Input Tax Credits – Don’t File Too Late or You Will LOSE Your Rebate

Does this sound familiar?

 

·        You have a small business, you fail to file your GST/HST tax return one year.

·        The following year rolls around. Now you are worried about filing that return because you didn’t file the other one. You may or may not have all of your receipts and records – so you decide you will take care of it later.  Business is tough.  You are too busy staying in the game.

·        Year 3 rolls around. Now you are really, really worried. You have 3 years of tax returns that have not been filed and most certainly are going to have a huge tax debt and now penalties and interest too. 

Sound familiar? Well don’t think that your situation is uncommon because it’s not. As a small business owner you have even more at risk by falling behind on your tax filings. In many businesses the ability to claim input tax credits (the GST / HST you paid on your supplies and business overheads) are an important credit. In the case of exporters or companies doing trucking for USA companies this is usually a big cheque back from Canada Revenue Agency. 

After 4 years has passed you do not qualify to include input tax credits in your GST/HST returns.

 

That’s it.  Your credit just went up in smoke.

Not to mention the following other consequences (in order of severity):

1.      CRA can notionally/arbitrarily assess you at any time. When this happens they basically guess what your income for a particular tax year may have been, assess you, add penalties and interest retroactively to the tax year in question.

2.      CRA can prosecute you for tax evasion.  (To see more about tax evasion specifically, click here. 

Time can be your friend. The faster you act the better. 

If you are currently in this situation you need to get your late returns filed. It is not illegal to have a tax debt – tax evasion however is a serious crime.

      ·        If you are within the 4 years you can take advantage of input tax credits.

·        If CRA has not demanded that you file a return, you may be able to file your past due returns under the Voluntary Disclosure Program and avoid penalties and prosecution. However, this is not as easy as it first appears.  We recommend that you engage a professional with significant experience in this area of VDP – you have only one shot to make this application the right way.

·        If CRA has demanded that you file your returns and the Voluntary Disclosure Program is not an option, you still have to get those late returns filed. You may be able to reduce the interest and penalties through the Relief Program – again this is not simple to get right.  We suggest that you consult a professional. 

Often it is the simple fact that good businesspeople are bad at bookkeeping.  The fact that your records are in a mess – missing or disorganized does not have to be the reason you lose your credits or face prosecution, arbitrary assessments and unfair taxation.  So if you have a records mess here are some tips:

·        Create a chart with columns for all of the business expenses that you incur. Sort and enter whatever expenses you can find from invoices, credit card statements and cheque stubs.  Ask your major suppliers for copies of their records.

·        Request your bank statements from the bank for the tax years in question. You may have to pay a fee but this will give you a good starting point to estimate your business income and expenses.  Most people can access these on-line at no fee.

·        It is never too late to get it straight. If you feel like you are in over your head hire a bookkeeper to help you organize your income and expenses.

Once your late returns are organized you will need a plan to deal with the tax debt that will follow. If you haven’t filed for many years it is a good idea to work with a professional who specializes in all of the programs under the tax laws and (most importantly) in negotiating with CRA. Once the returns are filed you will need representation to ensure that a payment plan is put in place that you can live with and that CRA will accept. Without a payment plan CRA will take heavy handed enforcement action.

For more information about what to do if you are behind filing your tax returns please visit www.taxsolutionscanada.ca or call 1-888-868-1400.

Canada Revenue Agency Tries to Lighten Up Their Image

What is so humorous about this video is that CRA has tried to make the tax filing process somehow casual or funny or humorous. They do little to highlight what will happen if you do your return yourself and make a mistake: big penalties, big interest and potential prosecution! Nor do they highlight how they keep a log so that if you make a mistake in the future they can increase the penalties. 

This video should highlight tax deadlines, consequences for late filing and recommend that people see a tax professional to file their return. Basic returns can be filed through companies that set up booths in various malls for very little money.  More complex returns may be better suited for professional, licensed accounting firms. Nevertheless, filing tax returns is no joke, nor is dealing with a tax problem.

Click the link to watch the full video http://www.huffingtonpost.ca/2014/04/02/income-tax-deadline-canada-revenue-agency_n_5080901.html.

If you are currently in the midst of a tax problem you can find solutions by visiting www.taxsolutionscanada.ca or by calling 1-888-868-1400.

Voluntary Disclosure Program Application – When Does it Help Me or My Company?

The Voluntary Disclosure Program (also known as VDP, Voluntary Disclosure Application, or Tax Amnesty) is a program that CRA administers to allow taxpayers to come clean about tax information the taxpayer previously failed to properly report. Properly applied for, this Voluntary Disclosure Program will allow you to benefit in three ways:

 

1.      Avoid penalties

2.      Reduce your interest burden on the tax that should have been paid earlier and (most importantly)

3.      Create a defence against criminal so you can avoid the potential fines and imprisonment.

The VDP Program generally applies where: 

·        Tax returns that have not been filed

·        Tax returns were filed but you deducted for expenses that you had no right to claim (or could not support if audited)

·        Tax returns that include contributions/write-offs related to investments, charity donation schemes, etc. that you were not entitled to

·        Income (anywhere in the world) that you did not declare and more… 

Whether you knew what you were doing was wrong or if these inaccuracies were the result of bad advice, poor bookkeeping or simply procrastination – a Voluntary Disclosure application can work in your favour to make the correction the least painful it could possibly be.

While in the above instances a Voluntary Disclosure Program application can make good sense, you must be confident that you qualify before approaching the government. If you do not qualify and “wake the sleeping bear” you may find yourself opening yourself up to severe collections action (or even prosecution) before you had got yourself into a position to deal with that type of fall out.  To qualify for VDP:

1.      Tax disclosed must be at least one year old;

2.      It must involve a penalty;

3.      Your disclosure must be complete and

4.      Your disclosure must be voluntary. 

The last point sounds very simple but is the most common reason we see VDP Applications being denied: if CRA has been contacting you to file your returns, has requested information about a past return or informed you of an upcoming audit or investigation – disclosure is not considered voluntary and you do not qualify. 

The next challenge in filing a VDP Application is that you need to know what information you should not provide. You have to be very aware of the potential consequences of opening up other areas of question, audit or review that can come back to bite you. Do not include unnecessary information such as your banking information or personal financial information (not tax related) which is not relevant to the VDP application but can be used against you later – particularly in collection efforts by CRA.  Sometimes this information is provided inadvertently. For example, sending a copy of a bank statement or sending payment directly from your account by cheque. 

You also need to decide if you will avail yourself of the right to come forward anonymously.  By correctly using this “No-Name Policy” process we are able to get from CRA a formal decision on the validity of your VDP Application without them knowing who you are.  This is very useful where the consequences of coming to CRA’s attention without access to the VDP benefits would be extremely detrimental to you.  Using this technique you can lock-in your protection under the safety of anonymity. 

The VDP process is an official process that can take up to a year to complete.  While the actual program is administered centrally by CRA, assessments and other issues related to your Voluntary Disclosure Application that need to be finalized by Revenue Canada can land at different processing centres for different years, issues, types of taxes, etc.  These different tax service centers then process at different speeds resulting in confusion within the CRA assessment system.  You can receive significantly incorrect assessments until the entire matter is once again brought back into the complete and organized package it started out as when you made the VDP Application.  Knowing how to navigate the maze at CRA is an art form in itself. 

Key Takeaways:

·        If you have undisclosed income or some other tax liability as described in this blog and have not yet been contacted by CRA – time is of the essence, get into the program before CRA gets to you.

·        Ensure that you make complete disclosure

·        Consider seeking professional representation to avoid being rejected because you make common mistakes of amateurs.  At the very least ensure you have downloaded all CRA guides and are crystal clear on the process

·        If your application or disclosure is not completed properly it can be rejected. 

Remember that after you make your VDP application you will have a tax debt. If you cannot pay in full, CRA will come after you and look for any information they have on record relating to your employment, income sources, assets, bank accounts and anything else that they can seize or garnish to force you to pay.  Payment plans are possible but these too are different to the standard business negotiations.  Your professional can help here as well. 

For more information about how to make a Voluntary Disclosure application please visit www.taxsolutionscanada.ca or call 1-888-868-1400.

When CRA Collections Calls – Should You be Providing Them with Your SIN?

The one organization you would think that you should be able to trust with your information is the government – but this couldn’t be further from the truth where CRA is concerned. Wait until you read this! 

In the past (and we have been unable to confirm if the practice has changed since this news story exploded) taxpayers have reported that when contacted by CRA the agent will first ask for the taxpayer by name. Once the taxpayer says it is them, CRA goes on to ask to verify their identity by requesting confirmation of their social insurance number!!! Yes… it goes exactly like this: 

·        CRA: Hello, may I please speak with Mr. Taxpayer?

·        Mr. Taxpayer: This is he, how may I help you.

·        CRA: Before I can continue this call can you please confirm your social insurance number for identity verification purposes? 

My next comment would be – you called me? How do I know who you are or that you are calling from CRA?  

How CRA could not think that this could or would set the stage for a major problem for taxpayers is unfathomable because guess what the latest scheme is – fraudsters are now calling taxpayers, purporting to be CRA and requesting personal information. You can read the full Huffington Post piece or watch a video on the subject here http://www.huffingtonpost.ca/2014/04/02/income-tax-deadline-canada-revenue-agency_n_5080901.html  and video http://www.bobzimmer.ca/?p=938.

So the next logical question is this: if CRA collections is contacting you, how can you protect your information? Well this is a twofold issue. The issue concerning asking you to validate your identity by providing personal information when they are calling you is a quick fix – ask the agent for their name, agent number and telephone number at CRA and advise them that you will call them back and once you have verified their identity you will verify yours.

The second issue is that once you have verified your identity and you confirm that you are talking to CRA a couple of things will take place (if they haven’t already):

·        When calling in to CRA, they will ask for more than your SIN to verify identity.

o   If you are dealing with a CRA collector, once they have your name and SIN they can easily obtain whatever information they are missing from you, such as your address, employment and other details that they can use to take enforcement action against you. 

Tread lightly when talking with CRA. CRA generally does not phone taxpayers when collecting money. Audits, re-assessments, requests for proof of information almost always come by way of letter. If CRA is calling you it is likely because you owe them money and that very fact alone means that you are vulnerable to more than just the fraudster’s piggy-backing on CRA lax process.  CRA collectors will lay hidden traps in their questioning – after all, their job is to collect and they may try and trick information out of you that they will then use against you.

Example: The collector says: “you are currently employed by ABC Company.” 

Incorrect Answer: “No I am working at XYZ Manufacturing in Brampton.”  Bang.  You just told CRA where to go and garnishee your wages.

Correct Answer (never lie): “No.”

Collector: “Oh.  Where do you work now”.

Correct Answer: “I do not feel comfortable telling you that right now.  I need to know more of what this call is about.”

The message here is first you need to sort out is it really CRA?  Then not shoot holes in your own feet trying to be helpful.  You have to know how to establish the issues and set the appropriate boundaries to ensure your rights are respected.

If CRA is calling you, you may want to consider getting some professional advice about your tax problem before speaking with them. For more information about dealing with CRA visit www.taxsolutionscanada.ca or by calling 1-888-868-1400.