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Newsflash: The CRA Unleashes Penalty Hurricane

CompassPOINTS - March 2007

By Diana Matwichuk, Manager Assignment Planning Services

International postal pipelines are seemingly clogged with penalty notices issued by the Canada Revenue Agency (“CRA”) to expatriate employees. Our office has recently observed new penalties for everything under the sun, as new client taxpayers are coming to us for assistance with penalty notices.

Penalties usually hover in the $25/day range, to a maximum of $2500, plus interest. This is not insignifi cant to the expatriate employee. What can be done by employers in response to this apparent effort by the CRA to ramp up its chase of Canadian tax and imposition of penalties, in order to help their expatriate employees?

Types of Penalties

Late-filing penalties seem to be the pick-of-the-month at the CRA, and for expatriate employees, these could be slapped on any number of different filings, depending on the complexity of their tax situation. In particular, when individuals opt to maintain and rent out a Canadian property, filings can be complex and time-sensitive. Unfortunately, in these late-filing cases, the penalties are levied directly on the property manager, who in turn comes after the expatriate employee.

Then there are the obscure penalties. For example, penalties levied due to late-filed foreign property reporting forms, and departure reporting forms. These are in addition to the well-established highly-lucrative penalties, such as those for obtaining clearance certificates on the sale of Canadian rental property by a non-resident.

The increase of tax rates is usually a “kiss of death” for politicians, and so revenue must be generated in more creative ways. The wave of user fees seems to have mellowed, and it seems that we are now seeing a barrage of penalties. Coincidentally, this new trend dovetails nicely into the CRA’s May 2006 federal budget, whereby GST/HST penalty and interest changes are to be enforced as of April 1, 2007.

Public Reaction

The Canadian Federation of Independent Business (“CFIB”) Business Outlook & Budget Priorities for 2007 (September 26, 2006) report states that “in a recent CFIB survey of business owners and tax practitioners, 70 percent of business owners and 64 percent of tax practitioners deemed the level of CRA penalties and fines to be poor”. The report goes on to claim that without clarity from CRA, “it is sometimes impossible for business owners to comply with the tax code under a given timeframe, thus creating unfair and costly penalties for the business community due to no fault of their own”.

This concern of clients is heard on our telephone lines daily, and the message is similar.

The Reality of Embarking on an International Assignment

Employers sending assignees to international locations are likely keenly aware of the upheaval involved for these individuals. Tax filings are often the least of their worries for expatriate employees, as they try to sort out school changes, house rentals, investment updates, legal issues (and the list goes on). But once the CRA penalty notice arrives in the mail, expatriate tax is suddenly top priority. And given international time differences, these tax issues must often be researched during work hours, thus taking up valuable company time.

Role of Assignment Planning

One of the most prudent and ultimately beneficial perks that an employer can provide to expatriate employees is the individual tax counseling and tax return preparation that is usually included in an Assignment Tax Program. This ensures that the employee’s tax situation is accurately assessed by tax professionals, and that filings are submitted on time – to avoid costly penalties and interest.

In Summary

Employers and their expatriate employees do not like surprises, especially from the CRA. Our mission at CompassGUIDES is to help companies roll out planned assignments which are positive experiences for their assigned workers and their families. We encourage corporations to provide their expatriate employees with an Assignment Tax Program that covers all of these details and helps them to approach their assignment from a planned tax perspective, so that CRA penalties need not be an issue.

For more information about international assignment planning and the publications and services which CompassGUIDES offers to multi-national employers, visit our website at www.compassguides.ca.

Thanks to Peter J. Simpson, C.A. for his contributions to this article.

 


Tel: (403) 531-2200 
Fax: (403) 263-1826


Web: www.compasstax.ca
Suite 600, 1333 8th Street SW
Calgary, Alberta Canada  T2R 1M6


Tel: (403) 531-2200 
Fax: (403) 263-1826


Web: www.compassguides.ca
Suite 600, 1333 8th Street SW
Calgary, Alberta Canada  T2R 1M6