You could be the unhappy payer

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As part of the elusive paperless quest, the 2009 federal budget contained provisions to impose mandatory electronic filing requirements on certain tax filers beginning in 2010.

Proroguing, or perhaps the Olympics, must have gotten in the way because it appears the necessary regulations have not yet come into force, causing CRA to recently grant a reprieve until 2012.

Prior to 2010, electronic filing was mandatory only for very large organizations that filed more than 500 information slips in a calendar year. The proposed regulations will lower this bar to make electronic filing mandatory for filers who issue 50 or more information slips in a given year. The information slips in question will include the most commonly filed: T3s, T4s, T5s and so on.

The proposed regulations also make electronic filing of T2 corporate tax returns mandatory for corporations with gross revenue in excess of $1 million. Not surprisingly, GST returns are also included in the mix, with mandatory filing for all registrants (other than charities) whose annual taxable supplies in Canada in the previous year exceeded $1.5 million.

When first announced, filers were given one year to adjust to the new rules with penalties coming into force in 2011. With the recent announcement, this effective date has been moved back one year to 2012.

It should be pointed out that the obligation to electronically file the above information is a function of the number of slips or gross revenue and not the year to which the filing relates. For example, if for whatever reason, you had an outstanding filing from 2006 and you met the above tests, the new rules would obligate you to file electronically.

Now, in the good old days of paper filing, it was possible to late-file various documents and be subject only to a minimum penalty, or, in some lucky cases, no penalty at all. With mandatory electronic filing, that simply will not happen. Penalties and associated interest charges will be imposed automatically by computer and that will be the end of it.

For CRA this form of automated chicken plucking fits nicely with their increased focus in recent years on assessing and collecting penalties and interest from tardy taxpayers. Late-filers and non-filers bog the tax system down, cost compliant taxpayers money and they deserve to pay for their misdeeds.

So, yes, it’s hard to feel a lot of sympathy for non-compliant taxpayers, but not all later-filers are scofflaws. There will be times when otherwise diligent taxpayers end up in a late filing situation – computer problems or illness – and automated penalties and interest will apply. True, there are remedies available under the taxpayer relief rules, but these provisions only apply in limited circumstances (serious illness). The process isn’t simple and a favourable result will not always be the outcome.

A year delay of the new mandatory filing rules is welcome, however, looking ahead to future years, expect the proposed thresholds to be lowered as CRA moves toward an increasingly automated tax collection system.

The lower thresholds will increase the imposition and collection of penalties and interest. The happy beneficiary will be CRA; the unhappy payer could be you.

Jim Maroney is a chartered accountant with Meyers Norris Penny in Maple Ridge.