Importance of Compliance to Canada Revenue Agency's Requirements
A Non-Compliance of CRA requirements arises in a variety of situations:
- when a Return or required document is not filed or filed late;
- when a tax or other amount due is not paid or paid late (tax instalments, final balance of tax payable, GST collected, payroll dues, interest and penalties levied by CRA are examples of payment obligations); or
- otherwise. For instance, when the sales/income reaches the specified threshold, GST registration is required.
Compliance requirements and due dates
a) depends upon
- the type of organization (whether it is sole proprietary or incorporated etc.);
- the nature of business;
- the type of registration or account you/your business have with CRA (whether GST registered, or has a payroll account and so on);
- your unique/specific relationship to the business (such as: whether you are a shareholder and/or an employee etc.). For instance, if you have a draw from business, a T4 & T4 Summary Return or a T5 & T5 Summary Return might have to be filed within the specified time limit.;
- the year-end chosen for the corporation.
b) may vary from business to business or corporation to corporation (requirement for one corporation may be different from that of another corporation)
c) may vary from year-to year, and so on.
Further, some requirements are to be complied after the year-end, while some are to be met on an ongoing basis, while certain others become necessary when a particular situation arises.
Therefore, it is very critical to get a clear idea about various requirements well in advance, so that necessary steps can be taken to comply with those requirements on a timely basis and thus avoid penalties and/or interest which are very harsh when it runs into several hundreds and thousands of dollars. Penalties/interest for non-compliance are non-deductible items in taxation and therefore are sheer cash losses, with no benefit being obtained out of those cash payments.
Everybody's income/tax/business situation is different. The first thing to know is what types of accounts you/your business have with the CRA. If you are not sure about this, please call CRA and ask whether it is just a Business Number or if there is also a GST Account or a Payroll Account too. The phone number for enquiries related to business and self employed individuals is 1-800-959-5525, and for enquiries related to individual income tax is 1-800-959-8281. The next step is to know the exact nature and type of activities undertaken during the year/period and in particular, those new/extra ordinary activities/transactions. Some of the items/transactions that you need to pay special attention to are:
a) Draws from business (as salary, fees, bonus etc. or as dividend or otherwise);
b) Receipts other than from the regular sale of goods /provision of service in the ordinary course of business;
c) Payments made other than to:
- the regular employees on the payroll; and
- the businesses who sold goods / provided service in the ordinary course of business.
Then, feel free to contact us with all the details to find out about the various CRA compliance requirements and penalties for non-compliance.
The following are of some of the general/usual compliance requirements (this is only an illustrative list):
- Due date for the payment of payroll source deductions of December 2020: On or before January 15, 2021
- Due date for the final payment of balance of all payroll/source deductions from directors'/management salary, bonus, commission, fees etc that are intended to be charged as an expense in the year 2020: Before January 15, 2021
- Filing Date: T3, T4, T4A, T5 and other similar Information Returns and their respective Summary Returns: February 28, 2021
- Obligation to pay Income Tax Instalments, by Corporations and Individuals: monthly/quarterly or depends upon each individual case/situation
- Obligation to pay the final balance of Income Tax for 2020, by Individuals (employed and self-employed individuals and other income earners): April 30, 2021
- Obligation to pay the final balance of Income Tax, by Corporations depends upon each individual case/situation
- Filing Date: 2020 Income Tax Return by Individuals (other than self-employed individuals and their spouses/common-law partners): April 30, 2021
- Filing Date: 2020 Income Tax Return by Individuals who are self-employed and their spouses/common-law partners: June 15, 2021 (These individuals must pay balance of their 2020 taxes due, latest by April 30, 2021, as in #5 above)
- Filing Date: Income Tax Return by Corporations, depends upon each individual case/situation
- Filing Date and Payment of GST: Generally, net GST/HST payment is due when the GST/HST Return is due to be filed. In the case of annual filers, depending upon individual situations payment may be due every quarter, instead.
- Payment of payroll source deductions by Employers: Due dates depend on the type of remitter the employer is. Generally speaking, payment of regular source deductions has to be made on or before the 15th day of the month, after the month the deduction is made (under the Income Tax act, Officers and Directors of a corporation are included in the definition of Employee, and therefore, Director's Fees and Management Fees are subject to the source deduction requirements and should be reported on a T4 slip).
In general, interest levied for non compliances are compounded on a daily basis and penalties could be levied for each day during which the default continues. This gives an idea how harsh the interest and penalties could be.
An opportunity to save income tax or defer a tax payment
An opportunity to save income tax or defer a tax payment may be lost, if a certain deadline is not met. For instance, the deadline for making RRSP contribution for the 2020 tax year (if there is RRSP room/deduction limit) is March 1, 2021.
Selected topics on compliance requirements and/or deadlines alone are listed here. Only the general requirements are stated, and in most cases, the reference is about small business corporations. Sources for various compliances and due dates as listed herein are the relevant publications of the Canada Revenue Agency / publications of the Government of Canada. The remaining contents of this newsletter, represent our personal opinions. Each individual taxpayer's situation is unique and requires individual attention. Care is taken to ensure accuracy of the information provided. However, we do not guarantee accuracy, completeness and their applicability/relevance in individual cases. Therefore, readers are recommended to get their individual income/tax situations reviewed and appropriate measures taken well in advance, for due compliance of various requirements in order to avoid interest and/or penalties.