Lifestyle

Banka: Tax tips reflect Canada Revenue Agency’s new priorities

Currently, people can start to receive their Old Age Security pensions when they turn 65 years of age.

This age limit will be increased to 67 years of age beginning April 2023 and completed by January 2029.

However, beginning July 2013, a taxpayer will voluntarily be able to defer receipt of the OAS for up to five years and be able to receive a higher actuarially adjusted pension after that time.

This may be beneficial for those tax payers who currently have their OAS clawed back.

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The Canada Revenue Agency has also taken some measures against those taxpayers who participate in a donation scam or tax shelter.

Instead of processing the return and sending the refund to the taxpayer, the CRA will now hold the return until the audit of the tax shelter or non-profit organization have been completed.

To date, more than 167,000 taxpayers have been reassessed due to denied tax shelters and donations of more than $5.5 billion have been denied as tax deductible.

If the taxpayer removes the donation or tax shelter claim before the finalization of the audit, then their return will be processed.

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The CRA is continuing its letter mailing campaign to various types of taxpayers.

The first letter will suggest that perhaps the taxpayer should self-review the reporting of the income and expenses on their tax return and give the taxpayer the option to check into their tax return and file an adjustment.

The second letter will say almost the same and indicate that the taxpayer may be subject to an audit.

The items that will target the mailing of this letter are things such as a loss in the first year of rental operations or business operations, repairs and maintenance expenses over $5,000, high motor vehicle expenses, commissioned employees claiming high self employment expenses, rental losses used to reduce other income and established businesses that incur a sudden loss.

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As the CRA’s computer systems become more integrated, the duplication of information between departments will become less.

However, security of the taxpayer and their information is still paramount.

One current pleasant change is that when you call CRA and have your identity verified by the  first person answering the phone, if you are transferred to a second person, you no longer need to re-answer security questions.

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CRA is also looking at net worth assessments, whereby if assets held and lifestyle does not agree with income reported, the probability of an audit is imminent.

The work is continuing on clamping down on the underground economy.

Last tax season, some  5,400 underground economy audits where completed recovering about $130 million.

The areas of underground economy that are due to be reviewed are small wineries, scrap metal dealers, construction and service providers in the film industry.

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The CRA audit department targets various types of businesses every year.

Although it is never public knowledge which businesses will be targeted for an audit, the trend seems to be toward real estate salespeople who have been reporting heavy use of automobile, travel and entertainment expenses. Persons who flip real estate are being looked at closely as well as are day traders, the issue being as to whether the transaction is actually a business income taxed at 100 per cent or capital gains taxed at 50 per cent.

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There is currently a target project going on in Ontario where food servers working in restaurants are having two years of taxable income reviewed.

From 145 servers working in only four restaurants, CRA has recovered $1.7 million of unreported tips and gratuities.

With the increase in use of debit cards, the restaurant owners have less and less cash to give out to the servers.

The conclusion is that the restaurant owners should be or are becoming responsible for the reporting of these tips and gratuities and that they should be included on the T4 slips.

Since this project has been so successful, it will probably be working its way across the country.

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Another area to be targeted are those businesses who offer a parking benefit to their employees and do not include that on the T4.

CRA gets tips from various sources and a most interesting source is from offshore banks.

Apparently, the employees of offshore banks have no qualms about turning over their client lists and information about the client’s balances to CRA for a fee.

CRA has managed to recover 90 per cent of taxes using this tip.

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You might notice that there have been increases in all penalty areas.

Previously the interest was charged and the penalties were waived.

CRA is no longer inclined to waive the penalties.

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