Tax Planning
What is tax planning?
Organizing your financial affairs in order to minimize your tax liability is called tax planning. There are many opportunities to minimize tax – investing in RRSPs and TFSAs for example; carefully timing RRSP withdrawals. Wills and trusts also offer opportunities for tax minimization – protecting future capital gains by transferring a vacation property to a family trust for example.
What is probate tax?
Probate tax, or more correctly, “estate administration tax,” is a provincial tax that must be paid when the executor of an estate, the “estate trustee” applies for a certificate of appointment of estate trustee (once known as “letters probate”). Since estate administration tax is a provincial tax, information can be found on provincial websites – for example, in Ontario, on the Ministry of the Attorney General’s website. Generally, the tax is calculated on the basis of the total value of estate assets after deducting debt related to real property only.
Must probate tax be paid in every case?
No. A certificate of appointment of estate trustee confirms for banks, other investment holders and third parties the validity of a will and the authority of the executor to administer the estate. If there is no property held by such third parties, a certificate of appointment is not required. For example, a certificate of appointment of estate trustee is not required to transfer title of a home that is owned by two people as “joint tenants” where one of the owners dies, and the other is the estate trustee. In this way, estate planning can help to minimize taxation of an estate.
Canada Revenue Agency
What does the honour system have to do with taxes?
The Canadian tax system is based on a self-report, or “tax return”, filed with Canada Revenue Agency annually. Generally, individuals are required to file tax returns by April 30. Individuals who have self-employed income, and their spouses, must file by June 15. (Note, where there is tax owing in relation to a filing that is due on June 15, the amount owing must be paid by April 30.).
CRA Publications provide detailed information to help you complete your return. If you need more information, a word of caution regarding Canada Revenue Agency’s call centres. According to a 2017 report of the Auditor General of Canada, the Canada Revenue Agency gave very limited access to its call centres and provided incorrect information almost 30% of the time.
What happens when your income tax return has been selected for review or audit by the CRA?
Every year CRA reviews (or “spot checks”) selected returns. What this usually means for individual taxpayers is your filing will be verified using additional supporting materials you will be asked by CRA to provide – tuition fees, medical expenses, moving expenses, donations and RRSP / TFSA contributions for example.
If CRA plans to conduct an audit, you will be advised in advance by way of letter. A questionnaire completed on-site is used to learn more about you and your filing, and determine what documentation the auditor needs.
Being cooperative in your disclosure of materials is important. Case law supports CRA’s authority to inspect requested records, and a tax payer’s obligation to provide access, assistance, information or documents (see Beima v. Canada (National Revenue), 2017 FCA 85 (CanLII)).
If CRA concludes that your filing was correct you will receive a completion letter and the audit will be closed. If not, you will receive a proposal letter setting out the reasons for a reassessment. If you disagree with the reassessment, you have 30 days to contact the auditor, explain why you disagree, and provide additional supporting documents. You can also contact the auditor’s team leader if there are still unresolved issues.
What if the CRA issues a reassessment?
Generally, your filing can be reassessed by CRA for up to three years (s. 152(3.1)(b) Income Tax Act), or longer if the reassessment is related to misrepresentation attributable to neglect, carelessness, willful default or any fraud (s. 152(4.01) Income Tax Act). If CRA calculates there is additional tax payable, you will be given an opportunity to explain your filing. Best case scenario, a T1 adjustment is all that is needed.
If efforts to resolve the issue fail, the formal objections process beings with you filing a notice of objection. You must file the notice within 90 days of the date of the reassessment (or within one year of the original due date for the return – whichever is later), and you must set out the reasons for your objection. Include all details and supporting materials. While there is a clear deadline for you to file your notice, the same cannot be said of CRA’s response. The CRA reports 87 days for low complexity objections, and the standard for medium complexity objections will be 365 days (80% of the time) effective April 1, 2018.
Your objection is reviewed by an Appeals Officer with the CRA’s Appeals Office who may contact you or your representative for more information. The officer will issue a notice of decision stating the objection is allowed in full, allowed in part, or not allowed.
You disagree with the decision of the CRA Appeals Office – what now?
If you dispute the decision of the CRA Appeals Office that relates to income tax, goods and services tax and employment insurance, you can appeal to the Tax Court of Canada by following the Rules set out by the court. If more than $25,000 of federal tax is in dispute, “general” procedures apply; otherwise, “informal” procedures apply. The Tax Court of Canada’s website provides detailed information about appeals here.
