Penalties for Missing the 2013 Income Tax Deadline

Missed the 2013 tax deadline to file your 2012 tax returns? Then you should read this blog as it will give you a high level overview of penalties and interest that you could be facing once you file. 

First time offender

The late filing penalty for taxes owed for 2012 will be subject to a 5% penalty based on the amount outstanding. In addition, the offender will be subject to a 1% penalty per month for up to 12 months. 

Previous offenders

If you were charged a penalty for late filing in any of the 3 years preceding the 2012 tax year, CRA may apply a 10% penalty based on the amount of the tax debt and up to 2% per month for up to 20 months. Furthermore, if you fail to declare income in 2012 and you also failed to report income in the preceding 3 tax years, you could also be subject to an additional 10% penalty.

In addition to the above penalties, interest is also charged on both the tax debt and the penalties, retroactively. The current interest rate is 5% but because the CRA compound interest (interest charged upon interest) daily it very quickly adds up.

If CRA believes that you have made a false statement on a tax return or alleges gross negligence (which they do all the time), you may be subject to a steep fine, plus a penalty of up to 50% of your tax debt.

Not filing your tax return is tax evasion. Failing to declare income is tax evasion. Claiming false expenses is tax evasion.  In all cases you could also be criminally prosecuted.

It is not illegal to owe money to CRA. It is illegal to not file.

Many people fail to file tax returns or declare income because they are afraid that they will have a large tax debt that they will not be able to pay. It is always better to get your returns filed or the undeclared income declared rather than waiting for CRA to catch up with you.

Now that you are really thinking about getting that income declared, useprograms like the Voluntary Disclosure Program (VDP) that will enable you to come clean on unreported income or past due returns and avoid penalties and interest altogether.

Even if you don’t qualify for VDP, you can still take advantage of a Notice of Objection to object to a penalty or Taxpayer Relief if there were special, qualifying circumstances that led to your tax problem. A tax problem can be very scary, but you will be much better off taking a deep breath and dealing with it.

A professional who focusses on protecting taxpayers who are at fault or who simply owe money they cannot pay will get you the best solution possible without shooting holes in your feet.  One wrong step in any of these complex processes can get you into serious trouble.

For more information about what you can do to resolve a tax problem and deal with penalties and interest please visit www.taxsolutionscanada.com or call 1-888-868-1400.

Average People Do Get Prosecuted by CRA!

When you hear advertisements telling you that if you are behind filing tax returns or have undeclared income that you could be subject to criminal prosecution, know that this is not just a scare tactic. It is very real.  In fact, average Canadians are prosecuted every month by CRA. Some receive fines while others are even sentenced to jail time. Here is a quick review of some of the individuals and businesses prosecuted by CRA in October 2013. 

1.      A professional engineer in Thunder Bay, Ontario, was convicted in October of tax evasion. CRA’s investigation found that this taxpayer had failed to report income on his 2005-2009 tax returns. He was fined more than $84,000, representing 100% of the total taxes evaded and sentenced to 5 months of house arrest. He still has to pay the taxes and the interest and the civil penalties.

2.      In Kamloops, British Columbia, a man was convicted of tax evasion for failing to file his 2002 and 2003 personal income tax returns. He was fined $5,000 and sentenced to 60 days in jail to be served on weekends.

3.    In Prince Edward Island, a university professor was convicted of tax evasion for failing to report income received in 2009 and 2010.  The taxpayer was fined $30,212 which has to be repaid within 12 months or he could be sentenced to serve up to a year in jail.
 

4.      A Brampton, Ontario couple was convicted of tax evasion in October for failing to file corporate and individual tax returns. They were fined over $13,000 collectively.

5.      In London, Ontario, a chartered accountant and former executive of a tool and moulding company was convicted of tax evasion. He was fined over $80,000 in addition to penalties and interest for failing to report income and benefits received from a former employer. 

6.      In Guelph, a construction worker was convicted of tax evasion and fined $3,000 for failing to file his 2009, 2010 and 2011 personal income tax returns.

As you can see, it is quite common for people to fall behind filing tax returns or to fail to report income (sometimes they know, sometimes they don’t, sometimes they simply received bad advice from an accountant). It is also quite common for CRA to pursue a criminal conviction that includes fines and even jail time in addition to the penalties and interest that will be assed once a debt is determined.

 

It is far better to get to CRA before they get to you because there are programs that can be used by a professional acting for you so that you can avoid penalties and prosecution entirely. 

For more information about what you can do if you are behind filing tax returns or have undeclared income please visit www.taxsolutionscanada.com or call 1-888-868-1400.

CRA Trusts a Mobster? Mobster Owing $1.5M Sent Rebate Cheque for Almost $400K

While the CRA is busy running down average hardworking Canadians, mobsters appear to be getting cheques. The CRA, particularly the office in Montreal, has come under close scrutiny in the last few months after news of an odd rebate cheque surfaced. Why is this an issue – rebate cheques are, after all, distributed on a daily basis? Because the recipient was Nicolo Rizzuto - not an unknown name, especially within the Quebec underground.  

When the cheque was made out in September 2007, Rizzuto was in jail (arrested and charged with extortion, bookmaking and drug smuggling in one of the biggest police crackdowns on Mafia related activity in Canadian history) and, as a recent CBC News report explained, “Court records show that at the time, he also owed the tax department $1.55 million, which the Canada Revenue Agency tried to collect by getting a tax lien on his home.” 

When this glaring slip was noticed by a veteran investigator within CRA, more than a few individuals raised eyebrows. The cheque was subsequently returned by the family, but it has left many questioning how this cheque made its way past the numerous controls at CRA and into the mail in the first place. 

An internal investigation into this situation and the claims of corruption has since been launched, and a number of CRA employees have been fired - some of these individuals have also been charged by the RCMP with crimes including tax fraud, extortion and breach of trust.

So this begs the question, if the system is corrupt enough to let an almost $400K rebate cheque be issued to someone with a $1.5M tax debt, what measures are in place to ensure that that same organization is on the ball (or dare we say trustworthy) when it comes to the average person’s taxes? And how can you trust CRA promises made to you when you think or know that money is owed. CRA agents have a reputation for duplicity when it comes to extracting money owed, so why voluntarily open yourself up to tax problems? 

Sure, the likelihood of dealing with a corrupt CRA agent is not so high for the average Canadian, but does this mean that you shouldn’t do everything to protect yourself from CRA incompetence? If you know that there are mistakes in past filings, or if you have failed to file past returns, an audit may be in your future. And likely CRA audit and collection team’s agents will contact you in an attempt to discover any inconsistencies or incorrect accounts. If this happens, never just hand over the information being requested (this will not make the “nice agent” your friend - they are the collector using collector strategy to collect from you). It is highly advisable that you contact a professional organization with the specific expertise to help keep CRA hands off of your information and manage the process to avoid enforcement action. There are a number of different programs offered to help individuals with tax debts, but things need to be done correctly the first time to avoid rejection or further intrusive investigations. 

For more about how to protect yourself from the CRA please contact Tax Solutions Canada by calling 1-888-868-1400.

The Summer was Tough for Those CRA Considered to be Tax Evaders

Tax evasion in Canada, or the practice of not reporting or underreporting income in order to avoid paying taxes, is a serious crime, and can carry with it steep fines and sometimes even a lengthy jail term. But getting prosecuted for tax evasion seems pretty unlikely, right? Wrong! Take a look at this short list of some of the many convictions that took place over the summer.

1.      Gary R. Campbell, of Hilton Beach, Ontario, pleaded guilty to four counts of failing to file his 2007 to 2010 personal income tax returns and 22 counts of failing to file corporate tax returns for several businesses from 2004 to 2010. This resulted in a combined fine of $26,000.

2.      Victoria Bailey, of Sault Ste. Marie, Ontario, pleaded guilty to three counts of failing to file corporate income tax returns from 2008 to 2010 and was fined $2,000 per count.

3.      Sam D’Ambrosio, of Brampton, Ontario, pleaded guilty to three counts of failing to file a personal income tax return. He was fined $1,000 per count for a total fine of $3,000.

4.      Elliot Fromstein, of Keswick, Ontario, pleaded guilty to 25 counts of failing to file corporate income tax and GST returns for various businesses from 2003 to 2010. This resulted in a fine totaling $25,000 ($1,000 per count).

5.      Marc Richard, of Timmins, Ontario, pleaded guilty to 12 counts of failing to file personal and corporate tax returns for a number of different businesses from 2007 to 2010. He was fined $1,000 per count, for a total of $12,000.

Know you’ve underreported or not reported all of the income you earned in a given year? As these examples highlight, CRA has the will and the way to find out. Just because you haven’t avoided claiming on an ‘Al Capone’ type level, doesn’t mean that you are safe from prosecution. Our best advice? Take advantage of the Voluntary Disclosure Program, a program offered by CRA to give taxpayers the chance to disclose fully any tax errors on past returns. If accepted, you are safe from prosecution and penalties and are only required to repay the initial tax debt.

Don’t wait for CRA to catch up with you. Owing money to the government is not a crime, but failing to file your income tax returns is. Protect yourself from the fines and penalties that all too often hit average citizens hard. Use the Voluntary Disclosure Program to get things straightened out.

For more information about the Voluntary Disclosure Program please contact Tax Solutions Canada today by calling 1-888-868-1400.

CRA Business Auditors Crackdown on Business Owners that Use POS Terminals

The Conservative government announced new measures recently to try and crack down on the ‘underground economy.’ The results would see Canadian businesses that use, possess, or acquire electronic sales suppression (ESS) software or devices, also known as zappers, facing penalties of up to $50000 per infraction. Failing to comply with Canadian tax regulations is, especially for businesses, a serious offence, and the government is attempting to curb these dishonest and illegitimate practices.

What is an electronic sales suppression device or ‘zapper’? This new technology selectively modifies or deletes certain sales transactions on point-of-sale systems, effectively erasing any record of that transaction. The result? Those transactions are not reported as income, and therefore less tax is required to be paid.

Additionally, Canadian businesses using, possessing, acquiring, making, developing or selling ESS devices can also be found guilty of a criminal offence, with a summary conviction resulting in a fine of up to $500000 and two years in jail. An indictment comes with a $1 million fine and up to five years in jail.

It seems as though this problem is most prevalent in the restaurant industry, and the Canadian Restaurant and Food Services Association has estimated that these ‘phantom cash sales’ could be in the billions. But CRA is not powerless against this, and in 2008 alone charged four restaurants after it was found that in total nearly 200000 cash transactions had been ‘zapped’ (totaling $4.6 million).

So, if you are a business that uses one of these systems, your chances of getting caught by CRA are getting much higher. Your best course of action: Voluntary Disclosure. The Voluntary Disclosure Program (VDP) gives taxpayers the chance to come forward and correct incorrect filings or disclose information that is as yet unknown to CRA. If the disclosure is complete and accurate, the taxpayer may be exempt from penalties or prosecution.

That being said, the VDP process is a complex one and needs to be carefully navigated in order to keep yourself protected. If your application is not correct the very first time, it will be denied and you will have effectively notified the CRA of your noncompliance.

In order to qualify under CRA’s Voluntary Disclosure Program you must satisfy the following criteria:

·        The tax year in question must be at least 1 year old

·        The voluntary disclosure must involve a penalty

·        The disclosure must be voluntary

·        The disclosure must be complete

Want to take your chances? Good luck. Don’t feel like playing roulette with your financial stability? Perhaps Voluntary Disclosure is your best bet. Contact Tax Solutions Canada today to get things started on your VDP application at 1-888-868-1400 or visit www.taxsolutionscanada.com 

CRA Business Auditors Go After Condo Sellers

Real estate investing has always been popular, but over the last few years this has grown in popularity and many Canadians, having invested by purchasing during the recession and selling now that the boom has returned, are feeling the heat from Canada Revenue Agency business auditors. Why? Well, when you purchase a home as an investment, you are expected to pay tax on any capital gains made, as stated in the Income Tax Act.

In the eyes of CRA, an investment property is one that is not being used as a primary residence. What’s the difference between a principal and non-principal residence? In general terms, a principal residence is one that you own (either alone or with another person) and that you, your current or former spouse or common-law partner, or any of your children lived in it at some time during the year.

According to CRA’s website, if the property you sold was your principal residence (for the entire time you owned it), you are not required to report the sale when you file your annual tax returns, and you don’t have to pay tax on any capital gains made through the sale of the property. However, if, at any time during the period of ownership, the property was not your principal residence, you have to report any gains that relate to that period of time.

A recent Toronto Star article had this to say: “Tax auditors have been targeting the once red-hot Toronto and Vancouver real estate markets, looking primarily for people who bought condos before they were built, intending to flip them for a profit as soon as the project is complete.” Many of these individuals are becoming targets of CRA audits because they did not report the gains made through these sales, resulting in heavy fines.

But it isn’t just those who purchased condos with the intention of selling them. Others, including some individuals who, for whatever reason, were forced to sell when the condo was completed, are also being targeted.

If you find yourself faced with a massive tax bill as a result of a CRA audit of a recent property sale, but know that the property was a principal residence and that you should not be required to face a penalty, your best option is to file a Notice of Objection. When you object to a CRA assessment, not only do you have the chance to appeal to CRA, any collection actions cease and interest accrual is halted. If your objection is accepted, this could mean major financial savings.

One thing to keep in mind, there is a time limit for objecting, and in order to increase the chances of the objection being accepted you need to include as much information as possible. Getting professional help with this is always a smart idea.

To find out more about objecting to a CRA assessment please contact Tax Solutions Canada by calling 1-888-868-1400.

3 Steps to Getting Rid of Gross Negligence Penalties

Gross negligence penalties are imposed under subsection 163(2) of the Income Tax Act and are applied when the CRA can demonstrate that an individual “knowingly, or under circumstances amounting to gross negligence, has made or has participated in, assented to or acquiesced in the making of, a false statement or omission in a return.” These penalties can be severe: under the Act, the amount of gross negligence penalties are determined according to the amount of tax owing, to the tune of 50% of the amount of the tax owing.

If you have been assessed a gross negligence penalty, or are afraid that one may be in your future, there are a few things that you can do to either avoid it or get rid of it.

Firstly, if you know that you have unfiled returns or undeclared income which leave you vulnerable to gross negligence penalties it is best not to ignore or avoid it. Get to the CRA before they get to you by applying through the Voluntary Disclosure Program. This program exists to give taxpayers the chance to comply or resolve any tax issues they may have before the CRA becomes aware of them. If your application is accepted under the Voluntary Disclosure Program CRA you will be protected from penalties and prosecution. However, if you have been contacted and assessed a gross negligence penalty, this option is no longer open to you.

If you cannot apply for Voluntary Disclosure because CRA is already after you, but you have been assessed a gross negligence penalty that you believe to be incorrect, your next option is to file an objection. A Notice of Objection provides you with the opportunity to prove why you were not negligent and prompts the CRA to further investigate the situation.

Unless CRA has the evidence to prove that your actions were negligent, the objection could save you thousands. Additionally, once an objection has been filed all collection action ceases and the accrual of interest is halted.

It is very easy for CRA to assess you and apply gross negligence penalties – it is much more difficult to make them stick once an objection is filed because they have to be able to prove you were negligent or you can pursue your objection in tax court. Often, if they cannot prove that you were negligent, they will let go of the gross negligence penalties on objection.

Time is ticking. Your timeline is quite short – you only have 90 days after the day CRA sent a notice of assessment or notice of determination to file an objection. If you wish to file after 90 days you have 12 months to file an extension, but you have to meet strict requirements and there is no guarantee to receive approval.

Don’t ignore a penalty for gross negligence as these can be significant financial burdens. Take action to stop one before it begins or get rid of one if it already exists. Contact Tax Solutions Canada today for more information: 1-888-868-1400, or visit us online at www.taxsolutionscanada.com.

Announcement – James Bell Joins the Tax Solutions Canada Team

Tax Solutions Canada is pleased to announce that James Bell has joined our team as the Director of Tax Solutions at Tax Solutions Canada.

James has more than 22 years of experience working in a leadership role in a diverse range of departments within the Canada Revenue Agency. This experience will enhance our service offering and the depth of our professional team providing new and fresh insight into strategies with regard to the management of audits, objections, taxpayer relief applications, voluntary disclosures and other tax related matters.

In his role at Tax Solutions Canada, James will lead our team as we continue to leverage the latest cutting edge techniques to help our clients overcome their tax problems and challenges with the CRA.

We welcome James and look forward to what the future has in store.

Filing an Objection with CRA – Time Delays

If you have been notified of an assessment or reassessment that you do not agree with and have filed an objection, you could be looking at many years to hear an answer from the Canada Revenue Agency (CRA).  There are countless Canadians who have filed objections in the past and are still waiting on CRA action. Many of these go back 10+ years. Why is this? CRA often requires a significant period of time to review each application or objection, but sometimes this can be longer than usual. Other times, specifically when a matter is taken to court, CRA may hold your file in abeyance pending a court decision. These delays can make a big difference and result in massive retroactive compound interest and penalties if the objection ends up being rejected.

Notice of Objection: when you file an objection you may expect a response within a reasonable amount of time – but your concept of reasonable and CRA’s likely differ greatly. Typical response times vary, but you can be looking at months or even many years before your objection is accepted or rejected.

What do these delays mean as far as penalties and interest? During the time that your objection is in process, CRA will stop trying to collect money from you, however interest will continue to accumulate on the outstanding balance. This can provide you with temporary relief from collection action but if the objection doesn’t go your way you could end up with a tax debt double or triple the size you started out with.

This doesn’t seem totally fair, especially when the delay in processing the rejection was completely out of your hands – so that is why, in this situation, you should also consider applying for Taxpayer Relief.

With Taxpayer Relief you can apply to have penalties and interest wiped out partially or in full (the debt will remain no matter what). However, you only have 2 chances to apply for relief. If your first application is denied you have the right to a second review. This is why your application needs to be complete and correct the first time, and include as much evidence as possible.

That being said, you can’t just apply for relief because you can’t afford to pay your debt (unless you can demonstrate severe financial hardship). There are certain extraordinary circumstances that allow you to qualify for relief. These include:

·        Medical problems/death

·        Financial hardship

·        Disaster

·        Error on part of CRA. Unnecessary time delays is an example of this, and so if your objection took months or years, resulting in the accrual of interest, CRA may grant relief on this basis.

·        Extraordinary circumstances – this is broad, but there are guidelines, and so speaking with a professional tax firm is a smart step to take.

Again, time doesn’t stop. With Taxpayer Relief interest still accrues, and you will still be required to make payments, but in the end penalties and interest may be eliminated or reduced. Get an organization to make a relief application for you as soon as possible – time is ticking and you need to get it on record.

Delays on behalf of the CRA can make the objection process drag on, and if rejected, this can result in far more interest being applied. Make sure you are protecting yourself – think about applying for Taxpayer Relief if the length of time it is taking to process your objection is getting out of hand.

Contact Tax Solutions Canada today to find out more. 1-888-868-1400.

 

Taxpayer Bill of Rights – What Does This Mean to You

As a Canadian, you are required to pay taxes every year and file your income tax statements annually. Unfortunately too many Canadians run into problems with CRA for a whole host of reasons. All it takes is for CRA to have a suspicion about you and then you will find yourself facing a wave of e-assessments, penalties, interest, audits, investigations and more… You just would not believe how many times CRA goes after taxpayers and they were wrong to begin with!

This is why it is important to know your rights according to the Taxpayer Bill of Rights.

What is the Taxpayer Bill of Rights? This is a set of rights that you have in your relationship and dealings with the Canada Revenue Agency. These rights are meant to protect you and confirm CRA’s commitment to serve the public with ‘professionalism, courtesy and fairness.’ This does not mean that if you owe money to CRA and they are aggressively collecting from you that a complaint under the Taxpayer Bill of Rights will stop them. It does however set out guidelines as to how they deal with you.

According to the Bill, you have the right to:

1.      Receive credits and benefits and pay no more or no less than required by the law.

2.      Have access to service in both languages.

3.      Having your information should remain private and confidential at all times. With that said if they issue a requirement to pay to your bank or employer in the course of collecting back taxes this is not protected.

4.      Dispute or appeal anything that you do not agree with.

5.      Be treated professionally, courteously, and fairly. 

6.      Have things explained clearly and accurately, and within a reasonable amount of time.

7.      Not be required to pay if you have filed any form of objection or asked for a review.

8.      Have the law applied consistently.

9.      Lodge a complaint if you feel as though CRA has been mishandling or conducting inappropriate actions/behaviours, etc. and be informed of an investigation’s findings.

10.   Have the costs of compliance taken into account when administering tax legislation.

11.   Expect the CRA to be responsible and accountable.

12.   Relief from penalties and interest due to extraordinary circumstances.

13.   Updated and published service standards and reports.

14.   Expect CRA to inform you about questionable tax schemes in a timely manner.

15.   Be represented by a person of your choice.

16.   Lodge a complaint and request a formal review without fear of reprisal.

Protect yourself by better understanding your rights. For clarification or more information about any of the sections in the Taxpayer Bill of Rights please contact Tax Solutions Canada by calling 1-888-868-1400 or visit us online at www.taxsolutionscanada.com.

Can You File an Objection and a Taxpayer Relief Application at the Same Time?

When you have been assessed and notified of a tax debt owing, it can be incredibly difficult to navigate the expectations and requirements with regard to the Canada Revenue Agency (CRA). This is especially true if you disagree with the assessment or if you believe circumstances existed which made it hard to comply with the Income Tax Act. If you find yourself in this position and wish to file an objection or apply for Taxpayer Relief, you can. But what if you want to do both? This is where things get even more difficult.

Notice of Objection: this is the formal process you follow when you disagree with a Notice of Assessment, Notice of Reassessment, Audit or a Determination. It outlines why you feel the assessment is incorrect and ideally provides proof explaining why CRA should change their decision. CRA determines the outcome after considering your objection. Depending on your circumstances it could take CRA many years to reach a decision. A great example of this is individuals who have gotten caught up in charity tax schemes. There are many cases before the courts and we have seen clients who have had objections held in abeyance as far back as 2005 pending the outcome of similar cases that are before the courts.

Taxpayer Relief Application: this is a program where you can apply for relief from interest and penalties. You may qualify for relief in the following circumstances: You are facing and can substantiate severe financial hardship, a documented medical problem, a death of an immediate family member, a disaster like a flood or fire, an error on the part of CRA or some other extraordinary circumstance.

Because you may only potentially be granted relief for 10 years back from the date of the application (not the tax year in question), many wonder if they the can file an objection and an application for Taxpayer Relief at the same time to get the relief application on record right away.

According to CRA, “If an assessment or reassessment for a tax year is issued by the CRA in a later year, or if an objection or appeal filed by a taxpayer may take considerable time to resolve, the taxpayer should send in their request for any potential relief before the 10-year time limit for that tax year expires.”

What does this mean? Well, if it looks as though your objection will take a significant period of time, or if the date you file is close to the 10 year-time limit, it is smart to file both at the same time.  Even with the impacts of the Bozzer v. The Queen decision of 2011, which gave the Minister leave to consider even those applications for relief concerning a tax debt more than ten years old, it is smart to file before you get to this point.

Now this is not to say that CRA does not commonly make mistakes or have employees who don’t even understand the agencies policies.

Here is a great example. We had a client who filed an objection and Taxpayer Relief application in the same month in 2011. In 2012 the objection was rejected. By 2013 there still had not been a decision made on the relief application. In 2013 we began paper-trailing the situation and dealing with the Taxpayer Relief division who said that the relief application was not processed because you cannot file an objection and an application for relief at the same time.

Not true. You absolutely can! Through demonstrating the circular citing that and leaning on the Taxpayer Relief division we were able to get a decision on the application expedited. This is why it is so difficult for individuals and business owners to deal with CRA. If you don’t understand their policies and procedures they will just do whatever they want and until you fight for your rights – you will continue to be railroaded.

So, can you file an objection and a Taxpayer Relief application at the same time? Yes. Should you? Absolutely. Where CRA is concerned – time is never your friend!

For more about filing an objection and a relief application at the same time please contact Tax Solutions Canada by calling 1-888-868-1400.