Penalties and the CRA’s Matching Program
If you’ve received a notice of reassessment from the CRA, you are not alone; millions of Canadians are hit with reassessments each year. Most of these reassessments aren’t aimed at uncovering fraud or malfeasance; instead, they’re triggered by the CRA’s matching program, a system designed to look at every return and match it to the reported sources of income associated with that taxpayer. If you have neglected to include any amount of income – even a seemingly insignificant amount like interest income on a small investment you’d all but forgotten about – you can be targeted for reassessment and fined. The fine isn’t always just a little slap on the wrist; it can be as much as 20 percent of your unreported income if you’ve previously failed to report income, and depending on the timing of the unreported income, the amount you may owe can vary widely. Here’s how it works:
The Matching Program
Each autumn, the CRA matches income tax returns with T-slip information it’s gathered in its databases to ensure the figures match. Information is provided by third parties including banks, investment firms and, of course, your employer. When a mismatch is identified, the taxpayer is sent a notice of reassessment, usually between September and March, with instructions to pay any tax that’s owed along with interest that’s accrued. But if a mismatch has occurred any time within the past four years, the CRA assesses a 20% penalty against all unreported income for the most recent mismatch.
To make it even more confusing and frustrating, the law is written in such a way that the penalties that are assessed can wind up varying widely. Consider these two situations where taxpayers failed to report a total of $4,400 in income. In the first scenario, taxpayer A failed to report $4,000 two years ago and $400 this year. His (or her) penalty would be 20% of the current year’s unreported income, or $80. Taxpayer B neglected to report $400 in income from two years ago and $4,000 this year. The penalty for taxpayer B would be $800. Same mismatch amount, but substantially different penalties.
The Best Advice from an Accountant
If you’ve overlooked a T-slip, submit it as soon as possible – or better yet, take it to your tax accountants at Hogg, Shain and Scheck. The CRA does have some leeway in assessing the penalty, but the circumstances are extremely restrictive. Instead of battling it out for yourself, work with our experienced accountants to determine the best solution for you. And of course, to avoid future penalties, be sure you’re as scrupulous as possible when it comes to recording and reporting all sources of income, no matter how small. Then rely on the expertise of our accounting firm for all your future accounting needs.
Contact our professional accountants for any questions related to the Matching Program or other income tax service queries.