Questions and answers on the Industry Campaign Approach
1. What is the Industry Campaign Approach (ICA)?
The Industry Campaign Approach is a new initiative launched by the Canada Revenue Agency (CRA) to encourage tax compliance. By using this approach, the CRA seeks to:
- ensure a high level of compliance across an entire industry sector;
- build an enhanced relationship with industry sector associations;
- provide information and education about potential tax pitfalls at key points in the business cycle, with a view to improving compliance among businesses by helping them "get it right from the start"; and
- provide information to certain businesses about their compliance history and develop benchmarks for their industry sector.
2. Is the ICA a new approach?
Although this particular approach is new for the CRA, many of its elements are being used by other tax administrations. For example, in the United Kingdom, multiple tax campaigns have been initiated by HM Revenue & Customs , while the Australian Tax Office uses a letter campaign in combination with their small-business benchmarks. The United States' Internal Revenue Service uses a letter campaign approach with tax preparers. For the CRA, this innovative way to promote compliance is a complement to traditional actions to ensure businesses meet their tax obligations.
3. Why is the CRA introducing the Industry Campaign Approach?
Through the ICA, the CRA is adopting an innovative way to help businesses be compliant up-front as a complement to traditional actions to ensure businesses meet their tax obligations. The ICA is intended to encourage businesses to self-correct their tax affairs and to take steps to prevent common mistakes, particularly in sectors that may benefit from increased support and where the CRA has had limited interaction. This complementary approach is similar to compliance campaigns used in other tax administrations belonging to the Organization for Economic Cooperation and Development.
4. How does the CRA select industry sectors for the ICA?
The CRA analyzes data from a variety of sources in order to identify sectors that could benefit from the Industry Campaign Approach.
5. What should I expect from the ICA?
Taxpayers: If you conduct business in an industry sector covered by a campaign, you should notice an increase in general information identifying common tax errors in your sector of business and how to fix them. This information may be provided to you by the CRA or your industry association.
In some cases, you might receive a letter or some other form of communication directly from the CRA. This would typically occur if the CRA has identified a concern based on your compliance record or tax filings.
Industry associations: If you are an industry association representing businesses in a sector covered by a campaign, the CRA will likely have contacted you to explain the campaign and to get your feedback.
Tax intermediaries: If you are a tax advisor or intermediary, some of your clients might receive letters and contact you for assistance or clarification. If you can’t find the answer to your question on this page, call the business income tax enquiries line at 1-800-959-5525.
6. What happens if a taxpayer has been in business for a few years but has never filed a tax return and decides to file now?
7. If a taxpayer has missed their filing deadline, what are the consequences for filing late?
Failure to file on time may result in penalties and interest charges. For more information, self-employed individuals can go to Interest and penalties, and corporations can go to Failure to file penalties. You can also get more information by calling 1-800-959-5525.
If a return is filed late due to circumstances beyond the taxpayer's control, the CRA may waive or cancel penalties or any interest that may apply. If this is the case, please see Information Circular IC07-1, Taxpayer Relief Provisions, or go to Taxpayer relief provisions.
This example shows the calculations for the late-filing penalty and the arrears interest related to the tax balance owing and penalty. Depending on a taxpayer’s situation, other types of penalties and interest may also apply.
John Smith is a sole-proprietor. John has a tax balance owing of $1,000 for 2014, but he did not file his 2014 T1 Income Tax and Benefit Return by the due date of June 15, 2015 or pay his tax balance owing by the due date of April 30, 2015. John filed his 2014 return on December 5, 2015, and paid his tax balance owing of $1,000 at that time. John’s income tax return was assessed on December 15, 2015. As a result, John was charged a late-filing penalty of $100 and interest charges of $34.25 on his Notice of Assessment. If John had paid his tax balance owing by April 30, 2015, the penalty and interest charges would have been avoided.
The penalty was 5% of John’s 2014 balance owing, plus 1% of his balance owing for each complete month his return was late, up to a maximum of 12 months. If the statutory filing date falls on a day other than the last day of a month, a complete month is the period from the statutory filing date to the same numerical date in the next month, plus one day.
Late-filing penalty calculation:
($1,000 X 5%) = $50; PLUS
($1,000 X [1% X 5 complete months]) = $50 (since the return was filed on December 5, 2015, John’s return was late by five complete months)
Late-filing penalty = $100
Interest calculation using the prescribed interest rate of 5%:
Arrears inteArrears interest from April 30, 2015, to June 15, 2015, based on $1,000 tax balance owing as of April 30 = $6.32rest from April 30, 2014, to June 15, 2014, based on $1,000 tax balance owing as of April 30 = $6.32
Arrears interest from June 16, 2015, to December 15, 2015, based on $1,106.32 = $1,000 (tax balance owing) + $6.32 (arrears interest to June 15, 2015) + $100 (late-filing penalty) = $27.93
Total arrears interest as of December 5, 2015 = $34.25
Example of a failure-to-file penalty for a corporation
This example shows the calculations for the failure-to-file penalty and the arrears interest related to the tax balance owing and penalty. Depending on a taxpayer’s situation, other types of penalties or instalment interest may also apply.
XYZ Inc. has a tax balance owing of $100,000 for 2014 and did not file a 2014 corporation income tax return by the due date of June 30, 2015. The 2014 return was filed late and assessed on November 12, 2015. As a result, the corporation was charged a failure-to-file penalty of $9,000 and arrears interest of $3,312.06. If the corporation had paid the tax owing by March 31, 2015, the penalties and interest charges could have been avoided.
The penalty is equal to 5% of the corporation’s 2014 balance owing, plus 1% of its unpaid tax for each complete month the return is late, to a maximum of 12 months. If the statutory filing date falls on a day other than the last day of a month, a complete month is the period from the statutory filing date to the same numerical date in the next month, plus one day.
($100,000 X 5%) = $5000; PLUS
($100,000 X [1% X 4 complete months]) = $4000 (the return was filed on November 12, 2015, so it was late by four months).
Failure-to-file penalty = $9,000
Interest calculation using the prescribed interest rate of 5%:
Arrears interest from March 31, 2014, to June 30, 2014, based on $100,000 tax owing, due March 31, 2014 = $1,254.29
Arrears interest from June 30, 2015, to November 12, 2015, based on $110,254.29 = 100,000 (tax owing) + 1,254.29 (arrears interest to June 30, 2015) + 9,000 (failure-to-file penalty) = $2,057.77
Total arrears interest as of November 12, 2015 = $3,312.06
Example of a penalty applied when the CRA issues a demand to file or when a taxpayer has repeatedly failed to file
This example shows the calculations for the repeated-failure-to-file penalty and the arrears interest related to the tax balance owing and penalty. Depending on a taxpayer’s situation, other types of penalties or instalment interest may also apply.
XYZ Inc. has a tax balance owing of $100,000 for 2014 and did not file a 2014 corporation income tax return by the due date of June 30, 2015.
The 2014 return was filed late and assessed on November 12, 2015. Because CRA issued a demand to file the overdue return and XYZ Inc. was assessed a failure-to-file penalty in one of the three previous tax years, CRA charged the higher repeated-failure-to-file penalty. The penalty is equal to 10% of unpaid tax when the return was due, plus 2% of the unpaid tax for each complete month the return is late, up to a maximum of 20 months.
The corporation was charged a repeated-failure-to-file penalty of $18,000 and arrears interest of $3,480.05. If the corporation had paid the tax owing by March 31, 2015, the penalty and interest charges could have been avoided.
Repeated-failure-to-file-penalty calculated at a higher rate:
($100,000 X 10%) = $10,000; PLUS
($100,000 X [2% X 4 complete months]) = $8,000 (the return was filed on November 12, 2015, so the return was late by four months).
Repeated failure to file penalty = $18,000
Interest calculation using the prescribed interest rate of 5%:
Arrears interest from March 31, 2015, to June 30, 2015, based on $100,000 tax owing due March 31, 2015 = $1,254.29
Arrears interest from June 30, 2015, to November 12, 2015, based on $119,254.29 = 100,000 (tax owing) + 1,254.29 (arrears interest to June 30) + 18,000 (repeated failure to file penalty) = $2,225.76
Total arrears interest as of November 12, 2015 = $3,480.05
8. I am concerned about filing my tax return because I don’t have the money to pay right now. What should I do?
We realize that businesses sometimes face difficult circumstances. However, the CRA strongly encourages you to file on time to avoid costly late filing penalties. Even if you can't pay the full amount of taxes you owe to the CRA, file on time and contact the CRA -- we may be able to develop a plan to help you pay your taxes. To learn more, visit CRA payment arrangements.
9. If a taxpayer notices a mistake on a previous tax return, how can they correct this mistake?
Taxpayers should correct any mistakes on a previously filed return immediately through a request for adjustment, whether you are a self-employed individual or an incorporated business. For more information, call the business income tax enquiries line at 1-800-959-5525.
Receiving a letter from the CRA regarding an industry campaign in your sector of business does not prevent you from making a voluntary disclosure. The Voluntary Disclosures Program allows taxpayers to come forward and correct inaccurate or incomplete information or to disclose information they have not reported during previous dealings with us, without penalty or prosecution.
10. The ICA webpage mentions the use of sector-specific benchmarks. How can benchmarks help businesses and where can this information be found?
Benchmarks help businesses assess their financial performance in comparison to others in the same industry sector. On Industry Canada's website, businesses can view Financial Performance Data across 1000 industry sectors, with over 30 relevant benchmarks. This data includes ratios such as gross margin (which is gross profit divided by revenue). There is even an option for businesses to enter financial data which can be compared against industry averages.
11. Who do I contact if I would like more information about the ICA?
12. The person to whom the ICA letter is addressed is deceased or retired. What should I do?
Although the CRA works hard to avoid such situations, they do sometimes occur if the most recent information we have available to us is not up-to-date. For further information, including actions that may be required, go to Retirement or Death. You may also contact one of our business enquiries agents at 1-800-959-5525 to update our information.
13. How can a taxpayer inform the CRA that they are no longer operating this business or the business has closed due to bankruptcy?
14. How can a taxpayer identify fraudulent communications that do not come from the CRA?
Occasionally, taxpayers may receive, either by telephone, mail, or email, a communication that claims to be from the CRA but is NOT. The CRA does not do the following:
- Request personal information of any kind from a taxpayer by email;
- Divulge taxpayer information to another person unless formal authorization is provided by the taxpayer;
- Leave any personal information on an answering machine.
For more information to identify those communications that do not come from the CRA, please see the general guidelines in Protect yourself against fraud.
15. How do I do business with the CRA online?
It's easy and secure to deal with your tax affairs online. Business owners (including partners, directors, and officers) can access their GST/HST, payroll, corporation income taxes, excise taxes, excise duties and other levies accounts online through the CRA's online service, My Business Account.
Employees and representatives can access an account on behalf of their employer or business clients through Represent a Client.
My Account for individuals, including the self-employed, allows you to track your refund, view or change your return, check your benefit and credit payments and your RRSP limit, set up direct deposit, and so much more.
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