Tax Audits, Appeals & Voluntary Disclosures

Audits & Appeals: The corporate audit process must be taken seriously. While its roots may seem minor in nature, it can quickly grow into an all-encompassing review of your company’s operations if the utmost care is not taken to control the audit from the very beginning. At MCO Partners, we have the experience and expertise to manage the audit process to minimize the risk of a simple audit becoming a long, expensive process.

Voluntary Disclosures: The CRA’s voluntary disclosure program applies to all legal entities in Canada, including corporations. If you have not yet received a letter from the CRA, requesting information on a previously-undisclosed or misreported item on your financial statements, then you are likely able to disclose the issue voluntarily, and avoid extensive penalties. In the age of increased sharing between financial institutions, governments, and the corporate world, it is likely in your company’s best interest to come forward with information before the CRA comes to you.

Corporate Tax Planning

The proper use of a Canadian corporation can yield significant tax benefits. The Federal small business corporate tax rate of 10 per cent on the first $500,000 of taxable income has never been lower for small businesses, and Provincial rates are falling too, typically to around half of the Federal rate. By earning taxable income within a corporation, you can effectively use it as a retirement tool, an investment vehicle, or as a way to grow your business more quickly.

If you have a corporation, and are wondering if it’s being properly utilized as a tax planning tool, or if you just need a hand filing your corporate returns, we can help. We also work extensively with other accounting firms to assist with reorganization of corporate structures to fully access the tax benefits available to Canadian businesses.

Sending Employees into Canada

As the world’s economy grows, so too does the commerce across borders. Located minutes from North America’s most economically-significant border crossing, MCO Partners focuses much of its efforts on aiding U.S. employers to navigate the complex and time-intensive process of sending employees into Canada. The cash flow implications of non-filed tax waiver forms can be very significant, as can the penalties associated with the late-filings of the associated forms.

When sending employees into Canada, a few steps are important. All employees who travel to work in Canada must obtain an identification number in Canada, known as an Individual Tax Number, by completing form 1261. For each day that they are employed in Canada, tax must be withheld and remitted to the Canada Revenue Agency (“CRA”) by the 15th of the following month (earlier in some situations). However, the tax withholding requirement may be avoided by filing form 102J for each employee who will be crossing the border, requesting relief from tax under the treaty between Canada and the U.S. This form asks for the expected length of time to be spent in Canada by the employee, and the earnings associated with those days. If the employee is expected to earn less than $10,000 while working in Canada, the waiver will generally be approved. In many situations, the CRA will also administratively approve a waiver for an individual expected to work fewer than 183 days in Canada in the year. A waiver will not be approved for an employee who is expected to earn more than $10,000 and work more than 183 days in the year. The CRA will administratively accept waivers filed within 60 days of the employee’s start date in Canada.

At the end of each calendar year, the foreign employer has several tax-filing obligations. The first is the completion of T4 forms, summarizing the income earned by each employee during his/her employment in Canada during the year, as well as any withholdings from that income. These forms are due by February 28th after the end of the calendar year. The second requirement is the filing of a T2 corporate income tax return, summarizing the employer’s economic activity in Canada for the calendar year. This return is due within six months of the employer’s fiscal year end.

In addition, the employee must file a T1 personal income tax return, summarizing his/her earnings in Canada, and whether those earnings are exempt from tax for the year. This return is due by April 30th following the calendar year in which the income is earned.

This is a non-exhaustive summary of the most significant issues facing non-resident employers who are sending employees into Canada. If you are considering sending employees into Canada, contact us today to help structure your internal records to make the step as painless as possible. If you have already sent employees into Canada, and have not yet become compliant with your tax-related filings, we can discuss whether the CRA’s voluntary disclosure program is available to you to avoid expensive penalties.