Vol. 149, No. 13 — July 1, 2015
Registration
SOR/2015-140 June 10, 2015
INCOME TAX ACT
Regulations Amending the Income Tax Regulations (Mandatory Electronic Filing — Prescribed Information Returns)
P.C. 2015-787 June 10, 2015
His Excellency the Governor General in Council, on the recommendation of the Minister of National Revenue, pursuant to section 221 (see footnote a) of the Income Tax Act (see footnote b), makes the annexed Regulations Amending the Income Tax Regulations (Mandatory Electronic Filing — Prescribed Information Returns).
REGULATIONS AMENDING THE INCOME TAX REGULATIONS (MANDATORY ELECTRONIC FILING — PRESCRIBED INFORMATION RETURNS)
AMENDMENT
1. Subsection 205.1(1) of the Income Tax Regulations (see footnote 1) is replaced by the following:
205.1 (1) For the purpose of subsection 162(7.02) of the Act, the following types of information returns are prescribed and must be filed by Internet if more than 50 information returns of that type are required to be filed for a calendar year:
prescribed information returns |
prescribed information returns |
|---|---|
Government Service Contract Payments |
T1204 |
International Electronic Funds Transfer Report |
|
Part XVIII Information Return — International Exchange of Information on Financial Accounts |
|
Pooled Registered Pension Plan (PRPP) Information Return |
|
Registered Retirement Savings Plan (RRSP) Contribution Information Return |
|
Registered Retirement Savings Plans and Registered Retirement Income Funds Non-qualified Investments |
|
Statement of Amounts Paid or Credited to Non-residents of Canada |
NR4 |
Statement of Benefits |
T5007 |
Statement of Canada Pension Plan Benefits |
T4A(P) |
Statement of Contract Payments |
T5018 |
Statement of Employment Insurance and Other Benefits |
T4E |
Statement of Farm-support Payments |
AGR-1 |
Statement of Fees, Commissions, or Other Amounts Paid to Non-residents for Services Rendered in Canada |
T4A-NR |
Statement of Income from a Registered Retirement Income Fund (RIF) |
T4RIF |
Statement of Investment Income |
T5 |
Statement of Old Age Security |
T4A(OAS) |
Statement of Partnership Income |
T5013 |
Statement of Pension, Retirement, Annuity and Other Income |
T4A |
Statement of Remuneration Paid |
T4 |
Statement of Registered Retirement Savings Plan (RRSP) Income |
T4RSP |
Statement of Securities Transactions |
T5008 |
Statement of Trust Income Allocations and Designations |
T3 |
Tax-free Savings Account (TFSA) Annual Information Return |
|
Universal Child Care Benefit Statement |
RC62 |
COMING INTO FORCE
2. These Regulations come into force on the day on which they are registered.
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the Regulations.)
Issues
The Income Tax Act (the Act) and the Income Tax Regulations (the Regulations) impose various reporting obligations, including the requirement for certain taxpayers to file information returns with the Canada Revenue Agency (CRA) in a specified manner.
Every year, the CRA receives a vast amount of data that must be captured and verified against taxpayers’ income tax returns. Electronic filing enables the CRA to do this quickly and efficiently. Mandatory electronic filing was first implemented in 1998, when the Regulations were amended to require electronic filing by persons who file more than 500 information returns in a year. While growth in Internet filing was steady, it had not yet reached levels that would enable the CRA to achieve desired savings and efficiencies in the delivery of its programs.
In addition to the above, the existing penalty for not filing as required is considered to be excessive where a large number of the same type of information returns is filed. This is due to the term “information return” not being defined either in the Act or the Regulations. As a result, both individual slips (e.g. Statement of Remuneration Paid — T4 slip) and the related summary (e.g. T4 Summary, Summary of Remuneration Paid) are included in this term. Although the individual slips and the related summary are filed together, each individual slip is considered to be a separate information return. Therefore, the existing penalty applies to each individual information return not filed in the manner required.
With more businesses using automated tools and recognizing the cost savings and administrative efficiencies generated by electronic filing, the Government announced, in Budget 2009, that it would expand the mandatory electronic filing requirements to submissions with more than 50 information returns. It also announced that it would introduce a graduated penalty structure with a much lower minimum and maximum penalty that would enable the CRA to enforce the mandatory electronic filing requirements of the Regulations more equitably. These amendments were included in the Budget Implementation Act, 2009, which received royal assent on March 12, 2009. However, the new graduated penalty provision of the Act is inoperative pending the enactment of the consequential amendments described in this Regulatory Impact Analysis Statement.
These regulatory amendments address the following issues:
- — The Regulations currently require information returns to be filed in electronic format when the number of returns to be filed by a person exceeds 500. However, the penalty under the Act is triggered when the number of information returns that are not filed in the manner required by the Regulations is greater than 50.
- — The Regulations currently apply to all information returns that are required to be filed under Part II of the Regulations. However, the CRA currently does not have the systems capability to accept certain types of Part II information returns electronically.
- — The Regulations currently require information returns to be filed in “an electronic format.” This term is ambiguous, meaning that a taxpayer could submit a type of electronic file that the CRA is unable to process.
CRA statistics show that before the 2009 Budget announcement regarding the new penalty, the Internet filing rate for relevant returns was at 20.7%. Since the announcement, the number of submissions received in paper format has declined from 38.6% to 2.8%. For the 2012 taxation year, close to 97% of approximately 95 000 submissions received in respect of relevant returns were filed by Internet.
Objectives
The objectives of these regulatory amendments are to
- — enable the implementation of the new graduated penalty structure; and
- — expand the scope of mandatory electronic filing to achieve cost savings and increase efficiency.
Description
These amendments to the Regulations
- — reduce the mandatory electronic filing threshold from 500 to 50 information returns;
- — prescribe the types of information returns that must be filed electronically (see Appendix A); and
- — require that the Internet be used as the method of filing the listed information returns electronically.
The amended Regulations come into force on the day on which they are registered.
“One-for-One” Rule
This amendment may impose new administrative costs on business. As the amendment addresses tax administration, it is carved out from the “One-for-One” Rule.
Small business lens
The small business lens does not apply to these regulatory amendments as there are no disproportionate costs imposed on small business. This assessment is based on an analysis of the potential incremental impact of the amendments on those few small businesses that are not currently complying with the new mandatory electronic filing requirements.
For the 2012 tax year, the CRA received approximately 45 000 submissions from small businesses that fell within the 51–100 slip range with respect to the types of information returns that are covered by these amendments. More than 43 000 of these submissions were made via the Internet, indicating that over 95% of the small business sector is voluntarily complying with the new requirements.
It is anticipated that the possible need to purchase software to convert existing files to an Internet compatible format, as well as related training costs, could result in incremental costs being incurred by slightly fewer than 5% of small businesses that are not currently filing via the Internet (approximately 2 000 businesses). The estimated maximum total annualized average cost for these small businesses is $275,326, or $131 per small business. However, the CRA currently provides any filer with the means to file an unlimited number of the proposed prescribed information returns free of charge. The CRA Web site explains how to easily file a return by using the Internet File Transfer (XML) or Web Forms.
The CRA has taken the needs of small business into account with the implementation of mandatory electronic filing and has provided much support to help these businesses prepare and comply with the proposed requirements by continuously expanding its e-services and business support initiatives. In addition, at the request of stakeholders, the CRA has delayed the implementation of the new graduated penalty from 2009 so that businesses could prepare for the transition to electronic filing.
Furthermore, based on feedback from stakeholders, the CRA has chosen the Internet as the medium to receive electronic files, as it offers the most flexibility and low cost options for all users, and has not mandated the software to be used.
Rationale
These amendments are required to give effect to the mandatory electronic filing enhancements announced in Budget 2009. When developing the list of types of information returns to which the new penalty would apply, the CRA identified those returns that were most commonly filed in bulk in order to maximize the relief provided by the new penalty structure.
The CRA also looked at the most flexible and accessible method of transferring information electronically and identified the Internet and its XML format as the best option. This decision was based on stakeholder input, recent innovations to CRA systems and the fact that the cost of maintaining the infrastructure necessary to receive and process data submitted on CDs and DVDs made the continued use of these media unsustainable. The amendments do not prescribe the type of software to be used for the data conversion in order to allow businesses the greatest flexibility in choosing tools that best meet their needs.
It is anticipated that businesses that maintain paper-based books and records would have expended approximately the same amount of time filling out paper returns as they will need to enter data into the Web Forms application. However, businesses that use an accounting package or payroll software that compiles the data and generates information returns automatically could see administrative cost savings by filing these returns by Internet.
Although most areas in Canada have broadband coverage where the transfer of information electronically can be done quickly and securely, there are some areas that may not have Internet access. For filers that do not have access to the Internet and that have been assessed a penalty for non-compliance with the electronic filing requirement, the penalty can be waived under the Act’s taxpayer relief provisions.
There are many benefits to electronic filing:
- (1) A reduction in paper consumption: From 2008 to 2012, the amount of paper submitted to the CRA in respect of information returns has decreased by over 92% as a direct result of the increased usage of electronic filing.
- (2) Secure transmission of data: The CRA uses the Secure Socket Layer (SSL) protocol, which provides a safe passage for the transmission of data and authentication processes by encrypting the information. The SSL protocol ensures the privacy of information passing between the filer’s browser and CRA Web servers. Filers who send their returns on paper, CDs, or DVDs are open to the risk that their information will be misdirected and received by someone other than the CRA.
- The CRA security protocol requires the use of Web access codes (WAC) — an eight-digit number assigned to each filer. The WAC and a business number are used by the business filer for authentication purposes and represent the official signature for filing information returns via the Internet. Internet filing is not allowed unless the CRA has determined that the sender has been properly identified through the use of their individualized WAC.
- (3) Convenient and cost effective: Internet filers receive immediate confirmation that their submissions have been received by the CRA. Further, the CRA does not charge a fee to file via the Internet.
- The CRA also provides any filer, through its Web Forms program, with the means to manually input their data and file any of the prescribed information returns free of charge. The CRA Web site explains how to easily file a return by using Internet File Transfer (XML) or Web Forms. Internet filers also benefit from reduced mailing, handling and storage costs that are associated with hard media or paper returns.
- (4) Improved data integrity: Electronic filing virtually eliminates the possibility of transcription errors by the filer and the CRA, resulting in enhanced data accuracy.
- (5) Government cost savings and increased efficiency: Expanding the scope of mandatory electronic filing helps the CRA achieve the desired cost savings in respect to the processing of the proposed prescribed information returns and it would also increase efficiencies in the delivery of its programs.
Consultation
The mandatory electronic filing requirements and the associated penalty were first announced as part of Budget 2009, and subsequently posted on the Department of Finance’s Web site. Discussions regarding the new filing requirements were held at that time with various organizations, including the Canadian Payroll Association, the Canadian Federation of Independent Business, the Canadian Institute of Chartered Accountants, the Certified General Accountants Association, the Investment Industry Association of Canada and the Canadian Chamber of Commerce. Concern was expressed at that time in respect of businesses having adequate time to make system changes to implement the Internet-only option. The CRA responded to those concerns by proposing reasonable implementation timelines.
Since 2009, the CRA’s Web site has included information regarding electronic filing. In addition, all filing publications for all return types included an announcement and description of the new penalties.
Subsequent to the publication of this proposal in Part I of the Canada Gazette on December 7, 2013, the Canadian Payroll Association expressed its support of the amendments and suggested that a definition of “information return” be added to the Regulations. However, since this is a generic term that is used extensively in both the Act and Regulations, it is not suitable to define this term in the Regulations. No other stakeholder submitted comments.
Contact
Ms. Kathleen Butler
Director
Third Party Reporting Division
Canada Revenue Agency
7-8026, 750 Heron Road
Ottawa, Ontario
K1A 0L5
Telephone: 613-941-5816
Email: Kathleen.Butler@cra-arc.gc.ca
Appendix A
| Name of Information Return | Prepared By |
|---|---|
| Government Service Contract Payments (T1204) | Federal departments, agencies and Crown corporations |
| Past Service Pension Adjustment (PSPA) Exempt from Certification (T215) | Registered Pension Plan administrators |
| Pooled Registered Pension Plan (PRPP) Information Return | Administrators of PRPP (payers or carriers) |
| Registered Retirement Savings Plans and Registered Retirement Income Funds Non-qualified Investments | Administrators of RRSP and RRIF (payers or carriers) |
| Registered Retirement Savings Plan (RRSP) Contribution Information Return | Administrator of RRSP (payers or carriers) |
| Statement of Amounts Paid or Credited to Non-residents of Canada (NR4) | Payers or Agents |
| Statement of Benefits (T5007) | Any provincial, territorial, municipal agency, worker’s compensation board, or similar person that makes social assistance payments or pays workers compensation |
| Statement of Canada Pension Plan Benefits [T4A(P)] | Service Canada — CPP Régie des rentes du Québec — QPP |
| Statement of Contract Payments (T5018) | Individual, partnership, trust or corporations whose primary business activity is contracting |
| Statement of Distributions from a Retirement Compensation Arrangement (T4A-RCA) | Custodians of an RCA trust |
| Statement of Employee Profit Sharing Plan Allocations and Payments (T4PS) | Employers and Payers |
| Statement of Employment Insurance and Other Benefits (T4E) | Employment and Social Development Canada |
| Statement of Farm Support Payments (AGR-1) | Government bodies and producer associations |
| Statement of Fees, Commissions, or Other Amounts Paid to Non-Residents for Services Rendered in Canada (T4A-NR) | Employers and Payers |
| Statement of Income From a Registered Retirement Income Fund (RIF) [T4RIF] | Administrator of RIF (payers or carriers) |
| Statement of Investment Income (T5) | Employers and Payers |
| Statement of Old Age Security [T4A(OAS)] | Service Canada |
| Statement of Pension, Retirement, Annuity and Other Income (T4A) | Payer of other amounts related to employment |
| Statement of Remuneration Paid (T4) | Employers |
| Statement of Registered Retirement Savings Plan (RRSP) Income (T4RSP) | Administrator of RRSP (payers or carriers) |
| Statement of Securities Transactions (T5008) | Traders or dealers in securities |
| Statement of Trust Income Allocations and Designations (T3) | Trustees, administrators, liquidators, executors |
| Tax-free Savings Account Annual (TFSA) Information Return | Administrator of TFSA (payers or carriers) |
| Universal Child Care Benefit Statement (RC62) | Canada Revenue Agency |
- Footnote a
S.C. 2007, c. 35, s. 62 - Footnote b
R.S., c. 1 (5th Supp.) - Footnote 1
C.R.C., c. 945