Tax Credits and Conversion Rates

Tax Credits

• Non-refundable tax credits can be claimed by a taxpayer, but only to the extent it reduces their tax liability to zero.
• Most tax credits can only be used to reduce a taxpayer's personal tax liability, although in limited circumstances, they can be transferred to a spouse or parent.
• Unused portions of non-refundable tax credits are typically lost, except in certain circumstances, such as charitable donations, where they can be carried forward and used in a future year.
• Refundable tax credits, such as the federal GST tax credit and certain provincial tax credits, are payable regardless of whether the taxpayer has taxable income.
• Refundable tax credits can generate a refund from the government even if the taxpayer has reduced their tax liability to zero.

Filing Individual Tax Returns

• The general rule is that individuals must file their tax return for a particular year on or before April 30 of the following year.
• If the due date falls on a weekend, the filing deadline is extended to the next business day.
• Individuals who are partners or sole proprietors have a filing deadline of June 15 of the calendar year following the relevant taxation year.
• Payment of all taxes owing is required by the usual date of April 30, even if the return does not have to be filed until June 15.

Due Date for Individual Returns

• Deceased taxpayers have an extended filing deadline to provide their representatives with sufficient time to deal with complexities.
• Certain income-based benefits, such as the Canada Child Tax Benefit, GST credit, and Guaranteed Income Supplement (GIS), require individuals to file a tax return.

Instalment Payments

• Interest is assessed on any amounts that are not paid when they are due.
• Individuals who are required to make instalment payments must pay by the required instalment due date.
• Compound daily interest is charged on deficient instalment amounts.
• The penalty for not making instalment payments is the greater of $1000 and the lesser of the penalty which the other person would be liable if the other person knowingly made the statement, and $100,000 plus the advisor's compensation.

Requirement to File a Tax Return

• All persons (individuals, corporations, and trusts) are required to file a tax return.
• Reasons to file an individual return include:
  • Having tax payable
  • Receiving a request from the CRA to file
  • Disposing of a capital property or realizing a capital gain
  • Needing to contribute to the Canada Pension Plan (CPP) or pay Employment Insurance (E.I.) premiums

Penalties

• False statements or omissions: 10% of the unreported amount, or an amount equal to 50% of the difference between the understatement related to the omission and the amount of any tax paid in respect of the unreported amount.
• Gross negligence: the greater of $100 and 50% of the understated tax.
• Evasion: penalties range from 50% to 200% of the relevant tax, and imprisonment for a period not exceeding 2 years.
• Penalty for misrepresenting a tax planning arrangement: the greater of $1000 and the total of the person's gross entitlements arising from the false statement.
• Penalty for participating in a misrepresentation: the greater of $1000 and the lesser of the penalty which the other person would be liable if the other person knowingly made the statement, and $100,000 plus the advisor's compensation.