Types of CRA Audits

The absolute last thing that any individual or business owner wants to face is a CRA audit! When most think of CRA audits they envision a CRA auditor coming out to their office and performing a complete review of the books. There are many different divisions within CRA that deal with audits. There are also many different types of audits – some more formal than others. 

There are many instances where taxpayers receive correspondence from CRA requesting additional information to support a tax return. If you get one of these letters, pay close attention to the title of the writer. If you see the word audit, examiner or compliance in the title, you are being looked at. How you handle the request will determine whether you are audited or have your return re-assessed without an audit (based simply on CRA’s determination/evaluation of the answers and documents that you provided at their request). 

Here are some of the different audit divisions within CRA and what they do: 

Office Exam – this audit division within CRA handles the most common form of audit reviews. Typically an ‘examiner’ will send out requests for documentation to support donation claims, moving expenses, child care and more. 

Office Audit – this audit division only handles audits of individuals, not corporations. The division is one step up from the Office Exam division and will request information to deal with issues like rental or business losses. These audits can be performed through requesting information by mail or in-person. 

Audit – this is the division that performs full-on audits of both individuals and corporations. Audits are categorized by income ranges. Generally speaking, the higher your income or sales the more senior the auditor will be that is assigned to your file. 

Aggressive Tax Planning (ATP) – formerly known as Tax Avoidance, this is an audit division within CRA that deals with individuals and corporations where it appears that the individual or business is following the Income Tax Act but it is suspected that their tax activities are more than likely not meeting the “spirit” of what the Income Tax Act intended.  A good example of this which has made many news stories over the past few years, are donation tax shelter schemes.  These reviews are done exclusively by ATP.  If you are contacted by an auditor from this area, you are also more likely at risk of being assessed gross negligence penalties (these are higher penalties than regular CRA penalties). 

International Tax – this division of CRA deals with companies and individuals with foreign assets and/or who are doing business abroad. 

It is important to note that if you are contacted by an auditor from CRA you should immediately seek professional advice.  Do not assume that you have nothing to hide and if you are open it will work out well. CRA auditors are out to find something and their interpretation of what you provide and say can lead them to a wrong conclusion – and then you are in a fight to reverse the assessment.  An audit can result in regular penalties, interest, gross negligence penalties and even criminal prosecution. If you have been audited and CRA has determined that you owe them money and/or has even assessed a penalty there is a process to object to the outcome or the audit. This process begins with an objection and if rejected can even be pursued in tax court. Where objections are concerned time is of the essence and any request from an auditor or re-assessment of your tax return should be tended to right away. 

For more information about types of CRA tax audits or if you have been or are being audited and need advice please contact Tax Solutions Canada by visiting www.taxsolutionscanada.ca or call 1-888-868-1400.

Could You Be Next? 6 Ontario Residents Charged in Connection with Tax Shelters

Here is some vindication for those who have unwittingly found themselves caught up in a tax scheme or tax shelter on poor advice from an aggressive accountant, tax professional or promoter.

On March 26^th, The Globe and Mail reported that the RCMP announced that they had charged 6 Ontario residents with crimes related to a scheme where those accused had convinced thousands of Canadians to participate in a fraudulent investment scheme.

 

Here is how it worked:

It is alleged that all the way back to 2004, investors thought that they were legally purchasing business losses that could later be used to reduce their taxable income.

Well, not only were investors defrauded of millions – CRA was too because they issued millions of dollars in tax refunds illegitimately.

What is interesting about this article is that in this instance the RCMP have gone after the companies who advised their clients essentially to commit fraud.

What about the folks who cashed refunds issued by CRA as a result of these transactions?

Here is what we see take place when individuals have received refunds they were not entitled to:

1.      CRA re-assessed the past return

2.      Penalties are assessed – if CRA believes that there has been gross negligence (which is often the case with tax and investment schemes/shelters) these penalties could be up to 50% of the tax debt

3.      Interest is assessed retroactively to the date that the refund was issued on both the tax debt and the penalties – compounded daily

4.      You could be prosecuted depending on how you manage your problem

5.      CRA will proceed to collect the money from you

What can you do if this has happened or you anticipate something like this happening in the future?

Time is not on your side. The more time that passes, the larger the penalties and interest grow.  Resolving the problem before CRA does (or worse the Department of Justice sends the RCMP to come after you) has major advantages. Here are two things that you may be able to do:

·        Get to them before they get to you – if CRA has not yet re-assessed you and you are certain that you have been involved in a charity/tax scheme, speak to a tax professional about making a Voluntary Disclosure application. This is not something you should try to do yourself – it is an official process that only works if done right the first time. If you qualify and are accepted, CRA will allow you to refile your return and at the minimum avoid penalties and prosecution. 

·        File an objection – if CRA has already assessed you and even if you agree that you owe the tax you can still object to the penalties. Especially in the case of gross negligence penalties (that can add up to 50% of the taxes with interest accumulating on this as well). This is also a very time sensitive process because you must make your objection within 90 days of being re-assessed. If the 90 days has passed you may apply for an extension to file your objection up to 1 year after the 90 days. If your objection is accepted (even partly) you can potentially save thousands of dollars in penalties and the interest that would have been assessed on the penalties.

According to The Globe and Mail article, the 6 people facing charges are:

1.      Vincent (Vince) Villanti, 66, of Whitby

2.      Shane Davidson Smith, 46, of Peterborough

3.      David Prentice, 52, of Oakville

4.      Ravendra (Ravi) Chaudhary, 65, of Toronto

5.      Andrew Lloyd, 42, of Pickering

6.      Joe Loschiavo, 49, of Toronto.

Police allege the companies used by the accused to run the scheme included Integrated Business Concepts, Synergy Group 2000, Cason Global Wealth Association and IBCA 2009. Police say the investigation is ongoing and further arrests and charges are possible. Click here for the full article.

If you have been caught up in a tax scheme and need help dealing with CRA you can also find out more information by visiting www.taxsolutionscanada.ca or by calling 1-888-868-1400.

First Quarter of 2014 and Over 30 Prosecuted for Income Tax Evasion and Other Tax Infractions

It is common knowledge that CRA is aggressive in their attempts to prosecute taxpayers they feel have, in some way or another, not complied with tax legislation. Where there is tax evasion (not reporting all income, fictitious expense deductions), average individuals being hit with major fines and/or a prison sentence is common; from average to a criminal record in one tax mistake.  

From January to March, there have been over 30 convictions for income tax evasion and other tax infractions. You don’t have to be Al Capone to be charged with tax evasion. As far as CRA is concerned, small business owners and individuals seem to be as fair a target as any major corrupt business or crime boss. Average Canadians continue to be prosecuted. Here are just a few examples of Canadians who have been caught in the crossfire.  

January 2014: 

-        B.C resident Reginald Reid Jefferd was found guilty in Duncan Provincial Court of failing to file his 2001 to 2010 personal income tax returns. He was fined $10,000, the entirety of which must be paid by July 14, 2014.

-        Ontario resident Jacob Macedo pleaded guilty to eight counts of failing to file personal and GST/HST returns. As a result, he was fined a total of $8,000 and given one year to pay the fine in full.  

February 2014: 

-        Marco-Pierre Caza, of Quebec, was found guilty of tax evasion after claiming inadmissible expenses on his 2006 to 2008 income tax returns. 

-        Nova Scotia resident Steve Fakolujo was fined over $87,000 after incorrectly claiming expenses on his 2011 tax return, as well as given a conditional sentence of twelve months to be served in the community.  The entire amount must be paid within one year.  

March 2014:

-        Mitchell Rygiel of Manitoba pleaded guilty to tax evasion and was fined over $48,000 after failing to accurately report his income. He was given 12 months to pay the fine in total.

-        Ontario resident Perry Tohn was charged with 10 counts of failing to file GST/HST returns, to the tune of $1,000 per count. The total ($10,000) must be paid in full within six months. 

Do not wait until you are being prosecuted.  Working with a professional who has detailed knowledge of CRA processes and procedures can help you avoid the ugliness of criminal court. The right professional firm can steer you through other CRA programs that help to both avoid criminal prosecution and obtain payment terms on the taxes. The tax, interest and penalties are difficult enough to pay (even over time) so do not risk getting a criminal fine (or jail time) to make that worse. If you are at all worried about incorrect or missed tax filings and payments see a professional immediately. 

Remember, letting things go too far, thereby resulting in a criminal record, can have dire consequences. If a potential employer asks (as many do) whether you have a criminal record, the result could be the loss of a potential position. Also, the ability to travel can be severely circumscribed once that black mark is on your record. Once CRA has secured a conviction, your life can change in the blink of an eye.

For more about how to protect yourself from CRA prosecutions for tax evasion, please contact Tax Solutions Canada today by calling 1-888-868-1400.

Find Out if There is a CRA Property Lien on Your Home Before Your Bank Does

Canada Revenue Agency (CRA) has a very powerful collection tool.  If CRA believes you owe them money they can register a lien against your home (or other property) without even a hearing or discussion.  This enforcement remedy has become a very common tool for CRA because they know it is hugely problematic for the taxpayer. In many cases CRA will register the lien first and then tell you later. They have no obligation to notify you.

While CRA often may not notify you – they will attempt to notify your mortgage company (they find this on the public record).  When your mortgage comes up for renewal your bank may be spooked and refuse to renew – leaving you to scramble to get a new mortgage which is impossible without dealing with the CRA lien.

Some homeowners who become aware of a lien will try to ‘do the right thing’ and approach their bank to refinance their mortgage to pay the lien. This too can have very negative consequences because, to some banks, owing back taxes is equivalent to having bad credit, and even if you have home equity your bank can decide they may not want to deal with you anymore.

So how can you find out if there is a CRA property lien on your property? Here are some dos and don’ts:

Don’ts

·        Asking CRA is never the best plan because if they have not filed a property lien, you will flag the fact that you own a home and a property lien may be soon so follow.

·        Avoid asking mortgage brokers – they will most certainly pitch you on refinancing your home to pay off CRA and the problem is that most mortgage brokers do not specialize in helping people who have tax problems. Many will claim they can help but the end result may be a bigger problem.

Dos

·        Go to the land registry office – they can tell you if there is a lien on your home.  There may be a nominal fee.

·        Your real estate lawyer can also perform a search in the POLARIS land registry database to see if a lien has been registered.

If you find there is a lien registered see a tax problems professional.  You need to obtain a full understanding of the tax problem and the possible solutions.

Doing nothing is usually the worst possible approach.  Every dollar you pay down on your mortgage principle and every dollar that your home increases in value will go to CRA.  You need to both minimize and crystalize the amount that CRA is entitled to – ensuring you can get a fair resolution that will not impact your mortgage renewal or ability to sell your home. 

Whether there is a CRA lien registered on your property or not – if you have a tax problem, you will need to come up with a solution to fix it. If no CRA lien is registered, time is of the essence because you weaken your ability to negotiate once CRA has secured their interest on your home. You will also have more financing options if you do want to use your home equity to pay off the CRA lien. If there is a CRA lien on your property – there are still options and they need to be considered long before your mortgage comes up for renewal to avoid negatively impacting your relationship with your bank.

For more information about CRA property liens or to find out if a CRA property lien has been registered on your home call 1-888-868-1400 or visit www.taxsolutionscanada.com.