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Payroll Advances: Tax Consequences

In an April 26, 2016 Technical Interpretation, CRA opined that where an employer provides a payroll advance to an employee, the amount is not generally considered to be a loan. A salary advance is a payment for salary, wages or commissions that an employee is expected to earn in the performance of future services. These amounts are generally included in the employee’s income in the year the advance is received.

If a repayment by the employee is required, a deduction is available in the tax year in which the repayment was made. The deduction cannot exceed the advance that was previously included in the employee’s income from employment.

When providing an advance to an employee, ensure that the employee clearly understands the tax implications.


Objections? Not So Fast!

When filing an objection to a CRA reassessment, one of the most frequently-posed questions is “How long will it take?”. The answer, according to the Auditor General, is “too long”.

On November 29, 2016, the Auditor General released a report to Parliament focusing on the effectiveness and timeliness of the objection process.

Length of Process

For the five-year period ending March 31, 2016, CRA took the following numbers of days, on average, to resolve objections from the time they were filed by the taxpayers:

  • 143 days for low-complexity objections (about 61% of total objections for the period);
  • 431 days for medium-complexity objections (about 37% of total objections for the period); and
  • 896 days for high-complexity objections (about 2% of total objections for the period).

On average, CRA did not assign an objection to an appeals officer until 150 days after the taxpayer had mailed the notice of objection.

CRA’s performance was also compared to six other administrations using 2009 data. Canada took 276 days compared to an average of 70 days for the other six countries.

It was also noted that the tracking system for timing the process was not sufficiently accurate or complete.

Objection Decision Results

Of the objections accepted and processed by CRA, 65% were decided in favour (in whole or part) of the taxpayer. 0.6% of objections resulted in an increase in income tax owed.

Next Steps

In the Fall of 2016, CRA commenced a review of its objections process. As an immediate response, CRA indicated that it will implement the standard to respond to taxpayers on low-complexity objections within 180 days, 80% of the time. Also, beginning in the 2017-2018 year, as part of the initial step when objections are received and screened, taxpayers will be contacted (if necessary) to provide missing information to ensure the file is complete when assigned for resolution.

As it will likely take a long time to complete an objection, a significant amount of interest on the tax liability may accumulate. Consider making an earlier payment to reduce the interest cost in the event that the objection is not successful. If it is successful, the CRA will pay interest to the taxpayer, albeit at a lower rate.

 


CRA Strategies On Offshore Tax Evasion: The World is Shrinking

A recent article reported that CRA is reviewing every electronic fund transfer over $10,000 from Canada to four foreign jurisdictions per year. The first two targets were the Isle of Man and the Island of Guernsey, with two more undisclosed jurisdictions to be reviewed by March 31, 2017. CRA has started audits of 166 high-risk taxpayers and sent over 1,000 “nudge” letters to lower risk taxpayers. For 2017-2018, CRA plans on reviewing about 100,000 fund transfers to four other undisclosed jurisdictions.

The article also noted that the Offshore Tax Informant Program received over 3,000 tips as of October 31, resulting in almost 200 audits and 124 active files under review.

In addition to these activities, a November 14, 2016 Huffington Post article indicated CRA identified 2,600 documents with a Canadian link, opened 85 investigations into Canadians, and has commenced 60 audits with respect to the Panama Papers.

If transferring funds offshore, retain appropriate documentation in case of CRA review.


The Return of the Blog

Tax season ended a couple of weeks ago, and we’re catching up on everything, including social media! We hope to get back into blogging and tweeting regularly again soon.

We are also proud to announce that for a third consecutive year we were chosen Favourite Accountant by the readers of Burnabynow newspaper in the Best of Burnaby 2017 issue! Thank you again, Burnaby!