Personal Tax Returns
Processed by CRA

Canadians file more than 26 million individual income tax and benefit returns each year, and all are electronically analyzed. Based on this analysis, CRA selects certain returns for review because they are high-risk. Other returns are selected based on a random sample used to measure non-compliance for all taxpayers.

CRA has four main review programs:
Pre-assessment Review Program Processing Review Program
Matching Program
RRSP Excess Contribution Review Program

Applying the Pre-assessment Review Program, the CRA electronically analyzes returns to identify situations that represent a higher risk of tax loss.

After a notice of assessment is issued, returns go through the Processing Review Program where they are reviewed to make sure that certain claimed deductions and credits are accurate and are supported by appropriate documentation.

The Matching Program makes sure that information slips filed by a third party, such as an employer or a bank, correspond to the information the taxpayer reported. All returns are matched to third-party information slips. Through the RRSP Excess Contribution Review Program, the CRA identifies taxpayers with potential registered retirement savings plan (RRSP) excess contributions and communicates with them to review their situation.

Balancing the books isn’t always easy.

Business owners understand the importance
of keeping records up-to-date.
paperwork can easily turn into a MONSTER.

PADGETT BUSINESS SERVICES
now offers a solution -
PADGETT CONNECT

PADGETT CONNECT is an easy-to-use business software applications package that is customized for your business. You don’t need to be a computer whiz or an accountant to use this product. New users can start entering their records within a 1⁄2 hour of installation on their computer. The package contains the following:

PADGETT CHEQUEBOOK - Makes bookkeeping simple
PADGETT INVOICING - Tracks and reports sales, customers and products
PADGETT PAYROLL - Makes paying your employees a breeze and keeps you in control

For more information on PADGETT CONNECT,
visit us at CONNECT www.padgettconnect.ca
or contact your Padgett representative .

If you own a business, you may have wondered if you should incorporate. Historically the income tax system in Canada has benefited incorporated Canadian small businesses. Although the income and deduction calculations are almost identical to an unincor- porated business, the major differences are in the corporate taxation structure and tax planning opportunities. When developing the tax plan for your business, you and your advisor should look for opportunities in the following areas:

• Income splitting with family members;
• Tax deferral to the future;
• Estate planning for you and your family;
• Utilization of the capital gains exemption; and
• Planning your retirement, including disposing of your business.

Since personal and corporate tax as well as family law issues can make this issue complex, please contact our office to discuss your situation.

Disability Income Insurance

CRA recently noted that where a proprietor purchased a Disability Income Policy, the premium is a non-deductible personal expense. But the receipt of the disability benefits is tax-free.

If a corporation acquires a Policy for the employees, the premiums are generally deductible. If the employee receives the disability benefits they are included in the employee’s income. However, if the individual received the benefit because she or he is a shareholder, the premium paid by the corporation would be included in the individual’s income, under Subsection 15(1). The premium would not be deductible by the corporation. However, any disability benefits received by the shareholder would be tax-free.

Director & Personal Liability

In a recent Tax Alert titled “Abuse of Source Deductions and GST/HST Amounts Held in Trust” CRA warned that businesses must hold source deductions and GST/HST amounts in trust for the government. Penalties and interest and possibly personal liability for the directors will be the result if this is not done.

Federal legislation allows CRA to collect unpaid amounts through garnishments, assessments of the directors, seizure and sale of the assets of the debtor corporation, an assessed director or a sole proprietor, and any other means of recovery.

Taxpayers who have not complied with this requirement may make a voluntary disclosure to CRA. The taxpayer will not be penalized or prosecuted if valid disclosures are made before CRA begins any compliance action against the taxpayer.

Taxpayers may only be required to pay the in trust amounts owing plus interest.