Tax Season in Canada… When can you expect to see your slips, receipts and returns?

Tax time in Canada.

April 30th for most Canadians and June 15th for self-employed Canadians.

So much fun… Really.  Organizations who issue tax slips, tax returns or contribution receipts have been working hard perfecting their processes since the end of the last tax reporting season and have been working through the summer putting any necessary changes in place and gearing up for the next tax season – which all begins next month in November for many top organizations.

Since issuing organizations are gearing up, so should you, the investor, start getting ready to file your income tax returns and to do that, it really helps if you have an idea as to which slips your investment(s) will generate and when you can expect them.

Of course, even if you do get all your slips, as expected, there could always be amended slips sent to you as well resulting from an error or late directional change from the company / fund.  Even the CRA sometimes are required to make changes to their tax forms, or to the calculations contained therein and there is nothing you, nor your tax preparer can do, let alone the poor folks issuing your tax slips.  You have a slip, assume it to be correct and file to the CRA with it only to find out it’s incorrect when another version comes, with a letter, to be used instead.

Take 2010, for example… The CRA changed the dividend tax rate by something like 0.0007% and they did that 5 days before they expected T5 slips to have been received by holders and in actual fact, most of the T5’s were already issued with the incorrect rate before the CRA realized what they had done.

Since the CRA determined that the rate change would be adjusted internally, there was a communication fired out industry-wide notifying those who received T5’s that no further actions would be taken on the holder side and that they should not need to go back to their bank, financial institution or transfer agent to have it amended.  I remember a few individuals demanding their slips being amended for a total change of $7.00.  But this is what you do – with a smile when you’re in that industry.

Back to the topic.

One of the most common frustrations during tax preparation time comes from those holders who are eager to file but are unsure of what they are getting and when, roughly, it should arrive.

Due Dates

Keeping tabs on due dates can be quite difficult, especially if you’re getting them from an organization which has not fully embraced social media and are unable to provide you with a timeline, or expected dates per slip depending on what you should be receiving.

For example, T4 and T5 tax slips must be mailed out by February 28th whereas, tax slips for mutual funds, flow-through shares, limited partnerships and income trusts are not due until March 31st.

When there are late deadlines, like March 31st, a lot of pressure is then placed on your accountant as it creates a heavy backlog in April, when accountants must rush through the preparation of personal tax returns for their clients – sadly unable to give each return the care and oversight that they deserve.

I just don’t understand why all slips are not made available on the web or by email all by say March 10th in order to allow time for issuing organizations to prepare better their processes to allow for additional oversight and for time to correct errors.  This way organizations preparing the slips will have to begin auditing the slips traditionally due in February for errors and get the March ones completed – have them all merged together in the same file and made available sooner rather than later for the holder.  In addition, with a fixed deadline, the CRA or MRQ would then know when they can or cannot change slips or information on slips.

Let’s look a little closer at some issues and potential solutions;

Year-end trading summaries

Banks and brokerages use year-end trade summaries to report proceeds and commissions on each sale. However, the proceeds reported are sometimes net of commissions, which can lead investors to erroneously deduct the reported commission number a second time.  In addition, many banks issue multiple slips for each investment account, but send a consolidated summary of the slips to the CRA, which causes havoc when there is a missing slip or a question regarding one of them.

By keeping track of the totals or having them all come in March would allow the issuing organization time to audit and compare the slips to the summary before issuing to ensure they balance.

Another solution is for the issuing organization to make the slips available on their investor website and then holders can wait for the year-end summary to post – which of course would balance – and then before a holder does anything with their slips they can be comfortable that they balance.

An additional bonus would be for the issuing organization to also provide the calculations behind the slips on the website so that if there is a discrepancy, the holder can look to see how the slips were calculated and they can also learn more about how taxes are calculated.  It’s a win-win situation.  Accurate reporting and teaching the holder more about taxes.

Gain and loss reports

Many privately managed bank funds prepare gain and loss reports for clients. However, where there are US stock sales, often the cost reflects the US dollar purchase amount at the current year’s exchange rate, rather than at the time of purchase.

Traditionally, the onus is on the holder to figure out the historic exchange rate and the issuing organizations can and should assist by making this information available on their website for ease of balancing.  They should also make sure that there is accurate and complete documentation on their website and on all reports indicating the rate used and the rate needed for reporting.

T3 and T5013 tax slips

These are the two main slips which have a mailing deadline of March 31st because the trust/partnership has to finalize their books and prepare their tax returns in order to know the breakdown of the distributions so that the individual holders can then have their tax returns rushed to them – a high risk process indeed.  So once the T5’s have been received and accounted for, issuing organizations like transfer agents have only a month or less to then prepare the T3 and T5013 slips.

Let’s be honest here, it’s more like 2-3 days, due to the complexity of the partnership returns and one way around this is to ensure that any issuing organization is capable to preparing T5013’s by themselves, or that they have an organization capable of preparing them in an expedited manner.  In addition, the partnership should be contacted to let them know that the quicker they get their books in order, the quicker the rest of the slips can be prepared.  If enough people come forward, I guarantee it will get done faster.

Final Review:

When reviewing your slips before filing your tax return, keep in mind a few small differences;

T4’s vs. T4A’s – A T4 is issued by your employer and reflects the income you earned during the year, as well as showing the amount of deductions you had removed from your pay, such as; CPP, Employment Insurance (EI) and tax.  A T4A, on the other hand, is issued by a pension plan administrator and reflects the pension income you received from a pension source. T4As will not have figures listed for CPP or EI contributions since these are not deducted from pension income.

The T5 investment income slip – identifies the various types of investment income that residents of Canada have to report on their income tax and benefit returns.  T5’s are NOT issued to report income paid to non-residents of Canada, however, if you earned US interest on your investments, it will show up on your T5, with a note at the bottom saying that the interest is in US dollars.

It’s not always clear to the holder that this figure needs to be converted at the average exchange rate for the year, as set out by the CRA.   T5 slips also have both eligible and ineligible dividend boxes, which holders can accidentally reverse on their returns.

Investment loan interest

Most banks do not issue receipts for interest on investment loans unless specifically requested, resulting in a missed deduction for the client.  Borrowers should request receipts well in advance of the tax-filing deadline to ensure they arrive in time.

All in all, it’s best to keep track of investments you have and to check off when they are expected and when they are received in order to ensure you can file at your earliest convenience or reach out and ask your issuing organization / bank / transfer agency to step up and find a solution.

It’s never to early.

Even in October.

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The Canada Revenue Agency Informant Leads aka “Snitch” Line

You have come to this blog for more information on the Canada Revenue Agency’s (CRA) Informant Leads or Snitch Line.  Yes, the line does exist and if you are looking for the number in order to use it, that number is 1.866.809.6841.

You may have heard me speak on CFAX1070 about the CRA Snitch line, or possibly you heard my interview on CBC.ca regarding the existence and use of this line.  If you have not, then let me take a moment to clear the air on this line.  The Informant Leads line does exist.  In fact, it has become such a popular tool for finding new collection sources that it’s increased volume of calls can be directly attributed to a reduction in the need for collections staff / auditors and investigators who were responsible for digging up new leads.

It is absolutely not possible for someone to call the line, make up a story and have someone investigated.  Anyone who states that does not know the purpose of this line and obviously has no experience working in the CRA.  To say that is irresponsible and fear mongering.   The CRA will act on leads but there must be some proof provided.  Simply asking for your neighbour to be audited because they drive a nicer car than you is not going to begin years or investigations-hell for them.  If, however, you purchase an item from a retail establishment, and are charged taxes, but you notice that the teller never ran the purchase through the till, then you can be assured that they are pocketing the taxes instead of remitting it to the CRA.  Or, if you notice on the receipt that they have charged you the wrong rate of tax, then you need to notify the CRA.

In one case, while I was working at the CRA, I purchased a large ticket item from a local store only to find out later that the taxes on the bill totaled 28%.  I went back to the store to ask for it to be corrected, only to have them advise me that it was a “US cash register” and that the rate was incorrect.  I took the receipt into the office hoping to launch an internal investigation but was told it would be 6-weeks before they were able to look at it.

So I walked over to a phone beside my desk, called the snitch line, explained the issue and after providing the receipt as proof, found that an investigation was launched the next day and heard through the grapevine that over $200,000.00 was recovered from the company.

That is where the snitch line can be put to good use.

If, however, you hear your neighbour bragging about how much money he makes under the table and he lives way better than you do?  You can call the snitch line.   Or if your ex-spouse is unwilling to file their outstanding tax returns because it would mean they would have to increase child support payments, then you can call the snitch line.  The CRA will take the information, begin with an internal investigation to see if there is merit, then possibly drop by the home or business to get a feel for whether an audit is required or if a net worth assessment is needed.

At the end of the day, the intention of the snitch line is to provide a direct link to the CRA’s Audit department and it assists the CRA as they use these “tips” to recover funds from professional tax avoiders.

Key words the CRA likes to hear includes;

Their names, their address, an amount of unreported income greater than, say $50K, maybe a second set of books, or 2nd property in the name of their cat…

It never hurts to call.

It always hurts to not call.

This line is anonymous and believe it or not, the majority of “tips” come from exes who are left holding the bag while their ex-spouses are living it up.

I figured I would post this since it is the most frequently asked question I get.  Yes a line exists and yes it gets acted on… and fast if the dollar amount to be recovered is high.

I have actual experience seeing this line work and I know for certain of instances where people have called this line in effort to discredit or attack someone and at the end of the day, the CRA  has investigated that person or party and punished them for making a false claim.  Those in glass houses should never throw stones.

Snitch Logo

The Canada Revenue Agency is actively looking for Offshore Accounts too…

I have received confirmation from a senior official at the Canada Revenue Agency that the CRA is in fact actively investigating individuals suspected of being involved in the recent offshore account problem overseas.  Thus far, no one has been named publicly and my source at the CRA has confirmed that each person contact thus far has willingly come forward to pay amounts owing in full and that the number of people thus far targeted by the CRA totals less than 100.

The list remains private because the CRA does not want to tip-off those involved that they are coming for them, nor do they want to admit that they are severely short of qualified staff needed to make arrangements with these taxpayers and their numerous numbers of representatives.

The CRA suspects that the list is available elsewhere and that it might be coming to light sooner than many wish which could hurt the CRA and will certainly shame those involved.

The CRA will certainly be looking for additional offshore funds with speculation abound that there will be incentives down the road for taxpayers and financial organizations to disclose to the CRA situations where an individual or organization is placing it’s assets out of the reach of the CRA for tax evasion purposes.

Stay tuned!

CRA employees steal $300,000 in refunds from Canadian Taxpayers

The Canada Revenue Agency’s (CRA) credibility is reeling after an Access to Information (ATIP) Probe revealed that 2 senior employees in the Debt Management division were found to have been stealing from Canadian Taxpayers.

This massive fraud was detected in 2008 and had been going on for almost 8 years in both cases, which shows that it was very detailed and well thought out because no one knew about it for such a significant period of time.

At the time this fraud was brought to light, there was a belief that it further implicated the lack of quality management inside the CRA – that it’s just not up to par with the responsibilities they are required to perform.  With access to people SIN numbers, and the ability to move billions of dollars annually, the current crop of team leaders, managers and all of senior management are shown yet again to lack the competency to properly manage staff and protect the interests of Canadian taxpayers.

What makes this fraud even more appalling is that while uncovered in 2008, the CRA kept news of it from going public for more than a year, until the facts were released through a request under access-to-information law.

In the one case, a veteran male CRA employee routed approximately $300,000 generated from illegitimate returns into his bank accounts. In the other case, a veteran female employee defrauded the Canadian public of approximately $100,000 through manipulating their systems into issuing refunds and payments to accounts she had set up and controlled for this purpose.

On September 16th, 2009, the CRA refused to name the fraudsters or reveal whether they were fired or charged and convicted, saying that to identify them would violate “privacy laws”.  The CRA also refuse to confirm or deny that any or all of the stolen monies were recovered after the fraud was discovered in 2008.  CRA spokeswoman Caitlin Workman did, however, reveal that “They no longer work here,” she said.  She also dismissed the notion that this fraud would erode the publics’ credibility in the CRA and that these two individuals actions an anomaly, “We have close to 45,000 employees here, and they deal with millions of tax and benefit files on a daily basis. And here we are talking about two individuals.  Yes, we take it very seriously, but it should also be put in perspective.”  Ms. Workman said internal fraud of this magnitude is very infrequent, “I don’t have any numbers for you but they are very rare.”

The Crime

The male employee took more than $300,000 by routing bogus refunds and related Canada Child Tax Benefit and GST credit payments to his personal accounts, the ATIP documents revealed.  “For the last eight years, at least, he had filed tax returns and claimed [benefits and credits] for individuals he did not know,” the Internal Audit investigation revealed.  “Based on the information gained and the list of social insurance numbers found at his workstation, it is reasonable to believe that [he] may have had a role to play in the issuance of illegitimate refunds on more than 50 accounts.”

The female CRA employee, prepared and filed hundreds of illegitimate returns, ensuring the tax refunds and goods and services tax credits were routed to her own bank accounts.

This was made public through access-to-information requests made by researcher Ken Rubin.

An important note is that anyone is entitled to make an ATIP request into their own personal tax information at any time.

Internally, this fraud was brought to light after other CRA employees became suspicious when they tried to verify some of the claims and could not reach the taxpayers in question.  The ATIP request found internal documents stating; “After reviewing the motor vehicle records and conducting credit bureau checks … [a staffer] was unable to determine the whereabouts of the taxpayers involved and could not establish whether or not they actually existed.”

Where it appears that CRA management failed the Canadian public the most is that the internal investigation turned up that both employees had made thousands of unauthorized searches into taxpayers’ accounts, including gaining access to their own files, and members of their family.

Unauthorized access is the most severe offense at the CRA, a current employee who did not want to be named stated that, “We are required every year to sign a document stating that we will not access information that does not directly relate to our work-load and for every account we enter, we are required to fully diarize the reasons for accessing it.  We are told that if we access information that we should not be accessing, we will have our access suspended immediately pending investigation and if found guilty, suspended or fired”.  There is no way that “thousands” of an authorized accesses should have been allowed.  It just goes to show that management let down the Canadian public by not knowing what employees are doing on a daily basis, or for allowing these accesses to occur without punishment.

It might come down to the fact that these (now former) employees were part of the “old boys network” and that their transgression were tolerated until it was brought to the attention of someone senior at the CRA who would not let it occur anymore.  The contact at the CRA stated that there are others who have been suspected of carrying out similar frauds who still are employed by the CRA including putting themselves on the payroll of companies they are auditing, or by accessing information of friends, colleagues or even staff their manage.

The bottom line here is this… Your information is safe at the CRA, and the CRA employees take privacy and security extremely seriously. There are significant consequences relating to access to information which can result in suspension or termination.  Every time there is a breach, the CRA immediately steps up and puts plans and procedures in place to make sure it never happens again.

So before you start bitching about the CRA, and about taxes – which is your right – make sure you take care of your own backyard and file your taxes on time, pay your taxes, and don’t carry a balance owing at the CRA.

CRA Tax Question: T5008. Divorce. Court Order.

In the process of managing the processing of 2 million tax slips for my employer, the world’s largest transfer agent, the following question came across my desk:

A husband and wife divorced during the year and the husband did not make his child support payments as required by court order.  As a result, family court here in Canada passed a judgement stating that any stock he held be removed from his name and either cashed in so those funds could be given to his wife, or the stock be transferred to his wife so that she may cash them in as she needs them.

So here is the question:

Who gets the T5008?  Him or her?

Note:  Traders or dealers in securities have to file a T5008 information return to report purchases of securities as principal for their own account, and sales of securities they make as an agent or nominee, for any vendor.

Issuers of securities and their agents or nominees use this (T5008) information return to report redemptions, acquisitions, or cancellations of securities.

Might this be considered a deemed disposition?

Deemed dispositions

You do not have to report deemed dispositions on a T5008 slip, in certain circumstances, the Income Tax Act considers that a property has been disposed of, even though no real compensation in the form of money or other consideration has been received.

Some examples of when a deemed disposition may occur are:

  • transfers of property to a trust;
  • gifts of property (that is, the name of the beneficial owner of the property is changed);
  • the owner dies; or
  • the owner ceases to be a resident of Canada.

In this guide, “sale” generally refers to a transaction where the ownership of property is transferred from one person or entity to another for a sum of money or other consideration. In the case of a deemed disposition, ownership of the property is not transferred for money or other consideration. In addition, a deemed disposition is not a purchase, redemption or cancellation of a security. Consequently, a deemed disposition is not considered for the purposes of Income Tax Regulation 230 and a T5008 slip is not required.

Answer to follow…

In-TAX-icating

In-TAX-icating.

Definition:

a: To excite or stupefy by taxation to the point where physical and mental control is markedly diminished

b: to excite or elate to the point of enthusiasm or frenzy… about taxation.

Passionate about Taxation.  Passionate about helping you!

Could a Canadian FATCA be in the works?

Since this case broke in February, governments around the world have been investigating the possibility that their citizens have offshore accounts set up mainly to avoid paying taxes.  Germany, which as of late 2008, is leading the international crackdown on tax evaders, has reportedly collected up to 250 million euros from more than 200 tax evaders who have turned themselves in, and  from 330 citizens who wrongly believed they were on the list of accounts stolen from LGT Group (the largest family-owned private wealth and asset manager in Europe, owned by the Prince of Liechtenstein and thought by many to be the factor behind the US crackdown on tax evasion through their FATCA legislation.

When prompted for a comment regarding Canadians, the CRA refuses to comment.

The CRA would not even throw the press a bone by offering how many Canadians are involved, if the CRA is investigating, and if the CRA would accept voluntary disclosure from those involved in order to help them come clean without the fear of penalties and / or prosecution.

One can wonder if the silence is a result of a crack team of CRA staff who have known about and are working on resolving the Canadians attached to this list, or whether this whole situation came out of left field and the CRA is scrambling to get more information before they can respond publicly.

For those of you who are unaware, this came to light when in February when a former LGT computer technician name Heinrich Kieber stole and sold account information of about 1,400 wealthy clients to the German foreign intelligence service, the Bundesnachrichtendienst.  Germany then shared the data with other countries which triggered an international crackdown on tax evasion.

Kieber, for his part, has been given a new identity and placed in witness protection in an undisclosed country.  During a hearing in the US, surrounding US citizens’ use of banks in Liechtenstein and Switzerland, Kieber answered questions and outlined the extensive efforts and schemes enlisted by the bank to ensure secrecy.

Swiss banks will now refuse to hold offshore money from US citizens and the US plans on suing the bank.  This is just the beginning!

Should Canada follow the lead of other countries investigating their citizens who have accounts in Liechtenstein?   Those countries have made public the number of people who have stepped forward and declared their offshore income.  Is there is reason why Canada remains quiet?

Only time will tell.