This Month

Voluntary Disclosure Program

If you owe money to any of the tax authorities because you failed to file a return for one or more years, you can make a voluntary disclosure. You will pay only the tax due plus interest. No penalties will be assessed. You have to make a complete disclosure. The information can be less than or more than a year old. Plus you must contact the Canada Revenue Agency prior to the start of an investigation or an audit.

Typical voluntary disclosures include; domestic business income never reported, failure to collect or remit GST/HST and/or source deductions, information returns not previously submitted, foreign wages and benefits not reported, and domestic and foreign dividends and interest never reported.

Relief is determined on a case by case basis.

Salaries Paid to Family Members

When deciding as to whether a salary should be paid to a family member, or more specifically to one’s spouse, numerous questions arise. On one side, there is the question of the risk involved that the salary may be unreasonable and having the expense being disallowed. On the other side, there is the benefit of lower tax brackets, RRSP contribution room and unused credits. In a situation where the spouse contributes nothing to the business but is paid a salary which, if paid to an unrelated employee, would have been much lower based on the work performed, the risk mentioned above increases. However, there are numerous functions that can be performed by family members away from the business premises which are easily overlooked. These functions are summarised below:

• Computer work,
• Banking,
• Answering the telephone and taking messages,
• Purchasing supplies, Delivery and pick-ups, and Promotional work.

In rendering government decisions to accept salaries paid to family members easier, numerous aspects should be considered such as:

• Having a written contract of employment between the corporation and a family member,
• Salaries commensurate with duties performed, The educational background of family members,
• Not being overly aggressive in paying salaries to family members,
• Keep copies of cancelled cheques, and If payment is made in cash to family members, have them sign receipts.

The family members’ salaries would be reported on T4’s (Relevés 1 for Quebec) as they normally would if paid to an unrelated employee.

Withholding Information from
Canada Revenue Agency

If you run your own business or you are self-employed, you may be tempted to report only part of your income to the tax authorities. Or you might consider suppressing information about your activities.

If you are audited by the Canada Revenue Agency (CRA) you should consider this. The CRA auditor has access to the Internet. What will show up if the auditor enters your name or your business name in Google or one of the other search engines? Will the auditor discover information about activities that you have failed to report?

A CRA auditor now routinely uses publicly available search engines, Google for example, to discover information about companies and individuals that are being audited. In one recent case, the CRA disallowed a Voluntary Disclosure application because the taxpayer submitted an incomplete disclosure. He failed to provide information about his involvement in certain business activities that showed up during a Web search.

So remember. Everyone is watching you on the Web including Big Brother!

Canada Pension Plan
(CPP) Changes January 2011

These changes will affect you if you are:

• an employee who contributes to the Canada Pension Plan (CPP), whether you are just starting your career or you are planning to retire soon;
• a self-employed person who contributes to the CPP;
• between the ages of 60 and 70 and you work while receiving your CPP retirement pension (or if you work outside of Quebec while receiving a Quebec Pension Plan (QPP) retirement pension); or
• an employer who contributes to the CPP on behalf of your employees.
• You will not be affected by these changes if you started receiving a CPP retirement pension before December 31, 2010, and you remain out of the work force.
• The CPP operates throughout Canada, except in Quebec, where the Quebec Pension Plan (QPP) provides benefits. These changes do not apply to QPP.

What are the changes?

The following changes will be phased in gradually between 2011 and 2016. The first major change occurred in January 2011 for people retiring after age 65:

• Your monthly CPP retirement pension amount will increase by a larger percentage if you take it after age 65 (gradually from 2011 to 2013).
• Your monthly CPP retirement pension amount will decrease by a larger percentage if you take it before age 65 (gradually from 2012 to 2016).
• The number of years of low or zero earnings that are automatically dropped from the CPP retirement pension calculation will increase (2012 and 2014).
• You will be able to start receiving your CPP retirement pension without any work stoppage (starting in 2012).
• If you are under age 65 and you work while receiving your CPP retirement pension, you and your employer will have to make CPP contributions (or if you work outside of Quebec while receiving a QPP retirement) (starting in 2012). These contributions will increase your CPP retirement benefits (starting in 2013).
• If you are age 65 to 70 and you work while receiving your CPP retirement pension, you can choose to make CPP contributions (or if you work outside of Quebec while receiving a QPP retirement pension) (starting in 2013).

These changes were designed to improve retirement flexibility for working individuals in Canada, enhance pension coverage, and improve equity in the CPP.