What is the filing deadline for individuals and who carry on a business (and spouses of individuals)? | June 15th of the following year |
| If you carry on a business, are you entitled to a balance deadline extension? | No. You get the filing extension to June 15th, but your balance is still due on April 30th |
| What is the filing and balance extension for individuals that die? | 6 months after day of death (if death occurs within 6 months prior to standard deadline) |
| Who else does the filing deadline apply to? | Cohabiting spouses |
| How do employers know how much tax to withold from employees? | Annual payroll deductions published by the CRA |
| Can employees request increases or decreases in tax witholdings | Yes they can through a TD1 form |
| What is net tax owing? | the excess of income tax payable minus tax witholdings |
| What are 4 other types of tax witholdings? | 1) Retiring allowances 2) payments from RRSP's 3) death benefits 4) payments from RESP's |
| When does someone owe quarterly installments? | When their net tax owing for the year (or two previous years) exceeds the installment threshold |
| What is the installment threshold? | $3,000 ($1,800 inQuebec) |
| What are the quarterly instalment due dates? | March 15th, June 15th, September 15th, December 15th |
| What are the three methods to determine instalment amounts (individuals) | 1) 1/4 of estimate of NTO for current year 2) 1/4 of actual NTO for previous year 3) fist two = 1/4 of actual NTO 2nd previous year, second two = (NTO previous year - 1/2 NTO 2nd preceeding year)/2 |
| How are the instalment amounts based in CRA reminders | Based on alternative 3 |
| What happens if alternative 1 is chosen, and the estimated NTO is lower than actual | Interest charged on shortfall based on the lower of alternative 2 and 3 |
| What does NTO stand for? | Net tax owing |
| What are the 4 conditions for instalment interest? | 1) installments must be required to be paid in the year 2) the individual received a CRA reminder 3) instalments were unpaid, late, or incomplete 4) interest amount exceeds $25 |
| In what 3 situations is interest charged to individuals? | 1) balance owing on April 30th for tax on preceeding year 2) any portion of instalment payment that is not paid on the due date 3) on all penalties (i.e. late filing) |
| How can interest on instalments be offset? | By making future instalment payments prior to the due date |
| What is the prescribed base rate? | The annual rate of interests calculated each quarter |
| When does the base interest rate apply | In most situations |
| When does the base rate of interest +2% apply? | When calculating interest on refunds from CRA to individuals and trusts (not corporations) |
| When does the base rate of interest +4% apply? | When calculating interest on late or deficient instalments, and other amounts owed to CRA by individuals, trusts, and corporations |
| What is the penalty for a first-time late filing? | 5% of unpaid tax at due date plus 1% for each complete month (maximum of 12 months) |
| What is the penalty for a late filing if a notice has been received and a late filing penalty has been assessed in the past 3 years? | 10% of unpaid tax at due date plus 2% for each complete month (maximum of 20 months) |
| What is the penalty for late a income tax payment if the return is filed on time? | No penalty. Only interest |
| What is the penalty for late/deficient installments? | 50% of (interest owing on instalments - $1,000) or... 25% of interest owing on instalments if no instalment payments had been made |
| What is the tax year for corporations? | It can start/end on any date |
| What is the filing due date for corporations? | 6 months after their taxation year end |
| What are the 5 functional currencies? | 1) Euro 2) Pound 3) USD 4) Yen 5) AUD |
| What is a functional currency? | A foreign currency that can be used by a corporation for tax purposes if it is used to maintain records, and books through the tax year |
| When are instalment payments due for corporations? | on or before the last day of each month |
| What are the 3 alternatives for calculating corporation instalment payment amounts? | 1) 1/12 of estimated tax payable for current year 2) 1/12 of tax payable for previous year 3) first two = 1/12 of tax payable 2nd preceeding year, last 10 = 1/10 (tax payable previous year-first two instalments) |
| Which alternative is typically best for individuals and corporations with growing net income year-over-year? | Alternative 3 is typically best because total instalments are the same as alternative 2 but payments are deferred to later in the year |
| What is the criteria for a "small" CCPC? | 1) taxable income doesn't exceed $500K (current or past year) 2) taxable capital employed in Canada doesn't exceed $10M 3) a small business deduction has been made for current or previous tax year 4) perfect compliance with GST/HST in preceeding 12 months |
| What are the 3 alternatives for calculating instalment payments for a small CCPC? | 1) 1/4 of estimated tax payable current year 2) 1/4 of tax payable for past year 3) first = 1/4 of tax payable 2nd preceeding year, last three = 1/3(preceeding year income tax - first instalment) |
| What is the balance due date for corporations? | 2 months after corporations tax year end |
| What is the balance due date for small CCPC's? | 3 months after corporations tax year end |
| How do the interest and penalties differ for corporations? | generally the same, except interest on returns is the base rate, not base rate +2% |
| What is the late filing penalty for corporations? | 5% of unpaid tax at due date plus 1% for each complete month, and 0.0005% of taxable capital employed in Canada (max 40 months) |
| What are the 4 types of trusts? | 1) mutual fund trusts 2) RRSP trusts 3) charitable trusts 4) personal/family type trusts (testamentary created when someone dies, intervivos when someone is alive) |
| What is the filing and balance due date for trusts? | 90 days after taxation year end |
| What is the taxation year for trusts | same as calendar year (with few exceptions) |
| What information are most trusts required to include under bill C-32 | Identity of trustees, identity of settlors, identity of beneficiaries, people with authority over trustee decisions and distribution of capital (name, address, DOB, country of res, tax ID # of each person) |
| What is an express trust? | A trust created by the intent of the settlor |
| What is a bare trust? | A trust where the trustee has no obligations to the beneficiaries other than holding legal title to property |
| What is a settlor? | A person who creates, funds, and establishes rules for a trust |
| What is a trustee? | An individual/organization responsible for managing assets in a trust |
| What is a beneficiary? | A person, group, or entity entitled to receive benefits from the trusts assets according to terms |
| What trusts to the new reporting requirements not apply to? | Express trusts including: lawyers general trust account, a trust in existence <3 months, trusts where FMV >$50,000 (all year), trusts where all beneficiaries/trustees are related and FMV < $250,000, a GRE, trusts where all units are on stock exchanges |
| What is a GRE? | Graduated Rate Estate |
| What is the penalty for failure to file information by a trust? | $25 per day (min $100, max $2,500) |
| What is the penalty for gross negligence in failure to file information by a trust | $25 per day (min $2,500, max 5% of highest value of property owned by trust in the year) |
| Is information reporting required for bare trusts? | No, unless specifically requested by CRA |
| What are the 4 types of information returns outlined in the textbook? | T3 (trustees to report beneficiary income), T4 (employers report salary, wages, other employment related amounts), T5 (banks and insurance companies to report certain investment income) T4RSP (trustees report payments out of RRSP's) |
| What is the penalty for not electronically filing information returns? | 0-5 ($0), 6-50 ($125), 50+ ($2,500) |
| What is the general retention period for books and records? | 6 years |
| What is the retention period for books and records for business carried out by corporations? | 2 years |
| When does interest begin to accrue on returns? | Individuals: 30 days after balance due date Trusts: 90 days after taxation year-end, or 30 days after income tax return is filed Corporations: 120 days after corporation tax year end, or 30 days after income tax return is filed (if filed late) |
| What are the 5 conditions for CRA to accept adjustments reducing income tax payable? | 1) wrong past assessment 2) reassessment can be made in normal period 3) decrease in taxable income doesn't only rely on increase in a deduction 4) change isn't solely on court appeal by other taxpayer 5) return filed after 3 years of relating year |
| What did the Johnston vs Minister of National Revenue conclude? | Onus is on the taxpayer to prove the CRA incorrect |
| "Beyond a reasonable doubt" is the burden of finding someone guilty in criminal matters. What is the threshold to meet for tax purposes? | "Balance of probabilities". Much lower threshold (credible explanation vs documentary evidence) |
| What is the objection deadline for corporations and trusts? | 90 days from date on notice of assessment/reassessment |
| What is the objection deadline for individuals and GRE's? | 90 days from notice of assessment/reassessment, or... one year from filing due date for year assessed/reassessed |
| What is a notice of assessment? | A summary of calculated amounts for your income tax return sent by the CRA |
| What are the 3 options the CRA can do after they receive a notice of objection? | 1) vacate (reverse) the assessment 2) confirm (refuse to change) the assessment 3) vary the amount with a reassessment (allow objection at whole or in part) |
| Why must corporations identify each issue with facts/reason specifically in an objection? | To discourage delay of the dispute process with vague objections to create cash flow |
| What is the next option if the taxpayer is not happy with the result of the objection? | Appeal to the tax court of Canada |
| What is the deadline for appealing to the tax court of Canada? | 90 days from date of CRA's response to notice of objection, or 90 days after notice of objection has been filed (if CRA has not replied) |
| What are the 2 procedures in the tax court of Canada? | General procedure (default) and informal procedure (elected by taxpayer) |
| What is the limit to claims under the informal procedure? | $25,000 (total federal income tax and penalty), or $50,000 for a loss carryover |
| What are the 3 advantages of the informal procedure? | 1) informal rules of evidence (self representation or hired representative) 2) no responsibility of paying CRA court costs 3) Fast-track (6-7 months) |
| What are the 4 advantages of the general procedure? | 1) formal rules of evidence 2) liable for CRA court costs if you lose 3) can appeal to federal court of appeal (30 days of decision) 4) possibility to go beyond to supreme court (rare) |
| What is the difference between tax evasion and tax avoidance? | Tax evasion: intentional ignorance of tax laws Tax avoidance/planning: actions taken to minimize tax. acceptable within letter of the law |
| What does GAAR stand for? | General Anti-Avoidance Rule |
| What is the general anti-avoidance rule? | A general-purpose tool for CRA to rely on where spirit of law was violated |
| What are the 3 criteria for applying GAAR implemented in 1988? | 1) A tax benefit 2) a tax avoidance transaction (must be integral to tax avoidance and wouldn't be taken otherwise) 3) misuse or abuse (intentional abuse of specific law provision) |
| What are the 5 aspects of the new GAAR legislation in 2024? | 1) fairness, certainly and protecting tax base 2) lowered threshold of "avoidance transaction" 3) establishment where lack of economic substance is 4) 25% penalty 5) 3->6 year CRA review extension |
| What is the delay of collections by CRA? | 90 days after assessment/reassessment (when no objection is filed), date of notice from CRA division confirming varying assessment/reassessment, or from final court decision (interest still accrues) |
| What is the penalty for failure to file partnership information return? | $100 or $25 per day to a max of $2,500 |
| What is the penalty for failure to report income? | 10% of unreported income amount, or 50% of (understated income tax - income tax paid) |
| What is the penalty for false statements or omissions (gross negligence)? | (greater of) $100, or 50% of understated income tax |
| What is a "due diligence defence" ? | A taxpayer can argue that they did everything in their power to comply with ITA and therefore no penalty shouldn't be charged |
| What are the three situations where CRA will consider a taxpayer relief provision? | 1) extraordinary circumstance 2) actions of the CRA (i.e. incorrect instructions) 3) inability to pay or financial hardship |
| What does VDP stand for? | Voluntary Disclosure Program |
| What are the 5 conditions for a valid VDP application | 1) voluntary 2) complete 3) involve a potential penalty 4) include info at least 1 year past due 5) include full payment (or payment arrangement) |
| What are the 2 VDP programs? | Limited (international conduct) and General (all other disclosures) |
| What will happen under a successful limited program application? | waiving of all gross negligence penalties (max 10 years), avoidance of criminal prosecution (non-negligence penalties still apply) |
| What will happen under a successful general program application? | All penalties waived for 10 year period, no criminal prosecution, year 4-10 interest waived (year 1-3 interest still applies) |
| What are the 6 other VDP rules outlined in the textbook? | 1) one VDP disclosure per taxpayer 2) maybe requirement to disclose advisors 3) pre disclosure discussion between CRA and reps available 4) second review available 5) court review available 6) interest/penalties can be waived under taxpayer relief |
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