The Basics of Various Taxes and Regulatory Filing, Compliance & Recent changes

Yes, this is about everyone’s favourite topic, the “government” and the filings of PST, SOURCE DEDUCTIONS, GST, WSIB and EHT compliance and reporting.

PST – Managed by Ministry of Finance of our provincial government: Vendors have to collect and submit PST when selling products and certain services.  Recently, the Ministry of Finance changed its practice from waiving penalty once a year to once every four years when a vendor is late in reporting.  In actual figures, if you are only ‘1’ day late, you will have a penalty of 10% and the prescribed interest (set by CRA in a quarterly basis).  Suppose you have a payable of $1,500.00, the penalty would be $150.00, and so your new total would be $1,650.00 plus 5% current compound interest daily.  However, by July 2010, PST is going to merge with GST called Harmonized Sales Tax.  We have a separate document highlighting this significant change.

Source & GST – Managed by CRA of our federal government: employers and businesses are responsible for withdrawing payroll deductions and collecting GST & calculating GST ITC that we are entitled to.

1. Source deductions, again the penalty is harsh: 10% on the amount you owe for ‘1’ day late.  For example, if your payroll remittance is $4,500.00 and you are late, you will get a penalty of $450.00 with interest.  For repeat offenders, the penalty rate can go as high as 20% with the CRA prescribed interest.  If you file but did not remit the total owing, it could be subject to this kind of penalty too.  On a side note, repeated late filers for personal income tax sometimes would be subject an even more hefty penalty depending on the amount of the liability.
2. GST, very important to file the return even if you cannot afford to pay.  If you are getting a refund, it is all the more important to file on time because CRA has no way of knowing if you owe them or the other way round.  GST late filing penalty is currently 5% with compound interest.

CRA used to waive some late filing penalty within reason, but it no longer accepts negotiation through the telephone.  The hard and fast rule is when you are late in filing; you have to write the ‘Fairness Committee’ with an extremely convincing reason for them to consider waiving the late penalty.

WSIB: Managed by Workers Safety & Insurance Board: employers hiring full-time, part-time and sub-contract workers are required to pay WSIB insurance.  It is mandatory to register with WSIB as soon as a business starts hiring employee/s.  Not only it is compulsory, you would not want to face the dire consequence if and when one of your workers injuries oneself without proper coverage.  Lately, WSIB started to impose a $50.00 fine for late filing of the reconciliation of your account.  However, employers and executives are usually not covered, but you can apply to be insured if you so desire.

EHT:  The Employer Health Tax managed by provincial government – not as visible as the others, but still cannot be ignored.

1. You are allowed a $400,000.00 exemption (including owners’ wages): A good amount of small businesses do not need to register or to pay.
2. However, it could very easily be overlooked when you go beyond the exemption, because it is on a voluntary basis.  As a matter of fact, we know of some businesses that were caught off guard and they had to deal with its aftermath, which created additional work and a bigger sum of liability vs. dealing with it in a timely basis.
3. While you may miss the threshold and did not register, it does not mean you can get away with it; EHT has a way to find out.   Unfortunately, they are not very timely, by the time you are being notified; you are most likely to be three or four years behind.  So, if you received a ‘failure to remit’ notice from the EHT (based on the T4 summary they obtained from CRA).  An culmination of several years of liability, together with the penalty and interest will add up to a substantial amount of money.
4. Having said that and with the latest development, EHT started using the same BN, linking it to the federal government, they may be a lot more efficient in catching up with the delinquents.
5. The calculation for the tax liability is 1.95% after your payroll goes beyond $400,000.00; the payable would be the difference of the total wages and the exemption.
6. When a payroll reaches $600,000.00 or over, it is required to pay monthly instalments vs. paying annually.
7. If you have more than one company, they could be ruled as associated employer.  Depending on the structure of your companies, you have to share the $400,000.00 exemption.  The threshold could be used up pretty fast if you have to combine two or three companies’ payroll.

A reminder: all of these remittances except WSIB & EHT are in your trust, so our governments do not take it lightly when you do not file or delay in submitting them.  It is especially true with payroll/source deductions, as a certain amount of wages are withheld on behalf of your employees for CPP, EI and income taxes purposes.  Therefore, you have an obligation to submit the fund as prescribed by CRA.   By the way, prior to two years ago, CRA allowed payment on a Monday when the due date falls on the weekend, but that policy was changed; you are required to pay for your liability by Friday before the weekend to be considered as filed.

This year, there is a significant change in the administration of various taxes.  Specifically, Ontario’s PST and corporate tax division have merged with our federal government.  We are using the federal BN with the appropriate attachment to identify different jurisdictions.  In essence, all matters relating to PST and corporate tax go to the federal government including audits.

On the other hand, there is always a silver lining with all of these obligations, all level of governments have a ‘come clean’ program.  For example, if you miss registering and filing for EHT, you would notify the authority of your omission.  EHT will assess and waive the penalty but not the interest.  This program applies to other regulatory filings, but it has to be by your own initiative, once you are caught, you have to bear the total amount of assessed penalty and interest.