CRA, the paperwork busters?

A new report from the Canada Revenue Agency task force on small business issues, entitled Helping Small Businesses by Reducing the Compliance Burden, released last week by Carol Skelton, the federal Minister of National Revenue, spells out a new mandate for the agency — to simplify, improve and reduce the frequency of small business interactions with the CRA, improve how and when the CRA communicates with small businesses and make burden reduction systemic within the CRA.

The goal is ambitious, but the minister and members of the committee say work is already underway to implement the proposed changes. Steps outlined in the report are divided into two main areas — identifying and reducing the actual amount of paperwork businesses are required to file, beginning with an inventory of requirements, and focusing effort on improving ways the CRA presents and conveys its information to the public.

Even though white paper and task-force recommendations have a way of disappearing and resurfacing endlessly, stakeholders sound excited about this particular report, especially when discussing the apparent desire to make change and the drive to reduce the small business paperwork burden a systemic process within the agency.

“They’ve institutionalized this review so that they have to report annually on what things are going on to alleviate the compliance burden. They say they will measure and report on their progress in their annual report to Parliament. They’re going to do it every year. That’s major,” says Garth Whyte, executive vice-president at the Canadian Federation of Independent Business (CFIB). “There’s not a law yet. That’s a good point, but right now it’s out there and we’re taking them at their word. This is the first step.”

In fact, stakeholders call the report, and the timelines mentioned in it, a work plan for the CRA, and Carol Skelton, Minister of National Revenue, says parts of it are already being implemented. “The agency knows that I expect this to be done. I had my meeting with the commissioner on Monday morning,” she says. “For this government, this prime minister and this ministry, it’s a priority.”

Skelton also points out that Bill Baker, the new CRA commissioner and CEO of the Canada Revenue Agency, appointed to replace Michel Dorais back in January, was one of the original task-force members when it formed back in August 2006. “Our new commissioner is great,” she says. “He’s done a lot of work on this. I’m really confident this is going to be implemented right through to the very end.”

The report identifies more than 50 initiatives and recommendations made by the task force, which the CRA intends to use like a work plan or task list to support its new mandate and to support a federal government mandate, announced in the 2007 budget, to reduce the paperwork burden for businesses by 20% by November 2008. Approximately 90% of the submissions required of small- and medium-size businesses are directly related to employment and taxes.

The CFIB says the cost of trying to comply with tax and regulatory paperwork requirements is significant. Its own report, entitled Prosperity Restricted by Red Tape, says “businesses with fewer than five employees pay $5,317 per employee each year in compliance costs, while businesses with more than 100 employees pay $1,104 per employee annually.” As well, the organization says second only to their overall tax burdens, business owners say government regulation and paperwork is one of their greatest concerns.

Initiatives recommended by the task force, designed to alleviate some of those concerns, include better online access to tax accounts and information; improved plans to introduce integrated enforcement teams and coordinated federal and provincial audits in Ontario; and an expanded combined audit program, designed to reduce inconvenience and costs by having a single auditor review the same records for both income tax and GST/HST purposes.

The CRA will also continue to work with the Department of Finance and provincial agencies to expand the adoption of the business number as a national business identifier, and continue to pursue agreements where the CRA will administer corporation taxes on behalf of some provinces, eliminating the need for business owners to deal with and file returns with more than one agency.

Other tax changes affecting small businesses are as follows:

• New legislation will allow qualifying small businesses to remit their income tax installment payments quarterly instead of monthly, starting after 2007.
• The corporate income tax payable threshold will be increased to $3,000 from $1,000, starting after 2007. Corporations earning less than the threshold are eligible to remit annually.
• The net personal income tax threshold for individuals will be increased to $3,000 from $2,000 — individuals earning less than the threshold do not need to pay installments. This change applies to the 2008 and subsequent tax years.
• Eligible businesses with average monthly withholdings less than $3,000 may remit source deductions quarterly instead of monthly, beginning in the 2008 tax year.
• Qualifying businesses with net tax less than $3,000 will be able to remit GST and HST annually instead of quarterly, beginning after 2007.
• Businesses with taxable supplies (any taxable sale of goods or services — includes sales that are taxed but also goods and services such as groceries, exports and sales made by farmers, that are zero-rated for GST purposes) not exceeding $1.5 million may elect to have GST and HST reporting periods that are fiscal years instead of fiscal quarters.

“We were told this impacts about 775,000 businesses if they choose to do this,” says Whyte. “That’s the nice thing — it’s optional. They said you have the option of doing this. They’re not forced to do it.”

As well, in January 2009, a harmonized corporation return will be introduced as part of the Corporate Tax Administration of Ontario initiative, which will allow businesses to file one annual return to both tax agencies, based on the same filing and payment requirements; offer a common definition of taxable income; allow blended payments; provide one point of contact for both provincial and federal tax information; have one audit covering both federal and provincial tax with one set of audit findings; and implement a single objections and appeals process.

“Those things are excellent,” he says. “You’re not dealing with two revenue entities; you’re dealing with one. When you harmonize things, it’s a double-edged sword — you’re harmonizing how you submit stuff, but you’re also harmonizing the penalties, but at least you know the rules.”

Perhaps most interesting for small business tax advisors, however, is the task-force proposal to enhance the My Business Account, beginning in 2007 and 2008, to provide services such as the ability to file GST and HST returns electronically, download previously issued statements, view account balance transactions, and enable representatives to view and transact on behalf of a business. The CRA says any business or individual can name another person to be a representative, using a prescribed consent form. The authorization can be submitted online and allows the person to act on behalf of the business, usually to obtain confidential information from the CRA. The principle is not new but has moved into the electronic realm only in recent years.

Also, as part of the task-force mandate to improve information presentation and availability, the CRA plans to review the most common errors made by small business taxpayers in order to identify opportunities to improve the content and layout of tax forms.

The report also outlines a number of initiatives aimed at increasing the use and usefulness of the CRA website, including improved information bundling, the introduction and use of “Smartlinks” that allow users to contact agents for more information directly from a webpage, and deployment of a recently developed CD-ROM tool, designed to increase awareness of the CRA’s electronic services. As well, the task-force recommendations recognize and promote a recently standardized training program for telephone agents, designed to improve the consistency of responses provided by the agency when addressing frequently asked questions and complex topics.

The agency also plans to update its series of public information and outreach seminars for small business owners to build on a 2006 and 2007 advertising campaign, designed to increase awareness about the CRA’s suite of electronic services.

Filed by Kate McCaffery, Advisor.ca, kate.mccaffery@advisor.rogers.com

(04/19/07)