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.