5 Canadian Tax Tips from James Bell Former CRA Tax Auditor

Hello. My name is James Bell. I am the Director, Tax Solutions at Tax Solutions Canada, and I help my clients when they come to me with their Canada Revenue Agency (CRA) problems.  Why do they come to me?  Well, they tell me it’s because of my extensive CRA experience. 

You see, I spent over 22 years at CRA and worked in areas such as collections, audit, appeals, tax avoidance and criminal enforcement. During my time as a CRA tax auditor, collector and appeals officer, I certainly learned a thing or two about taxes, learning about the CRA’s best programs and more importantly how to successfully deal with an organization as large and complex as the CRA.   

Instead of the usual type of technical tax advice you can get from any number of websites, I’d like to share some practical Canadian tax tips with you based on my years working for the CRA and also on behalf of my clients: 

1.     JUST FILE!  I’ve run into many people who believe that since they will owe money once they file their return that they are simply better off not filing at all.  Wrong!  To highlight this point, here is a snippet from a recent article in the Globe and Mail where I touched on this topic: “Owing money to the CRA is not a criminal offence, but not filing a return is… Not only will filing on time keep you on the right side of the law, but you’ll avoid onerous interest and late fees.” If you think the CRA just goes after “the other guy”, think again and get that return filed before your money problem turns into a criminal problem.

2.     CRA PAYMENT PLANS?  If you owe CRA and can’t pay all at once, do you know that they will accept payment arrangements under certain circumstances?  It’s true! While CRA doesn’t make it a point to advertise that they will become a long-term creditor, they will do so provided you can’t otherwise borrow the money to pay off your CRA debt.  Once you’ve ruled out all the financing options, you then have to establish what your “ability to pay” is on a monthly basis and the CRA will base your payments on this amount. The key is being proactive and contacting the CRA about your debt before they contact you.

3.     DIVIDENDS = HEADACHE?  Many people already know that if you own a company, you can be assessed personally through the Director’s Liability provisions of the Income Tax Act and/or the Excise Tax Act for the company’s unpaid GST/HST or source deductions.   However, did you know that you could be on the hook for the company’s regular business tax as well?  It could happen if you paid yourself dividends. In that case, the CRA will likely assess you personally under the provisions of section 160 of the Income Tax Act. While dividends enjoy favourable tax treatment, they can also create a tax headache if your company falters.

4.     IF YOU LOVE YOUR SPOUSE, HOLD THE GIFTS!  I talk to people every day who owe the CRA a lot of money and believe that if they simply sign over their half of the house to their spouse, then the CRA is out of luck. Wrong! If you owe money from your 2010 tax year and in 2012 sign over your half of the home to your spouse for less than fair market value, then guess what?  You have just made your spouse a target for the CRA.  Your spouse may now have to pay the taxes you owe due to the very powerful section 160 of the Income Tax Act.   Save the gift giving until after you’ve paid off your CRA debt!

5.     CRA’S CURE FOR INSOMNIA:  VDP If you are thinking of moving to Bolivia because you have either not filed tax returns for a long time or have filed but under-reported your income – don’t pack those bags just yet! The CRA’s best-kept secret is their Voluntary Disclosures Program (VDP). If CRA hasn’t contacted you about your unfiled returns or unreported income, then coming forward and filing a VDP application is the way to go!  In my opinion, it is CRA’s best program and has saved my clients thousands of dollars in interest and penalties.  Best of all? CRA gives up their right of prosecution! Saving big money and avoiding criminal charges? Talk about a good night’s sleep. 

Don’t turn to just anyone to solve your tax problem.  Call Tax Solutions Canada today for expert advice from their ex-CRA and tax specialists: 1-888-868-1400 FREE.

The Grim Reaper AKA CRA Tax Auditor

Receiving a call or a letter from a CRA auditor is not fun. It is one of the biggest fears that people have. The CRA counts on you being afraid to keep you compliant with various tax legislations.

One of the most common questions that people ask is “why the CRA chose me?”, and one of the most common answers you may expect from an auditor is that it was based on “random selection”.  Is it really random? And you are just lucky enough to be “the one”? Probably not.  The CRA selects its audit targets based on a number of criteria. There are many factors that can increase your chances of getting a CRA audit.

1.    You are self-employed – CRA audits self-employed taxpayers far more frequently than those who receive straight T4 income. If you are in a cash business such as the retail and construction sector, or if you operate a restaurant or a hair salon, your chances of being selected for an audit are quite high. Sometimes CRA selects a specific target group, such as real estate agents, or health care professionals, since these self-employed sectors are considered as “high risk”.

2.    You claimed higher-than-average deductions – CRA compiles information for the same industry over multiple years. If your write-offs of the gifts, promotions, and meals and entertainment expenses exceed the statistical norm for the same industry, the CRA may want to take a closer look. Be sure to keep all your supporting documentation.

3.    You claimed continuous losses over years – It is normal to incur some losses during the early stages of your business as you start up. But if you have claimed losses for several years already and you are still operating at a loss, CRA may wonder why a reasonably prudent person allows himself to run the business at loss for many years in a row rather than close it. Is there an intent for profit, or is it just a hobby? The CRA expects you to make more income over time while you trim your losses.

4.    You split your income with family members – Income splitting is a popular mechanism for reducing tax because the person you split your income with is usually taxed at a lower tax rate. CRA is very sensitive when you pay your spouse or minor children money that is not reasonable and fair. Be sure to let your family members provide some services to your business and pay them the fair market rate as if you hired an unrelated person for the same services.

5.    You transferred large funds from your home country - Since 2013, information on international wire transfers of above $10,000 will be automatically sent to CRA. If you have funds or properties where the cost is over $100,000 in your home country, you are required to disclose the details using the form T1135 (foreign income verification statement).If you have not disclose this information, and  you transfer the funds to Canada, CRA will mostly likely want to challenge you the source of the funds.

6.    You amended your tax return after filing – If you made a mistake or realized an omission after you filed the income tax or GST/HST return, you may want to amend it. Even though it is necessary and desirable to do the amendment, CRA may wonder if there are any other mistakes or omissions on the return, therefore you are high on their radar screen for an audit.

When a CRA tax auditor comes calling, it is usually because of one of the above noted factors. If you’ve received the call and want to protect yourself, especially if you know that you will owe or are behind, call Tax Solutions Canada today at 1-888-868-1400.

Want to Get Rid of CRA Tax Penalties? Get to Know the Taxpayer Relief Program

Oftentimes our clients find themselves facing tax trouble as a result of circumstances beyond their control. In order to promote fairness and equity in our tax system, the Income Tax Act gives the Canada Revenue Agency (CRA) the discretion to resolve tax issues that arise due to the personal misfortune or circumstances of taxpayers. Administered as Taxpayer Relief Program, CRA has the power to:

1.    Cancel/waive penalties and interest;

2.    Accept late-filed, amended or revoked income tax elections; and

3.    Provide income tax refunds beyond the 3-year period normally allowed (for individuals and testamentary trusts only).

Cancel or waive penalties or interest

The CRA may grant relief from interest and penalties when the following types of situations prevent a taxpayer from meeting their tax obligations:

·         extraordinary circumstances (i.e. natural or man-made disasters, civil disturbances, serious illness or accident, or serious emotional/mental distress)

·         actions of the CRA (i.e. processing delays, incorrect information provided to a taxpayer, or errors in processing);

·         inability to pay or financial hardship; and

·         other circumstances (unique situations not covered by the other categories)

Late, amended, or revoked elections

The Income Tax Act contains many election provisions that give taxpayers the opportunity to select an alternative tax treatment when filing their taxes. However, most election provisions do not permit the taxpayer to file an election beyond its original deadline or to modify or cancel elections that have been filed.

The Taxpayer Relief Program gives CRA the ability to extend the statutory time for filing certain elections or to permit certain elections to be amended or revoked.

Refund or reduce the amount payable beyond the normal three-year period

For individuals (other than a trust) and testamentary trusts, the Income Tax Act sets a three-year limitation period from the end of the tax year to file an income tax return to claim a tax refund. It also sets a three-year limitation period from the date of the original Notice of Assessment to request an adjustment to an assessment issued for a previous tax year.

The Taxpayer Relief Program gives CRA the ability to relieve the limitations period and, in certain circumstances, to accept late requests to give the individual or testamentary trust a refund or reduction in tax.

It is important to note that there is a 10-year time limit on the taxpayer relief provisions.  This means that an application for relief filed in 2015 can only deal with issues related to a taxpayer’s 2005 and later years.

How to make a relief request: If you do find yourself in one of the situations above and feel that you are within the taxpayer relief provisions or would like more information, please feel free to contact Tax Solutions Canada for further guidance and we will be happy to assist you: 1-888-868-1400.