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If you fail to report income, you’ll receive a notice of reassessment requiring you to pay extra tax with interest.John Tomaselli/Getty Images/iStockphoto

We live in an age of instant information, except at tax time.

If you own mutual funds, your investment firm typically has until the end of March to mail your T3 slip for the 2013 tax year. Your T5 slips, which document the kinds and amounts of investment income you received in the year just passed, must be mailed by the end of February. This is slow service, and it's causing tax-filing problems that are bound to get worse unless taxpayers understand what they're up against.

For one thing, more people are filing their taxes online. This is generally a good thing in that it reduces the time and cost of shuffling paper and helps cut down on math errors. The problem is that online filing is so accessible and convenient that refund-hungry tax payers are jumping the gun and filing before they have all their slips in hand.

The recently announced shakeup at Canada Post will complicate things. The cost of postage will jump on March 31, and this will cause investment firms to push electronic tax slip delivery over mail. Electronic forms are great, but what if you don't have access to a computer and printer, or you're not tech-savvy?

And then there's the Canada Revenue Agency's matching program, which ensures that people are reporting all their income. It works like this: Employers and investment firms report everyone's employment and investment income to CRA, which then matches the information against the income reported on tax returns.

If you fail to report income, you'll receive a notice of reassessment requiring you to pay extra tax with interest. If you get caught again within four years, a hefty penalty of 20 per cent of the unreported income applies.

The rise of online tax filing has certainly added some urgency to the problem of tax slips arriving uncomfortably close to the April 30 tax deadline, or even later. CRA figures show that paper returns accounted for 36 per cent of tax filing for the 2012 tax year, down from 38 per cent in 2011 and 45 per cent in 2008. "People are mesmerized by seductively simple electronic filing methods," said Evelyn Jacks, a noted tax expert and author of a long-running tax guide called Jacks on Tax.

She thinks tax software and online services are outstanding for helping people calculate their taxes without math errors and in helping people plan their finances. But she finds that online filing can lead to sloppiness in terms of both missed opportunities to exploit tax breaks and in ensuring all T-slips are accounted for. "The bottom line is that there's a whole host of new challenges that come from an electronic world," she said.

Here's the investment industry's perspective on T-slip filing: It's a royal pain that is complicated by a high error rate in data that investment advisory firms get from suppliers of investment products. Largely because of this, it takes two to three months or more to get those tax slips out.

"We recognize the burden this is for investing clients," said Barbara Amsden, managing director at the Investment Industry Association of Canada. "Investment advisers are pushing harder than anyone for speeded-up tax filing."

A long-term solution proposed by Ms. Amsden would be to have taxpayers go to their CRA "My Account" online to get their tax slips. My Account is basically CRA's version of an online bank account, only for taxes. You can look up your most recent notice of assessment, check your balance owing or refund, track your instalment payments or amend a return.

Higher postal costs will undoubtedly push more investment firms to make slips available online on their own websites, and this may be faster than snail mail. But to get customers to agree to receive tax slips online, firms have to do a better job of creating an easy-to-find, permanent tax slip centre on their websites.

Here's Ms. Jacks's best advice for coping with the slow, meandering path of T-slips into the hands of taxpayers:

-Ensure you have all slips in hand by checking them against what you had in last year's notice of assessment (or reassessment) and tax return.

-Have a hard-copy file you can drop each slip into as it arrives.

-Keep an inventory of all non-registered investment accounts and bank accounts and tick off the T-slips as they arrive.

Finally, she says people shouldn't be doing their tax returns until mid-March if they have investment income, and they should be waiting until April if they own mutual funds and will receive a T3 slip.


How does Canada Revenue Agency's Matching Program work?

The CRA's Matching Program compares information on an individual's tax return to information provided by third-party sources such as employers or financial institutions after a notice of assessment has been sent. The program identifies situations that could result in tax recovery and those that could result in refunds to individual taxpayers.

How many notices of reassessment does CRA send out as a result of information received through the matching program?

Results for the 2012 tax year are not yet available. For the 2011 tax year, there were 1.3 million notices of reassessment issued in relation to the matching program. The reassessed tax resulting was $715-million. In addition, CRA has processed just over 340,000 adjustments to taxpayers' accounts resulting in $98.5-million in refunded tax.

What are CRA's penalties for first and repeat instances of not reporting income on T3-4-5 slips?

There is no penalty assessed for the first occurrence, but any second omission within four years of the first occurrence will result in an omission penalty of 10 per cent of the unreported income. CRA also assesses a provincial or territorial penalty of 10 per cent of the unreported income

If assessed a penalty for unreported income, can a taxpayer argue that his or her financial institution never sent a T3 or T5?

It is the taxpayer's responsibility to make a complete and correct return of income, and the failure of a third party to provide an income slip would not be an acceptable excuse for omitting income.

This is an edited transcript of an e-mail exchange with a CRA spokesman.