In many industries, manufacturing companies will often offer incentives to retail businesses as a way to develop relationships or promote the brand they are selling. Retail businesses usually receive these incentives in the form of a cheque or an electronic transfer of funds. But they may also receive them in other ways such as by pre-paid credit card or gift card. Regardless of how the incentive is received, when a taxpayer (individual, corporation, or trust), or a partnership that a taxpayer is a member of, gets the incentive as part of their business or professional activities, it is taxable in the year they receive it and they have to report it.
What the CRA is doing to make sure businesses report incentive income
The CRA is committed to making sure businesses are aware of their tax obligations and comply with them. Businesses must report all types of income, including incentives.
In 2012, the CRA ran a pilot project aimed at incentive income received by retail pharmacies in the Atlantic region. What the CRA found during the project prompted it to expand the scope to retail pharmacies in the rest of Canada. The national project was completed in 2016.
As a result of these two projects, the CRA found $86 million in unreported incentive income. This resulted in more than $19 million in additional taxes owed.
Going forward, the CRA will use a similar approach to look at other business sectors. The CRA has requested data about businesses and individuals who have received incentive payments from the third-party companies that arrange for them.
After gathering the information, the CRA will start reviewing taxpayer files and doing in-depth audits where necessary. If a taxpayer has not fully reported incentive income, the CRA will reassess the relevant returns and apply penalties and interest where appropriate.
If you missed reporting incentive income on a past return
If you made an error or an omission on a previously filed income tax return, you may be eligible for relief from penalties and interest by correcting your error through the Voluntary Disclosures Program.
If you think others have not reported
Help keep the tax system fair. If you suspect a business in Canada has not reported incentive income, or is otherwise not meeting its tax obligations, you can tell the CRA by contacting its Leads Program. Your identity will not be revealed.
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