GST/HST Non-compliance Filing and Remitting Evaluation

Prepared for the:
Public Affairs Branch
Canada Revenue Agency
FINAL REPORT
January 2008
POR# 129-07
Contract #46558-081976

Prepared by:
Sage Research Associates

Le rapport complet en français sera fourni sur demande.

To request a full copy of this report, please contact Library and Archives Canada at:
613-996-5115 or 1-866-578-7777 or www.collectionscanada.ca

Media Enquiries:
Media Relations
Canada Revenue Agency
4th Floor 555 MacKenzie Avenue
Ottawa ON K1A 0L5
media.relations@cra-arc.gc.ca

---

Executive Summary

Background

GST/HST registrants are required to file information returns and to remit any tax payable for monthly, quarterly, or annual reporting periods. Reporting periods are determined based on a registrant's estimated annual taxable revenues and net tax liability. Registrants with monthly or quarterly reporting requirements have to file their GST/HST return and remit any amount owing no later than one month after the end of their reporting period. Registrants that have an annual reporting period, usually have to file their GST/HST return and remit any amounts owing no later than three months after the end of the fiscal year. Individuals with business income for income tax purposes that are also annual filers with a December 31 fiscal year-end have to file their GST/HST return by June 15. However, they still have to remit their net GST/HST amount owing by April 30 to avoid penalties and interest.

Registrants are considered to be non-compliant accounts if they are late meeting or fail to meet their filing and/or payment requirements within prescribed timeframes.

Non-compliant filing and remitting, as defined above, has been identified as one of the highest risk priorities of the GST/HST compliance administration.

Research Objectives

The purpose of the research was to explore, among GST/HST registrants who have been non-compliant, their perceptions and attitudes concerning non-compliance, and the constraints and obstacles they face in order to meet their GST/HST filing and remitting obligations. The primary research objectives included:

• Assess the perceived clarity and completeness of information and education programs offered by the CRA on GST/HST filing and remitting requirements.
• Assess level of understanding of the implications of not meeting GST/HST filing and remitting requirements.
• Explore obstacles or constraints to complying with GST/HST filing and remitting requirements, options available to file and remit, and suggestions for how the CRA might make filing and remitting easier.
• Explore perceptions and attitudes on how well the CRA is addressing non-compliance with GST/HST filing and remitting requirements.

A secondary research objective was to explore the impact of new services and legislative changes announced in April 2007, and the extent and impact of use of the CRA's My Business Account.

Methodology

Ten focus groups were conducted October 22-25, 2007 with GST/HST registrants who had been non-compliant in their GST/HST filing or remitting in the past two years. Five of the focus groups were with Small Business (annual sales under $500,000), and five were with Medium Business (annual sales of $500,000 to $6,000,000). The focus groups were conducted in English in Halifax, Toronto, Edmonton and Vancouver, and in French in Edmundston.

This research was qualitative in nature, not quantitative. As such, the results provide an indication of participants' views about the issues explored, but cannot be generalized to the full population of any of the audiences included in this research.

Getting Information on GST/HST Filing and Remitting Requirements

Overall, most participants said they did not have any great difficulties learning about their GST/HST filing and remitting requirements, and associated with this, few reported instances of non-compliance that can be attributed to lack of information.

The two most frequently mentioned sources of information about filing and remitting requirements were an expert of some sort such as an accountant or bookkeeper, and the information sent by the CRA after GST/HST registration.

With regard to the information sent to registrants by the CRA, two participant suggestions are worth noting:

• While some participants found the GST/HST booklet they received to be helpful (presumably the document General Information for GST/HST Registrants), some found it to be long and overly complicated. The latter suggested a simpler version of the booklet be produced that would target small business and particularly people new to business.
• One particular area where some participants recalled having difficulty was knowing the meaning of, or how to complete, certain parts of the GST/HST return.

With regard to direct contact with the CRA to get information about GST/HST filing and remitting requirements:

• Face-to-face contact: A relatively small number of participants learned about their GST/HST filing and remitting requirements by means of a face-to-face meeting with a CRA representative. All were very positive about the help they received.
  
  Quite a few participants suggested the CRA should provide training seminars or some other form of face-to-face assistance, because this medium allows people to ask questions and get personalized help. However, there appears to be low awareness of the fact the CRA does in fact offer face-to-face training sessions.
  
  
• Telephone contact: With regard to getting through to a CRA representative, participants who had called often complained about getting busy signals and/or waiting for a long time on hold. With regard to getting information, the general view was that front-line representatives were good at providing basic information about GST/HST, but participants found the process time-consuming and frustrating when they dealt with CRA representatives on business-specific or complex questions. The basic difficulty was finding and getting access to somebody knowledgeable enough to answer their questions.

With regard to the CRA website, it appeared to be under-utilized as a resource: relatively few participants said they had gone to the CRA website to learn about their GST/HST filing and remitting requirements, and the website did not appear to play a major role for anyone in terms of learning about the basic filing and remitting requirements. Two participant suggestions included:

• Some participants suggested the website have an interactive, online return form that would be a teaching/information tool.
• Some participants suggested the website have a video tutorial on GST/HST, targeted to new businesses.

Reasons for Non-Compliance

The most common reason for non-compliance was lack of money because of cash flow issues to pay the amount owing at the filing/remitting due date. The following summarizes the various types of reasons participants gave for non-compliance, organized in terms of relative frequency of mention in the focus groups

Most common
Lack of money due to cash flow

Somewhat common
"Last minute" filing/remitting
Forgetting

Other reasons
Remittance forms/process
Refund filing
Internal work process issues
Getting information
Form difficulties
Apparent CRA errors

The following are key results for some of these reasons for non-compliance:

Lack of money due to cash flow: Among both Small and Medium Business participants, the single most frequently mentioned reason for being non-compliant with GST/HST filing/remitting requirements was lack of money at the due date due to cash flow issues. That is, at the due date, the company has "large" outstanding receivables for which GST/HST has to be reported, but the company does not have the cash to cover payment of that GST/HST. The types of companies that appeared to be most susceptible to this issue were ones that work on a project basis -- construction firms being a common example, and companies that have strong seasonal shifts in sales.

Almost all participants said that when they cannot make a GST/HST remittance on time because of cash flow reasons, they do not file a GST/HST return. That is to say, not only are they non-compliant in not making the remittance on time, but they are also non-compliant in not filing the return on time. Participants believed that the penalty and interest consequences are the same regardless of whether the return is filed, so they saw no incentive to file the return. Important, almost none of the participants were aware of the recent change introducing a penalty for late filing. It is likely that at least some participants would change their filing behaviour if they were aware there is now a penalty specifically associated with late filing, so a challenge for the CRA is to build greater awareness of this penalty.

The two most common participant suggestions for changes the CRA could make to help address non-compliance due to cash flow were to extend the filing/remitting date, and change the reporting requirements such that GST/HST is reported on amounts paid rather than on amounts invoiced.

Some other participant suggestions included:

• Allow payment by credit card.
• Give businesses the option to request the CRA hold on to any GST/HST refund to apply against future amounts owing.
• Improve awareness of the benefit of partial payment.

"Last minute" filing/remitting: A somewhat commonly mentioned risk factor for being non-compliant, particularly among Small Business participants, was waiting until late in the reporting period to do the necessary steps for filing/remitting -- i.e., bookkeeping, completing the return, or making the remittance. When any of this is left until late in the reporting period, there is a risk it will not get done in time because of competing demands for time -- most often this was being particularly busy with other things at work.

Most participants saw this reason for non-compliance as the responsibility of the business, and did not have any suggestions for changes the CRA might make.

Forgetting: A somewhat commonly mentioned reason for being non-compliant was simply forgetting to file and remit by the due date. Some participants suggested something the CRA might do to address this reason for non-compliance would be to offer an optional email alert system -- that is, a business could sign up at the CRA website to be sent an email X days before their due date reminding them to file/remit.

Remittance forms/processes: Some participants said they had missed filing/remitting by the due date because they did not have the form -- either because it did not arrive in the mail or because they had misplaced it. Several possible solutions to the problem were suggested:

• The most common suggestion was to offer a printable and usable remittance form on the CRA website. Note that this would be preferred over the current option of requesting the CRA to send forms, because of the time required to receive the forms using the latter method.
• Some participants suggested the CRA send extra remittance forms at the beginning of the year.

A factor potentially relevant to compliance are the electronic options available for filing GST/HST returns and making remittances. The results suggest there is an opportunity to build awareness and use of these services, and that they can facilitate compliance:

• Awareness: About half of the Small Business participants were aware of GST/HST NETFILE or TELEFILE, while a majority of the Medium Business participants were aware of these options for electronic filing of the GST/HST return. Awareness of electronic payment is lower: only a minority of the Small Business participants were aware of the possibility of electronic payment of GST/HST through some form of on-line banking, while a majority of the Medium Business participants were aware of this -- but not all.
• Usage: Some participants used GST/HST NETFILE or TELEFILE, with most of these participants using NETFILE, and only a couple using TELEFILE. The majority of users were in the Medium Business category. Only a small number of participants used electronic payments through their financial institution to make GST/HST remittances, and these were more likely to be Medium Business participants.
• Interest in using and perceived impact on compliance: Some of the non-users said they would be interested in using GST/HST NETFILE, and felt it would contribute to greater likelihood of compliance:
  • It is a solution to the problem of not having a return due to it being lost in the mail or misplaced.
  • It can be a solution to the problem of waiting until the "last minute" to file, because filing can be done after hours or on the weekend.

Perceived Consequences of Non-Compliance

Participants were asked for their understanding of what the consequences are of non-compliance with GST/HST filing and remitting requirements:

• All said there were penalty and interest charges. Their knowledge of what the penalties and interest charges are, however, was vague. Most participants did not know any more about this than the fact that these sorts of charges exist -- they could not give any sort of quantification of the magnitude of these charges.
  
  As noted earlier, almost none of the participants were aware of the recent changes in penalty and interest charges for non-compliance, including the fact that now there is a penalty for late filing of a GST/HST return.
  
  
• Many participants were aware the CRA can freeze a business's bank account. In this context, some participants said an additional consequence can be a lower credit rating which would impact ability to borrow money.
  
  
• Participants were aware of other potential consequences of non-compliance -- e.g., legal actions and audits. However, our impression was that while these were certainly perceived as serious, they were not perceived as deterrents to short-term non-compliance. Rather, these were seen as consequences that would apply only after a non-compliance situation has continued for a relatively long period of time.

Participants were asked whether they thought the consequences of not meeting GST/HST filing and remitting requirements are sufficiently serious to deter non-compliance. It should be noted that on this topic participants appeared to be rather guarded in their responses, probably because of a concern that the results of the focus groups might be used to justify increased adverse consequences. With this caution in mind, the results were as follows:

• Notably, only a small number of participants said the consequences are too severe.
• Most participants said they believed the consequences of non-compliance are reasonably serious, and act as a deterrent to non-compliance.
• A small number of participants said they did not feel the consequences of short-term non-compliance were that serious -- e.g., the consequences of being late by "a few days."

New Initiatives

• Legislative changes in April 2007: Awareness was very low of the legislative changes in April 2007 affecting GST/HST filing and remitting. As noted earlier, the change involving the introduction of a penalty for late filing of a GST/HST return has potential to improve compliance, but only the two participants were aware of this new penalty.
  
  
• My Business Account: Awareness of the CRA's My Business Account service was low: almost none of the Small Business participants had heard of this service, and only a minority of the Medium Business participants had heard of it. Only one participant had used it.
  
  Participants were shown a list of information and services related to GST/HST that could be accessed using My Business Account, and were asked whether they thought any of these might impact compliance. The following were the only two that generated comment:
  • "Provide additional remittance vouchers for your payments": Some participants perceived this as helping to deal with instances of missing remittance vouchers. That said, it should be noted that what participants would prefer is the ability to directly print a usable remittance voucher, as opposed to the more time-consuming process of requesting that remittance vouchers be mailed to them.
  • "Review interest charged or paid": Several participants thought seeing a summary of penalties and interest paid could potentially motivate businesses that have been non-compliant in the past to be compliant in the future.