The Canada Revenue Agency (CRA) is leaving no stone unturned when it comes to preventing tax evasion. Those who fail to properly report ‘other sources of income’ have recently caught their eye. This type of income refers to income on which no taxes are withheld since it is not considered employment income, and instead, is earned through personal services, such as tips made while working in the hospitality industry.
Statistics Canada estimated that these unreported types of income contribute approximately $35 billion (as of 2008) to Canada’s Underground Economy.
AG Tax analysts have summarized a few of the reportable other sources of income items that the CRA may look into.
Income from Employment Other than Salary or Wages
Income not reported on a T4 (Statement of Remuneration) slip, such as tips, gratuities, or other employment income that is often put aside, from a tax perspective, as it is not a part of an employment or business income.
Grants received for research, such as reimbursement of expenses associated with a work-related project like waes to help or assist, or equipment/laboratory charges.
Foreign employment income, i.e. gross income earned outside Canada from a foreign employer.
Employee Profit Sharing Plan (EPSP): Contributions made into an EPSP provided by the employer needs to be reported, taxes will be deducted on the portion which is CRA limits.
Rebates and Royalties: Income received as rebates from extra taxes withheld from employment or Goods and Services Tax/Harmonized Sales Tax (HST/GST), or royalties from allowing the usage of certain copyright, patent business, or investments.
Other Sources of Income
Scholarships, Bursaries, and other education-related project or study grants, awarded amount received by the student, which is above the CRA exemption limit.
Any Lump-sum Payment(s), such as life insurance death benefits, or disability insurance benefit from employer (or purchased personally), payment from deferred profit-sharing plans, severance pay received if an individual has resigned or been asked to leave, or payments received by cashing out leaves, such as a sick leave.
There may be various other sources of income during a year, such as allowances for housing or retirement. It is highly recommended that you consult a tax professional regarding the treatment of any income received over and above the salary or usual reported income.
CRA’s Actions against Middle Income Tax Evasion
Although the CRA does not divulge much in regards to how it tracks down taxpayers, much of it has to do with the help of investigative applications. The CRA made this statement to CBC News, suggesting ways they look into tax payers: “Leads from taxpayers, information-sharing agreements, spot visits by auditors, information obtained from third-party reporting systems, specialized computer software, leads from other audit files and lifestyle audits.” (Read: CRA Audit Radar)
Recently, the CRA carried out an investigation for unaccounted cash in sectors where bookkeeping is not a followed practice, such as construction sites, restaurants (even if accounts are maintained individually earned tips are not recorded since the employer does not need to withhold taxes), and the results were as follows:
– $1.7 million in unreported tips was recovered from 145 serving staff in St. Catharines, Ontario.
– $339,000 in unpaid taxes was recovered from sub-contractors located in Winnipeg, Regina and Saskatoon, who worked on home renovation projects with big retail stores.
– Approximately $2 million in unpaid taxes was recovered from individuals, such as drivers, first-aid personnel, or couriers located in the Yukon and northern British Columbia who provided services related to oil and gas boom in this region or delivered pharmaceuticals and other products to remote locations.
The CRA takes tax-evasion offences very seriously and considers it a punishable criminal activity. In the past few years it has taken various actions to bring an end to tax evasion by increasing the monitoring and reporting of domestic and international (offshore) incomes, bank accounts, and other properties. It has also not spared the various tax credits, deductions, and tax shelters claimed by taxpayers from increased scrutiny, one of the results from these actions, according to Jamie Golombek, Managing Director of Tax & Estate Planning at CIBC: deductions claimed under gifting tax-shelter scheme have drastically fallen and are almost negligent. (Read: CRA’s Audit on Gift Tax Shelter Scheme).
AG Tax LLP Can Help
If you have any tax-related queries, need assistance with tax planning or filing your tax returns please contact us. Our team comprises of highly experienced tax professionals with extensive knowledge of U.S. and Canadian tax laws as well as cross-border compliance
Furthermore, as a full service accounting firm, AG Tax assures complete assistance with even your most complex tax needs.
We can assist with:
- Canadian Personal and corporate tax returns
- Cross Border Taxation and Business Planning
- U.S. Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
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- Estate Planning, Inheritance tax advice
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