Small businesses face new T4 filing penalties next year

Tax form from Canada Revenue Agency. Stock photo by Getty Images

Beginning next year, the Canada Revenue Agency will levy new penalties against businesses that fail to file T4 information returns over the Internet when they have more than 50 T4 returns to file for a calendar year.

The new penalty rules will also apply to more than 20 other information returns, including NR4s, T4As and T4A-NRs.

The amount of the penalty will depend on the number of information returns of one type an organization is required to file with the CRA through Internet File Transfer, using extensible mark-up language (XML). For 51 to 250 returns, the penalty will be $250.

For 251 to 500 returns, the penalty will rise to $500. For 501 to 2,500 returns, the CRA can levy a penalty of $1,500. For more than 2,500 returns, the penalty will be $2,500.

"The CRA will be in a position to assess the mandatory electronic filing penalty on 2015 information returns that are processed in 2016," says spokesperson Magali Deussing.

The federal government first proposed the new penalty structure in its 2009 budget. At the time, it was expected the penalties would apply as of January 2010 when the government lowered the threshold for mandatory electronic reporting of certain information returns from 500 to 50. Employers below the threshold can to choose to file over the Internet or on paper.

Although the government amended the Income Tax Act in 2009 to include the new penalty structure, it did not revise regulations under the act to officially change the mandatory electronic reporting threshold from 500 to 50. The CRA said it would not assess penalties until the regulations were amended — they were published in the July 1, 2015 Canada Gazette Part II.

The CRA says it wanted to give filers, especially small businesses, time to get used to the new threshold and penalties.

But Internet filing is now so common, the CRA says, it should not be a problem for most businesses.

"Currently, 96 per cent of information slips are filed electronically; therefore, most filers will not be assessed a penalty," says Deussing.

The agency says even small businesses are becomingly increasingly likely to use the Internet to file information returns. Of the roughly 45,000 information returns it received from small businesses that fell within the 51- to 100-slip range for the 2012 tax year, more than 43,000 were submitted using the Internet. This indicates "over 95 per cent of the small business sector is voluntarily complying within the new requirements," it says.

The agency admits that businesses that do not yet file online may face some costs related to buying software to convert existing files to a format that they can send to the CRA over the Internet. It estimates the maximum annualized cost would be about $131 per small business.

However, the CRA says it can provide any filer with a way to file an unlimited number of prescribed information returns over the Internet for free, using its Internet File Transfer (XML) or Web Forms service.

The full article can be read on Canadian Payroll Reporter
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