Can I File an Objection with the CRA to Penalties if I Agree That I Owe the Tax Debt?

Tax returns for the average individual or small business owner can seem overwhelming and complicated. All too often taxpayers and their preparers err on their tax returns by claiming deductions that they truly believe they were entitled to but perhaps were not, misplacing receipts in some instances, etc… All will seem well until CRA comes knocking.  

Sometimes CRA will disagree with the information on your initial tax filing. Other times they will disagree later when taking a second look at a return. Both of these cases may result in a re-assessment. When this happens, CRA may elect to levy a penalty against you. For example, CRA has the power to impose massive penalties for what they call gross negligence just because they believe you were willfully negligent. So what happens if you agree to the assessment or re-assessment in terms of the amount of taxes owed – but simply disagree with a penalty that has been levied? You have the right to object to their assessment or re-assessment.

You can make a CRA objection to penalties even if you agree with that amount.  

Objecting is a formal process and cannot be addressed simply through a phone call or letter.  The exact steps and forms must be used within the timelines set out.  Your objection can be rejected on a simple technicality.   

·        Filing an objection is time sensitive. In most cases, the objection must be filed within 90 days following the date of the (re)assessment.

·        If you fail to file your objection within 90 days you may apply for an extension of up to one year. It is at CRA’s discretion to grant an extension and you must explain why you are deserving of the extra time.

·        If CRA rejects your application for an extension your only choice is to abandon your claim or take the matter up to the Tax Court of Canada.

·        Once 90 days and 12 months have passed, under the Income Tax Act, you are out of options and no longer have the ability to file an objection.

So how do you object?

Firstly, you must fill out the appropriate form for an objection and submit it with all relevant supporting documentation that explains why you disagree with the assessment.  The more professionally the argument is made (recommended in similar format to that used for the Tax Court of Canada including quoting relevant decisions already made by the Court) the greater the likelihood of success. Depending on the complexity of the objection you may want to use the services of a professional experienced in these matters to manage this process.

An example of this is the many taxpayers who have found themselves, unwittingly, caught up in charity schemes. There have been many instances where gross negligence penalties were assessed and then withdrawn on objection – both by CRA and through orders made by judges in Tax Court.

After your objection has been submitted, a formal review process will commence and you will be notified of the decision. This can take several months or even years. During this time CRA will pause enforcement action pending the outcome of your objection, with one exception, collection action is not stayed for assessments under the E.T.A. such as HST. This is a double-edged sword because while the CRA agent will not be pursuing you, if the objection fails to succeed, penalties and interest will be assessed against you, retroactively! In the case of charity schemes we have seen objections take upwards of 8 years to have a decision rendered.  The effect of daily compounded interest on the tax and penalties often making the final tax bill unmanageable.

What happens if your CRA objection to penalties is rejected? Are you out of options? No, if your objection is not accepted you have three options: Go to Tax Court, apply for Taxpayer Relief, or bite the bullet and pay what was assessed. 

To find out more about objecting to a Notice of Assessment or to apply for Taxpayer Relief please contact Tax Solutions Canada by calling 1-888-868-1400 or visit www.taxsolutionscanada.com.

Sole Proprietors – The 2014 Tax Deadline for Businesses is Right Around the Corner

If you operate a sole proprietorship or partnership, the 2014 tax deadline for businesses is June 15, and that is right around the corner. This can pose a challenge to small business owners because keeping your books and records organized often falls lower on your list of priorities in the demanding world of running a small business. This causes many small business owners to miss the tax deadline or take shortcuts that can result in an audit. 

Here are some tips to avoid missing the tax deadline if your books are in bad order:

 

·        If you are overwhelmed by your record keeping and accounting – get a good bookkeeper. They usually cost far less than accountants and will ensure that you are organized. 

·        Consider an accounting platform such as QuickBooks – this is a great resource but you need to be somewhat computer savvy or you may need a course to understand how to use it properly. 

·        If you have lost receipts, request bank and credit card statements – this will help you guestimate your expenses and is better than having nothing at all.

 

Here are some things that could cause you to be flagged for an audit:

 

·        Filing your tax returns late or in a batch for multiple tax years – make sure you file before the tax deadline.

·        Significant changes in an income or expense category.  CRA’s systems are set to detect significant changes.

·        Businesses where the margins or other ratios are out of line with the industry standard.  For example, CRA does use the Industry Canada website to check various financial ratios broken down by business line.  So if you are Joe the Plumber, CRA will look at a table that can be found at this link:  http://www.ic.gc.ca/app/sme-pme/bnchmrkngtl/rprt-flw.pub?execution=e2s4    

·        Large ongoing loans owing to the company by a shareholder.

·        Businesses who deal in a lot of cash transactions, such as restaurants.

·        Businesses who are showing losses one year after another.

·        Questionable meals and entertainment expenses.

·        The sale of any business asset or property. 

If you know that your books are not properly put together and all the supporting documentation is readily available, do not make the same mistake many others have made and miss the tax deadline. Some do this out of fear, thinking that later, once they are organized, they can clean everything up. This is the worst thing you could do. Doing so will result in huge penalties. Wondering how much? The 2014 late filing penalty is 5% of the amount that you owe, plus 1% per month for up to 12 months. If you filed late in any of the 3 preceding tax years the penalty can increase to 10% of the amount of your tax debt plus 2% per month for up to 20 months. Add to this the compound interest that will be applied retroactively to the date you should have filed, as well as potential prosecution for tax evasion and you are looking at a tax nightmare.

If you think you are in over your head, reach out and consult a professional who specializes in helping businesses with tax problems.  Preparing returns (even with missing records) can be done.  That is the first level of skill you need on your side.  What is vital to a successful outcome is an affordable professional who has deep experience in utilizing the various CRA and other Federal Government programs that can allow you to address past mistakes in a fair way – fair to you and fair to the CRA. 

For more information about the 2014 tax deadline or if you have a tax problem and need help please call 1-888-868-1400 or visit www.taxsolutionscanada.com

International Tax Evasion - CRA Invests Millions to Find Your Offshore Nest Egg

A press release was issued last year highlighting a $30 million “investment” by Canada Revenue Agency (CRA) aimed at combatting those that CRA alleges have committed ‘international tax evasion’ and ‘aggressive tax avoidance.’

This does not mean that CRA is only chasing rich people with offshore companies and shady business dealings.  They are chasing many average Canadians. As a nation which is home to many immigrants with ties to other countries, these good citizens have (in some cases completely innocently and unaware of all the tax laws) built up savings accounts, bought retirement homes or invested in businesses in their home country or retained an inheritance there. 

In the announcement made by the Honourable Gail Shea, Minister of National Revenue and Minister for the Atlantic Canada Opportunities Agency, and the Honourable Maxime Bernier, Minister of State (Small Business and Tourism), it was made clear that this would be a top priority and CRA would have an unprecedented ability to crack-down on those that they believe fall under this category.  

Since this announcement, we have seen an increase in clients seeking help after CRA has begun aggressively pursuing them under this new mandate. 

Here is how the investment was distributed:

·        $15 million was allocated to put systems in place with the banks and financial institutions so that in the event of electronic fund transfers greater than $10,000, CRA will be promptly notified.

·        $15 million was allocated to establish new audit and compliance measures.

CRA established a dedicated team of CRA agents and investigators to implement the program with increased powers to audit, investigate, and pursue individuals and businesses that they believe are hiding money offshore. 

These include, but are not limited to:

·        A new program – the Offshore Tax Informant Program - that allows CRA to pay for intelligence. CRA will now be able to compensate those who are aware of individuals guilty of international tax non-compliance.  Ex-spouses and former business associates are snitching.

·        Requirement that financial institutions report any electronic fund transfers in excess of $10,000 to CRA.

·        Introduce new and additional requirements for taxpayers with foreign income or properties to provide more information.

·        Increase the amount of time CRA has to re-assess individuals who failed to properly report income. 

You can read the full press release here http://www.cra-arc.gc.ca/nwsrm/rlss/2013/m05/nr130508-eng.html  

If you believe that you may be impacted by this new program it is vital that you get to CRA before they get to you. The Voluntary Disclosure Program can help you avoid aggressive penalties or prosecution as a result of offshore income, assets or investments. 

For more information about international tax evasion, or if you have a tax problem and need help – please visit www.taxsolutionscanada.com or call 1-888-868-1400.

Can’t Pay Your CRA Back Taxes? What Are Your Options?

If you have Canada Revenue Agency (CRA) back taxes, it might help to know that you are not alone. Tens of thousands of Canadians have back taxes at some point in time. The good news is that it is not illegal to owe money to CRA as long as you have filed the returns properly – so you won’t have to worry about potentially facing criminal prosecution.  

The bad news is, if you have back taxes and cannot pay CRA exactly the way they want to be paid, this can quickly become a huge problem that can get very stressful. Why? Because CRA will do whatever is within their means to collect the back taxes from you. This includes using all the tricks and tactics in their enforcement collection toolbox that can throw you into financial turmoil. 

So what can you do if you cannot pay your CRA back taxes? 

Get a fair and affordable payment plan in place that CRA will accept and that you can live with. Take a realistic look at your budget and consider what you can pay. Expect CRA to push you hard on what they consider fair. Risk: Negotiating a payment plan with CRA can be risky. When contacting CRA directly you are opening yourself up to very well trained collection agents who have significant power under both the Income Tax and Excise Tax Acts.  They know how to lead you into divulging more information about yourself than you are required to provide and this leaves you in a worse situation where they know the details of how to squeeze you.  

With that said, doing nothing will leave you wide open to harsh collection efforts by CRA. Unless you can pay in full on a very short timetable, we never recommend that you contact CRA directly. It is generally better to use a 3^rd party professional to negotiate with CRA because the professional will know your rights and the consequences of certain disclosures. This will go a long way to ensuring you are treated fairly and receiving the full benefit of CRA repayment policies – not simply what the collector chooses to tell you. 

If you are thinking about borrowing against your home or obtaining other credit to repay CRA, do so before CRA puts a lien on your home. Risk: This should be negotiated through a tax professional who specializes in this area. If you go directly to your existing bank or lender you can damage your relationship with them.  Many lenders, especially banks, frown upon back taxes and view them the same as having bad credit.  You may not only be declined for the increased financing but the lender may also cancel existing loan arrangements they have with you. 

If you are currently suffering from financial hardship, cannot pay your CRA back taxes and have no fair and practical solution to repay your debts, then a consumer proposal may also be an option. A good professional advisor will be skilled at looking at all your options and explaining them to you – from objecting, appealing, seeking reductions of the amounts of interest and penalties being charged to you, borrowing to pay, obtaining repayment terms, and if none of these are right for you the right of protection under Federal Law against all creditors (including CRA).   

For most, the consumer proposal is a last option, but for some it is the best option. Why? Without bankruptcy it provides immediate relief from CRA enforcement action, stops CRA interest, usually reduces the size of the tax debt, and allows for a single reduced monthly payment. Risk: Consumer proposals can be complex and your ability to qualify largely depends on your personal circumstances. While only a licensed trustee in bankruptcy can actually file a consumer proposal for you, trustees are not all skilled in evaluating your options to solve your tax problems under the various CRA policies, so they will direct you towards a consumer proposal or even a bankruptcy.   A skilled tax professional will be entirely on your side of the table looking after your interests ahead of CRA and other creditors when advising you about all your options.   

Do not wait until CRA freezes your bank account, puts a lien on your home, garnishes your wages or takes some other action that can be embarrassing, damage relationships and result in financial hardship. The ‘wait and see approach’ will most certainly catch up to you in the long run and you will be in a much worse situation than you are in today. 

For more information about what to do if you have back taxes please call 1-888-868-1400 or visit www.taxsolutionscanada.com.