(April 22, 2005) More Canadians are e-filing their tax returns than ever before. The benefits are obvious to those who use the system and the pitfalls are negligible, but there are certain details to keep track of if you want to make your electronically enhanced relationship with the Canada Revenue Agency (CRA) relatively glitch free.
People have been signing on steadily since the CRA made electronic filing available to professionals in 1990 and individuals in 2000. This year, John McCallum, Minister of National Revenue says that of the 12.9 million tax returns filed so far, more than 7.3 million people used NETFILE or EFILE to electronically transmit their information to the CRA.
Financial planners and tax professionals like Cynthia Kett, partner at Stewart & Kett Financial Advisors, have been e-filing client tax returns since the option was first introduced. As a result, Kett says clients receive their returns faster and the process eliminates a step of data entry, which helps information get transferred more accurately.
“It’s also easier for them [the CRA] to answer inquiries after the fact because they’ve already got all the information there. They can look at it instead of waiting two months until it actually gets into their systems. It’s environmentally friendly. It saves a ton of paper and they’re making it possible for individuals to make changes on their own accounts using an option called My Account.” The CRA says a similar system for third party professionals to make changes on behalf of their clients is in development and should be ready for use in 2006.
Filing electronically can also be useful for aggressive tax strategists who need their notice of assessment quickly, says author and tax specialist Tim Cestnick. “Three years from the date on your notice of reassessment your tax return becomes statute barred meaning Revenue Canada no longer has the right to go back and reassess you,” he says. “You start that three-year clock sooner by filing electronically because your return gets assessed faster, your notice of assessment has an earlier date on it and your return becomes statute barred sooner. Sometimes even a day or a week can be beneficial when you’ve done something aggressive.”
Illegal tax practices are another matter. “If it’s illegal they can always go back and reassess you, even beyond the three-year period,” he warns. “If you’re accused of willful neglect or tax evasion they can go back beyond the past three years. But if it’s something debatable or questionable, aggressive, not illegal, they can’t touch it [after three years].”
Of all the tax returns filed electronically, roughly one-third receive requests for T-slips and other information that would normally be attached to tax returns sent by mail. For this reason Cestnick says some professionals who file tax returns on behalf of clients still prefer to file by mail to avoid these additional inquiries during the year.
“If you hire a tax preparer to do your return, say an accountant or bookkeeper, usually they would much rather file by paper. For these people it can be a real pain to file electronically because 35% of people who file electronically get a request for information later. It’s not an audit, it’s just a request for information,” he says. “They have to deal with these letters every summer. Of course you’ve already paid for your tax return. For them to go off and spend an hour pulling your information and faxing it to Revenue Canada, it’s time consuming and they don’t get paid for it.”
Kett on the other hand couldn’t be more pleased with the system. “I can’t imagine having to go back and do it the old-fashioned way. It’s just a lot faster.”
Either way you do it, both Kett and Cestinick recommend saving a hard copy of each return, backing up tax files, saving all slips and receipts for seven years and, most importantly, saving confirmation numbers when filing online.
The electronic filing system does have a few limitations. It is not possible to file a claim on behalf of a deceased person’s estate online because the system is not set up for third party filing. Also, clients cannot file online if they’ve declared bankruptcy or if they’ve been disabled during the year. Both cases require documents that the CRA needs to verify before they can process the return. To claim disability the CRA needs to physically make changes to the client’s account so the system will allow them to claim their tax credits in subsequent years.
Although late filing penalties will apply, clients can NETFILE or EFILE their returns until September 30. After that the CRA turns the system off so the resources can be used for other projects.
Filed by Kate McCaffery Advisor.ca, firstname.lastname@example.org