The 2 Most Common Ways to Lose Your Opportunity Under VDP

The Voluntary Disclosure Program is an official program offered by CRA where a taxpayer can come clean about undeclared income and past due returns with no penalties and much reduced interest. Failing to declare income or failing to file tax returns is a criminal offence. In addition to prosecution, fines and potential jail time you will most certainly be subject to significant financial penalties and interest under the Income Tax Act. 

For example, the 2012 penalties for late filing are 5% of the amount of the tax debt plus 1% per month for 12 months. If you also didn’t file your 2009, 2010 and/or 2011 returns on time the penalty increases to 10% of the amount of the tax debt and 2% per month for 20 months. CRA will also look for grounds to hit you with gross negligence penalties up to 50% of the tax debt that you owe.  All these penalties then incur interest just the same as the actual tax debt – compounding daily. 

This is why the Voluntary Disclosure Program is so advantageous. 

To qualify under the Voluntary Disclosure Program you must satisfy four criteria:

·        The tax debt must be at least one year old

·        The disclosure must involve a penalty

·        Disclosure must be voluntary

·        Disclosure must be complete

The 2 most common reasons that Voluntary Disclosure applications are rejected are because they were not voluntary or they were incomplete. This presents a double-edged sword to taxpayers because in order for disclosure to be complete you must come clean about all taxes you owe which may mean that you have to verify with CRA which years are outstanding or you may have to request tax slips.  

Contacting CRA before you have officially made an application for Voluntary Disclosure could flag your file and cause them to contact you which will then mean disclosure could be deemed as involuntary. There are very careful steps in the process and only a professional who practices in this area on a regular basis will have the knowledge of the steps and know exactly what documented proof they need at each stage.  This is one reason why most people will have a tax professional who specializes in preparing and processing applications for the Voluntary Disclosure Program to deal with their paperwork. 

Also, in the case of businesses, you may be making disclosure concerning business tax but because you did not address an issue concerning HST for example, CRA could deem that your application is incomplete. 

The Voluntary Disclosure Program is a very structured process that must be navigated carefully or you could lose the valuable opportunity to avoid penalties, interest and prosecution.  CRA want to get the non-compliant taxpayers back to the table.  But they don’t really want to forgo the interest and penalties so they make it relatively easy to fail to make a successful application under the program. 

It is important if you want to apply under the Voluntary Disclosure Program that you have gathered all documentation, have reviewed and considered all tax years and types of tax that could present an issue and proceed accordingly.

For more information about the Voluntary Disclosure Program, please contact Tax Solutions Canada by visiting www.taxsolutionscanada.com or call 1-888-868-1400.

Can I Object to a Tax Assessment Based on the Tax Return I Filed Myself?

The idea of objecting to CRA’s Tax Assessment based on the return that you filed yourself sounds strange doesn’t it? You provided the information, so then why would you have a reason to object to the return?

When you file your return, CRA may have some other information on their file that leads them to believe you had more income or perhaps they determine that you were not entitled to some expenses or credits that you claimed. This causes CRA to assess you for more tax owing than what you filed. Often CRA assesses your return based simply on what you file, but they may revisit your return later and re-assess you.  Such an increased assessment can lead to penalties and interest, which can be significant. In the event that CRA determines you are a repeat offender and negligent in some way they can assess gross negligence penalties of up to 50% of the tax debt you owe!

If you are filing a return late you will be assessed penalties based on how many times you have filed late in previous years. For example, if you filed ONLY your 2012 tax return late, you will be assessed a penalty for late filing equal to 5% of the amount of the tax and then 1% per month thereafter, for up to 12 months. Now, say you filed your 2009, 2010 and 2011 tax returns late as well, the penalty would then be increased to 10% of the amount of the tax debt and then 2% per month for up to 20 months. CRA is unforgiving when it comes to these penalties, even if you have a legitimate reason for filing your returns late.

Returns filed late are often subject to more scrutiny by CRA.

While CRA’s website indicates that you can apply to have penalties cancelled through a Taxpayer Relief application, it can be more effective to leverage a Notice of Objection to object to penalties or the increased tax itself as assessed on your return.  Choosing the Notice of Objection route does not block you from Taxpayer Relief.

Filing an Objection is very time sensitive. An Objection must be filed within 90 days of the re-assessment. If you have a good explanation that will meet CRA’s high standards, you may be able to extend this time frame for up to an additional year. When you file an Objection, if CRA rejects it you then have three choices: 

·        Go to tax court and ask a judge to make a final determination

·        Make an application for Taxpayer Relief

·        Pay the taxes plus interest plus penalties – even if they are unfair

Going to court is the most costly of the three options. Nothing that CRA puts onto the re-assessment is necessarily the final answer or correct and you have a great deal to gain by fighting their arbitrary assessments of penalties and interpretation of what is income, what may be deducted legitimately and what credits you are allowed to claim. With that said, the Objection and Taxpayer Relief programs are both official programs with bureaucratic processes. You will be best served working through a professional to make applications under these programs so as to optimize your chance of being successful. This will also ensure that throughout the process you don’t give CRA any further information that could lead to more problems for you later in the event that your applications are rejected and they commence collection action against you. 

For more information about filing an Objection or a Taxpayer Relief application please visit www.taxsolutionscanada.com or call 1-888-868-1400.

Flipping Condos in Toronto Has Become a Dangerous Prospect

Over the past decade, the condominium real estate market in Canada has been an excellent investment in major city centres like Toronto. The business of flipping condos in Toronto is lucrative with some people purchasing condos pre-construction and then selling as soon as the condo is built (or even before), making a tidy profit. 

Condo owners have become a major target for CRA. In fact, The Toronto Star reported that in Toronto CRA auditors are aggressively looking at people who purchased condos pre-construction with the intention to flip them once construction is completed.

You may be thinking ‘how can CRA find out if I bought a condo pre-construction and then sold it?’ CRA has many resources including powerful software that enables them to see who owns a property, when it was purchased, how much it was purchased for, when it was sold and how much it was sold for. CRA also simply audits the condo developer which starts the trail. If CRA suspect you may be in the business of flipping condos (and they have successfully held this against people who did this only once) they will use their powers under the Income Tax Act to demand you disclose details that will prove their case.

According to the article published in The Star, CRA’s prime focus is those who purchased a new condo or home and sold it within 12 months of possession. The article suggested and that individuals who buy new homes are advised to reside in them for at least 18 months or they risk being taxed on the gain as income. You would not have the ability to claim the personal residence exemption on the gain and it will not be taxed at the lower capital gains tax rate – but at the highest marginal income tax rate plus applicable penalties plus interest.

Apparently over 1200 questionnaires have already been sent out and in about 250 cases CRA auditors demanded that GST/HST rebates be repaid immediately.

When many people think of an audit, they think of the formal version of an audit where a CRA auditor comes to their home or business to review their paperwork. Most ordinary people don’t realize that this questionnaire is a type of an informal audit and should you receive one, you are strongly advised to obtain professional guidance on the matter immediately - before you provide any information to CRA.

The challenge is that if re-assessed as a result of one of these questionnaires, you not only face new taxes but you will also face penalties and interest, retroactively, on the debt. Gross negligence penalties can be up to 50% of the tax debt assessed. Additionally, if you have already been re-assessed, perhaps you agree with the tax you owe but feel as though you have been unjustly penalized financially, it is important to work with a tax professional as soon as possible to file a Notice of Objection to the penalties.

You only have 90 days after the assessment is made to file an Objection. If, for some reason, the 90 days has passed already but you are within 12 months, your professional can apply for an extension to file an Objection and state the qualifying reasons why you didn’t file within the 90 days.

Unfortunately there are many people who buy condos pre-construction and then their financial situation changes, causing them to also come under scrutiny. We tend to agree with The Toronto Star article in that this seems to be a full-on assault on average Canadians, many who are just trying to work towards a better future.

If you have questions about what do if you have received a questionnaire from CRA about a property or if you have been audited or re-assessed, please visit www.taxsolutionscanada.com or call 1-888-868-1400.

Charity Tax Scheme Objection 101 - What You Can Do if an Objection Has Been Held in Abeyance Forever

In recent years those who have participated in “creative” charity schemes (whether they realized it or not) have come under major scrutiny by CRA. 

CRA has been systematically auditing and re-assessing taxpayers in this regard over the past 8-10 years and penalties under these circumstances are severe. If CRA audits and/or re-assesses you as having been involved in a charity scheme they can assess gross negligence penalties of up to 50% of the amount of the tax debt that they allege that you owe. 

Because these charity schemes were rampant in the early 2000s, thousands of Canadians have found themselves in this position and have filed an Objection with CRA with respect to their new tax debts and the gross negligence penalties that have been assessed. Some of these Notices of Objection have been rejected and have made it all the way up to the Supreme Court. 

Because there are so many related cases where there is a case that is in the court process that is similar to yours and you have filed an Objection, you may receive a letter that indicates that your Objection is being held in abeyance pending a judicial ruling on a similar case. You may not receive this letter and after filing your Objection, for many years, may not hear a thing from CRA and upon follow-up be advised that your Objection is under review. 

So what happens when CRA takes many years to render a decision on an Objection and then rejects it?  They have added interest all these years – compounded daily. You can take CRA to tax court to have a judge make a final decision or you can file an application for relief of penalties and interest under the Taxpayer Relief provision. One common ground for Taxpayer Relief is an error on the part of CRA. CRA taking an unfair amount of time to render a decision on an Objection can be grounds. The challenge is that if your Taxpayer Relief application is successful you will only be granted relief of penalties and interest retroactively for 10 years from the date that you file your Taxpayer Relief application. 

For this reason it is vital that your application for Taxpayer Relief is submitted right away. 

There have been countless instances where, on Objection, CRA has agreed to withdraw gross negligence penalties that they initially assessed against you. 

If you know or are accused of having been involved in a charity scheme, it is highly recommended that you seek professional guidance as the consequences of doing nothing or trying to move along on your own could be severe. Charity tax schemes in Canada are common and many Canadians are duped into participating in them each year. What is most important is not that you may have unwittingly been involved in one but that you minimize the damage at the lowest cost in dollar and reputation. 

For more information about charity schemes, Notices of Objection or Taxpayer Relief, please visit www.taxsolutionscanada.com or call 1-888-868-1400.