CRA Business Auditors Crackdown on Business Owners that Use POS Terminals

The Conservative government announced new measures recently to try and crack down on the ‘underground economy.’ The results would see Canadian businesses that use, possess, or acquire electronic sales suppression (ESS) software or devices, also known as zappers, facing penalties of up to $50000 per infraction. Failing to comply with Canadian tax regulations is, especially for businesses, a serious offence, and the government is attempting to curb these dishonest and illegitimate practices.

What is an electronic sales suppression device or ‘zapper’? This new technology selectively modifies or deletes certain sales transactions on point-of-sale systems, effectively erasing any record of that transaction. The result? Those transactions are not reported as income, and therefore less tax is required to be paid.

Additionally, Canadian businesses using, possessing, acquiring, making, developing or selling ESS devices can also be found guilty of a criminal offence, with a summary conviction resulting in a fine of up to $500000 and two years in jail. An indictment comes with a $1 million fine and up to five years in jail.

It seems as though this problem is most prevalent in the restaurant industry, and the Canadian Restaurant and Food Services Association has estimated that these ‘phantom cash sales’ could be in the billions. But CRA is not powerless against this, and in 2008 alone charged four restaurants after it was found that in total nearly 200000 cash transactions had been ‘zapped’ (totaling $4.6 million).

So, if you are a business that uses one of these systems, your chances of getting caught by CRA are getting much higher. Your best course of action: Voluntary Disclosure. The Voluntary Disclosure Program (VDP) gives taxpayers the chance to come forward and correct incorrect filings or disclose information that is as yet unknown to CRA. If the disclosure is complete and accurate, the taxpayer may be exempt from penalties or prosecution.

That being said, the VDP process is a complex one and needs to be carefully navigated in order to keep yourself protected. If your application is not correct the very first time, it will be denied and you will have effectively notified the CRA of your noncompliance.

In order to qualify under CRA’s Voluntary Disclosure Program you must satisfy the following criteria:

·        The tax year in question must be at least 1 year old

·        The voluntary disclosure must involve a penalty

·        The disclosure must be voluntary

·        The disclosure must be complete

Want to take your chances? Good luck. Don’t feel like playing roulette with your financial stability? Perhaps Voluntary Disclosure is your best bet. Contact Tax Solutions Canada today to get things started on your VDP application at 1-888-868-1400 or visit www.taxsolutionscanada.com 

CRA Business Auditors Go After Condo Sellers

Real estate investing has always been popular, but over the last few years this has grown in popularity and many Canadians, having invested by purchasing during the recession and selling now that the boom has returned, are feeling the heat from Canada Revenue Agency business auditors. Why? Well, when you purchase a home as an investment, you are expected to pay tax on any capital gains made, as stated in the Income Tax Act.

In the eyes of CRA, an investment property is one that is not being used as a primary residence. What’s the difference between a principal and non-principal residence? In general terms, a principal residence is one that you own (either alone or with another person) and that you, your current or former spouse or common-law partner, or any of your children lived in it at some time during the year.

According to CRA’s website, if the property you sold was your principal residence (for the entire time you owned it), you are not required to report the sale when you file your annual tax returns, and you don’t have to pay tax on any capital gains made through the sale of the property. However, if, at any time during the period of ownership, the property was not your principal residence, you have to report any gains that relate to that period of time.

A recent Toronto Star article had this to say: “Tax auditors have been targeting the once red-hot Toronto and Vancouver real estate markets, looking primarily for people who bought condos before they were built, intending to flip them for a profit as soon as the project is complete.” Many of these individuals are becoming targets of CRA audits because they did not report the gains made through these sales, resulting in heavy fines.

But it isn’t just those who purchased condos with the intention of selling them. Others, including some individuals who, for whatever reason, were forced to sell when the condo was completed, are also being targeted.

If you find yourself faced with a massive tax bill as a result of a CRA audit of a recent property sale, but know that the property was a principal residence and that you should not be required to face a penalty, your best option is to file a Notice of Objection. When you object to a CRA assessment, not only do you have the chance to appeal to CRA, any collection actions cease and interest accrual is halted. If your objection is accepted, this could mean major financial savings.

One thing to keep in mind, there is a time limit for objecting, and in order to increase the chances of the objection being accepted you need to include as much information as possible. Getting professional help with this is always a smart idea.

To find out more about objecting to a CRA assessment please contact Tax Solutions Canada by calling 1-888-868-1400.