Vicki Lingley Taxpayer Services Division Canadian Tax System Good day my name is Vicki Lingley and I have worked for CRA for 17 years. I would ask that you look in the kits that you have been handed and find you pay envelopes. We will be using this in just a little while. Vicki Lingley Taxpayer Services Division

Today’s agenda History of taxes in Canada How does the tax system work in Canada? Why do we pay tax? How do we pay tax? Basics of T1 form and guide Filing your tax return Underground Economy Consequences of tax evasion Voluntary Disclosure Program Credits Electronic Filing

History of Taxes in Canada

History of Taxes in Canada In 1650 Louis XIV of France imposed the first tax in Canadian history - an export tax of 50% on beaver pelts and 10% on moose hides leaving his colonies

History of Taxes in Canada 1867 – Confederation – The British North America Act was passed, giving the newly formed Canadian Government the power to raise money by taxation From 1867 to 1917 – The provinces raised money mainly through fees, licenses and rents from public lands. They also taxed horses, dogs, cars, gasoline, salmon and other items

History of Taxes in Canada 1914 – World War I begins 1917 – The federal government introduces the Income War Tax Act. This act was enacted to raise extra money for the government to fund the war effort.

History of Taxes in Canada 1949 – The federal government introduces the Income Tax Act, which replaces the Income War Tax Act. The Income Tax Act is still used today to administer Canada’s tax laws.

How does the tax system work in Canada? The Department of Finance is the federal department primarily responsible for providing the Government of Canada with analysis and advice on the broad economic and financial affairs of Canada. The department establishes and introduces the “Federal Budget” to Parliament. The Canada Revenue Agency (CRA) is the agency responsible for administering the tax laws for the Government of Canada

CRA

How does the tax system work in Canada? Just like the systems in the United States, Australia and New Zealand, Canada uses a self-assessing system of taxation. We are relying on the citizens of Canada to file their annual income tax return to report their income and deductions. However, we reserve the right to review any tax return information to maintain the integrity of the system. So earlier you received a pay envelope. I would now ask that you voluntary pay your taxes. Your taxes payable are noted on your envelope. Remember this is voluntary.

Why do we pay taxes? Canada’s tax system pays for roads, public utilities, schools, health care, economic development, cultural activities, defence and law enforcement.

Why do we pay taxes? Tax revenue helps redistribute wealth to such beneficiaries as lower-income families, charities, students, retirees and people with disabilities. Tax money provides social services such as Old Age Security benefits, Employment Insurance benefits and the Canada Child Tax Benefit.

The Federal Government: Collects income tax, GST/HST, excise taxes Provides: Employment Insurance (EI) Canada Pension Plan (CPP) Airports (TC) Food Inspection (CFIA) Foreign Aid National Defence (DND) RCMP Immigration and border patrol (CIC & CBSA) Space Agency (CSA) National Parks (Parks Canada) Transfer payments, etc…

Provincial Governments: Collect income taxes, PST, Lotteries Provide: Hospitals Schools Roads Provincial Police, etc…

Municipal Governments: Collect property taxes on homes and businesses, parking meter fees, parking fines, licenses Provides: Roads, sewers, traffic lights Police, fire Parks and Recreation Garbage collection, etc…

How do we pay taxes? There are many different types of taxes and different ways to pay and identify them. Direct taxes – personal income taxes, gift taxes, corporate taxes and succession duties. They are usually levied against the taxpayer who is responsible for paying them.

How do we pay taxes? Indirect taxes – These usually consist of sales taxes, excise taxes, land taxes and customs duties. They are taxes that have initially been paid by someone, who in turn, passes on the cost.

Paying Your Personal Income Taxes The most common form of paying personal income tax is through payroll source deductions. Your employer will calculate and withhold from your pay the minimum required amount of income tax required by law. You can ask them to withhold more if you wish. The employer then remits these taxes to us. At the end of the year, the employer prepares a T4 Information slip showing the gross earnings and cumulative totals of income taxes, Employment Insurance premiums and Canada Pension Plan deductions (for 18 years or older only)

T4 Information Slip

Back view of T4 slip

Basics of the T1 Form and Guide The income tax return is divided into 6 sections: Identification Total Income Net Income Taxable Income Non-refundable tax credits Refund or Balance owing I would ask at this time that you look at the green sheet that in include in your kit.

Identification

Total Income

Net income and Taxable income

Non-refundable tax credits This a separate form that is inside the green sheet you received.

Refund or Balance owing The majority of you will not have a refund or owe taxes until you are no longer students. However, some employers do withhold taxes from students and in that case you should receive all of the funds back.

Filing your return with taxes owing Deadline for filing your return: April 30 Deadline for paying any taxes owing: April 30 Possible penalties: 5% of taxes owing for a return filed late plus 1% for every month it is late. If you had a late return in the previous 3 years, the late-filing penalty doubles to 10% of amount owing plus 2% per late month. Daily-compound interest charged on any outstanding amount effective May 1. It is now April 30th, anyone that did not pay their taxes early they are now done. Please pay your taxes. Remember this is still voluntary.

Filing your return with refund Deadlines remain the same for filing your tax return: April 30 No penalties if filed late if you are entitled to a refund Time to receive refund: Paper file: 4 to 6 weeks Electronic file: 8 to 10 business days We recommend you still file on time to keep a good compliance history It is a good idea to file a tax return even if you do not expect a refund as the first time you file a return it can take up to 16 weeks to be processed.

What is the “Underground Economy”? The Underground Economy is defined as income and sales that are unreported or under-reported for Income Tax, Goods and Services Tax and undeclared or undervalued for Customs purposes. It largely covers that portion of business activity that is associated with the supply of goods and services for cash. You must report all income earned, including tips, self-employed earnings, cash payments and wages from an employer.

How does the Underground Economy affect You? continued revenue losses put social programs at risk reduction in services creates unfair competition/ uneven playing field pushes deficits higher than otherwise would be the case puts an unfair burden on honest Canadians who pay a disproportionate share of tax

Consequences of Tax Evasion Every year, thousands of taxpayers either fail to file their returns or try to avoid paying taxes. This puts an unfair burden on honest Canadians who end up paying a disproportionate share of tax. Tax Evasion and/or Fraud are serious crimes and CRA dedicates a huge amount of resources to try and reduce it. Tax evasion nets former Grand Falls tax preparer $286,255 fine and 9 months jail time Grand Falls, New Brunswick, June 16, 2010… tax payer, was fined $286,255 and sentenced to nine months in jail yesterday in Grand Falls Provincial Court on 100 charges of tax evasion. He was ordered to pay the fine by June 30, 2013, or serve an additional two years in jail. Windsor optometrist sentenced to one year in jail and $522,346 fine for tax evasion Windsor, Ontario, September 20, 2010 ...a Windsor optometrist, was sentenced today to one year in jail and a fine of $522,346 after a jury found him guilty of tax evasion on May 20, 2010. The court fine, representing 150% of the total taxes evaded, is in addition to any taxes owed, as well as any interest and civil penalties that may be assessed by the Canada Revenue Agency (CRA).

Consequences of Tax Evasion In 2008-2009 CRA initiated action to collect over 787,000 tax returns that had not filed, resulting in an extra $2.3 billion in tax revenue. In the same period, CRA performed over 374,000 audits of various sizes. Over 1,100 charges were filed for failing to file a tax return or tax evasion with a 98% conviction rate. So anyone that does not file and pay their taxes could be subject to legal action. CRA can seize your assets, ipods, cell phones, laptops, etc. in order to collect what is owing to the government. Is there anyone that wants to pay their taxes now?

Voluntary Disclosure The Voluntary Disclosures Program (VDP) allows taxpayers to come forward and correct inaccurate or incomplete information or to disclose information they have not reported during previous dealings with the CRA, without penalty or prosecution. A valid disclosure must meet four conditions. They require that the disclosure be voluntary, complete, involve the application or potential application of a penalty, and generally include information that is more than one year overdue.

Voluntary Disclosure If CRA accepts the voluntary disclosure, the taxpayer will not face prosecution or penalties. They will only have to pay the unpaid taxes and interest. In 2008-2009, 11,400 individuals and businesses filed Voluntary Disclosures, resulting in an extra $575 million in tax revenue. Bottom line…come to us before we go after you. This would be your last chance to disclose any unreported income and pay the tax without the legal consequents. So does anyone still need to declare their income and pay their taxes?

Credits and Benefits Starting at the age of 19, you might be entitled to receive the Goods and Services Tax Credit (GSTC), which is paid on a quarterly basis. If you have a child under the age of 18, you may also qualify for the Canada Child Tax Benefit (CCTB) and Universal Child Care Benefit (UCCB). These are monthly payments to help parents raise their children. These credits are based on the amount of income earned in a year so filing your income tax return is very important. For example if you were turning 19 next March and you had not filed a tax return you would not receive your GSTC cheque in April. CRA uses the information from your tax return to determine the amount of GSTC to send to you. This also applies to CCTB and UCCB. If you are a parent or have a spouse you are also entitled to these credits.

Electronic Filing In 2008, over 24,206,320 tax returns were filed with a little over 62.6% in an electronic format. Breakdown: Paper – 9,042,040 (37.4%) Efile – 10,118,930 (41.8%) Telefile – 442,930 (1.8%) Netfile – 4,602,420 (19%) Efile – Used by tax preparation businesses Telefile – File your tax return over the phone Netfile – File your tax return online Efile – you have pay someone to do your for you Netfile – you have to the tax software and you use your own home computer to electronically to file your return. You need to receive an access code from CRA to be able to file using this method. Telefile – you simply input your information over the phone, no cost to you. You need an access code to be able to use this method as well. First time filers can not use these methods.

FOR MORE INFORMATION Online: www.cra.gc.ca Phone: 1-800-959-8281

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