Canadian Payroll Reporter

August 2015

Focuses on issues of importance to payroll professionals across Canada. It contains news, case studies, profiles and tracks payroll-related legislation to help employers comply with all the rules and regulations governing their organizations.

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2 Canadian HR Reporter, a Thomson Reuters business 2015 News August 2015 | CPR New structure more fair for businesses: CRA type an organization is required to file with the CRA through In- ternet File Transfer, using exten- sible mark-up language (XML). For 51 to 250 returns, the penalty will be $250. For 251 to 500 returns, the penalty will rise to $500. For 501 to 2,500 returns, the CRA can levy a penalty of $1,500. For more than 2,500 returns, the penalty will be $2,500. "The CRA will be in a posi- tion to assess the mandatory electronic filing penalty on 2015 information returns that are processed in 2016," says spokes- person Magali Deussing. The federal government first proposed the new penalty struc- ture in its 2009 budget. At the time, it was expected the penal- ties would apply as of January 2010 when the government low- ered the threshold for mandato- ry electronic reporting of certain information returns from 500 to 50. Employers below the thresh- old can to choose to file over the Internet or on paper. Although the government amended the Income Tax Act in 2009 to include the new penalty structure, it did not revise regu- lations under the act to officially change the mandatory electron- ic reporting threshold from 500 to 50. The CRA said it would not assess penalties until the regu- lations were amended — they were published in the July 1, 2015 Canada Gazette Part II. The CRA says it wanted to give filers, especially small busi- nesses, time to get used to the new threshold and penalties. But Internet filing is now so common, the CRA says, it should not be a problem for most businesses. "Currently, 96 per cent of in- formation slips are filed elec- tronically; therefore, most filers will not be assessed a penalty," says Deussing. The agency says even small businesses are becomingly in- creasingly likely to use the Inter- net to file information returns. Of the roughly 45,000 informa- tion returns it received from small businesses that fell within the 51- to 100-slip range for the 2012 tax year, more than 43,000 were submitted using the Inter- net. This indicates "over 95 per cent of the small business sector is voluntarily complying within the new requirements," it says. The agency admits that busi- nesses that do not yet file online may face some costs related to buying software to convert exist- ing files to a format that they can send to the CRA over the Inter- net. It estimates the maximum annualized cost would be about $131 per small business. However, the CRA says it can provide any filer with a way to file an unlimited number of prescribed information returns over the Internet for free, using its Internet File Transfer (XML) or Web Forms service. The agency also says it chose the Internet over other elec- tronic means, such as CDs and DVDs, for submitting returns because "it offers the most flex- ibility and low-cost options for all users." In addition, the agency says it is giving filers the choice of software to use for converting files for Internet transmission instead of mandating a specific one. "The amendments do not prescribe the type of software to be used for the data conversion in order to allow businesses the greatest flexibility in choosing tools that best meet their needs." Filers who are penalized for not submitting the returns elec- tronically when required be- cause their location in Canada prevents them from having In- ternet access can apply to have their penalties waived under the taxpayer relief provisions of the Income Tax Act, the CRA says. While some employers may not be happy to hear there are new penalties coming, the CRA says the new penalty structure will be fairer for businesses than the current one. It says the exist- ing penalty is "excessive where a large number of the same type of information return is filed." Under the existing penalty, businesses that do not file an in- formation return electronically when required to do so could be liable for a penalty of $2,500 for a first offence. The agency says the cur- rent penalty is especially oner- ous when a business has a large number of the same type of in- formation return to file because neither the Income Tax Act nor its regulations define the term "information return." As a result, both individual slips and related summary form are included in the definition. "Although the individual slips and the related summary are filed together, each individual slip is considered to be a sepa- rate information return. There- fore, the existing penalty applies to each individual information return not filed in the manner required," the CRA writes in the Canada Gazette. During the drafting of regula- tions to support the new penalty structure, the CRA says the CPA asked it to define the term "in- formation return" in the Income Tax Act Regulations, but the CRA declined to do so. "(S)ince this is a generic term that is used extensively in both the Act and Regulations, it is not suitable to define this term in the Regulations," the agency says. This is the second graduated penalty system the CRA has im- plemented for employers filing information returns. In 2010, it introduced new penalties for failing to file T4, T4A, T4A-NR and NR4 information returns or distribute them to employees by the due date. The penalties are the greater of $100 or: • $10 per day if the employer is required to file no more than 50 returns, to a maximum of $1,000 • $15 per day if the employer is required to file between 51 and 500 returns, to a maximum of $1,500 • $25 per day if the employer is required to file between 501 and 2,500 returns, to a maximum of $2,500 • $50 per day if the employer is re - quired to file between 2,501 and 10,000 returns, to a maximum of $5,000 • $75 per day if the employer is required to file more than 10,000 returns, to a maximum of $7,500. For small businesses, the agency applies a late-filing pen- alty of $100 or the following, whichever is greater: • A flat penalty of $100 for em- ployers filing one to five infor- mation returns. • $5 per day if the employer is filing six to 10 information re- turns, to a maximum of $500. • $10 per day if the employer is filing 11 to 50 returns, to a maxi- mum of $1,000. U.S. penalties Canada is not the only country that applies graduated penalties for failing to file electronically when required. In the United States, the Internal Revenue Ser- vice (IRS) uses a graduated pen- alty structure based on the num- ber of days late that an employer files its W-2 forms, which report wages paid and taxes withheld from an employee in a given year. Employers have to submit the forms electronically to the Social Security Administration if they file at least 250 W-2 or W-2c forms. If correctly filed within 30 days after the due date, the penalty is $30 per W-2, to a maximum of $250,000 per year (or $75,000 for small businesses). If the em- ployer files the correct forms more than 30 days after the due date but by Aug. 1, the penalty is $60 per W-2, to a maximum of $500,000 a year ($200,000 for small businesses). The IRS will fine employers who file the correct form after Aug. 1 or who do not file the form electronically at all $100 per W-2, to a maximum of $1.5 million per year ($500,000 for small businesses). Within Canada, Revenu Qué- bec is expected to levy similar penalties against employers that fail to file RL-1 slips electroni- cally when they have more than 50 such forms to file. In 2009, the Quebec government announced it would harmonize its tax rules with the new federal penalties once they became law. from T4 on page 1 The CRA is giving filers the choice of software to use for converting files for Internet transmission, instead of mandating a specific one.

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