How to Make a CRA Payment Plan

Most people don’t set out to not pay their taxes. Disputes with CRA, financial problems, issues with businesses, etc. are all reasons why people end up with a tax debt that they have not and cannot pay in full immediately.  

If you have been contacted by the Canada Revenue Agency (CRA) regarding your tax debt, then you know that they always ask for payment in full. If they don’t have a lot of your information to take collection action against you, they may offer a temporary, short term payment plan in exchange for you completing a financial disclosure form. Once you step out onto that ledge, there is no turning back. Once CRA has the information they need to commence enforcement action, they will not leave you alone until the debt is paid or you end up bankrupt. Trying to negotiate a CRA payment plan directly is not just a bad idea - it can be dangerous.  CRA knows how to play “good cop, bad cop” and tax payers are often so surprised by how nice the CRA collector is (the taxpayer feels lucky!) caution is naively thrown to the wind and you fall into the trap.  Remember, the CRA collector’s job is to collect as fast as possible – he is your opponent and not your friend.

Maybe you think that you have nothing to hide and are serious about repaying your tax debt in installments so what harm could really come from showing CRA the state of your finances? Unfortunately that is not how it works. As far as CRA is concerned, the debt you owe to them should come before all others – personal loans, credit card payments, etc. Any surplus cash flow you have therefore should be included in your CRA payment plan – even if it means destroying your credit and putting you further in debt with your other creditors.  And how the CRA collector sees surplus cash flow will definitely not be fair to you. 

When you try to negotiate a CRA payment plan, what will CRA ask for? Full disclosure will include providing information about where you work, where you bank, what you own (including your home and any money you have saved for your children’s education) and all income sources, all payments, etc. This information is then used by CRA to develop a payment plan, which, if not followed, may lead to further enforcement action, including wage garnishments, property liens, frozen bank accounts, etc.

A voluntary CRA payment plan is possible.  However, these are not normal negotiations.  CRA collectors have very harsh collection tools and complex agendas to satisfy their managers.  If you really want a voluntary tax payment plan that is safe, one that CRA will accept and that you can live with, we do not recommend that you try and learn how to do this yourself.  The consequences of getting it wrong are severe and there can be no turning back.  Please speak with a professional experienced with negotiating binding CRA payment plans. This is a big buyer beware; your average tax accountant may not have the depth of experience in dealing with the enforcement arm of CRA and this can be tricky to navigate. Instead, opt for an organization that specializes in working with people who have tax problems, bringing to the table the expertise and know-how required to avoid further trouble.  

How will a tax professional help you navigate these waters? By correctly presenting CRA with the fair proposal that fits your budget and without giving CRA any further financial ammunition against you. A tax professional should also be able to discuss and evaluate your ability to qualify for various other programs that may help you get rid of your tax debt.

Often a CRA payment plan negotiated directly with CRA can become difficult, or even impossible, to pay, leaving you in severe financial trouble. Don’t fall into the trap of giving all of your information to CRA in the hopes that things will work out. Get the right help from an organization experienced with dealing with all different types of tax issues.

For more information about how to negotiate a CRA payment plan, please contact Tax Solutions Canada by calling 1-888-868-1400, or visit us at www.taxsolutionscanada.ca.

Does Tax Amnesty in Canada Really Exist?

When you file your taxes on time, accurately, every year, you likely don’t suffer from the stress that tax compliance issues can bring. However, if you are one of the many Canadians that fall behind filing or find expenses or donations disallowed resulting in large penalties and tax debt, that stress can become overwhelming. Even worse is the stress that can come with the knowledge that you have filed incorrectly, even if Canada Revenue Agency (CRA) hasn’t caught you yet - you worry every day that they will. The constant fear of a CRA notional assessment, re-assessment, audit or CRA enforcement action is frightening and sits in the back of your mind no matter how much you try to ignore it. If you have found yourself in this position, you might be thinking ‘does tax amnesty in Canada really exist,’ and if so, how can you access it?

Tax amnesty does exist in Canada. This does not mean however that if you fail to file returns year after year and then seek tax amnesty that you will necessarily qualify. Tax amnesty in Canada is covered by the Federal Government’s Voluntary Disclosure Program (VDP).

What is VDP? The Voluntary Disclosure Program exists to give taxpayers the chance to file late returns or correct any incorrect filings, incorrectly claimed expenses, unreported income, etc. voluntarily. By admitting the error and working to correct it, the government may grant some relief from interest and penalties.

There are 4 conditions that you MUST meet in order to qualify:

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

2.      The voluntary disclosure must involve a penalty. This means that if you know that you will not incur a penalty after late filing, there is no ground to file (since it is unnecessary).

3.      The disclosure must be voluntary. This means that you cannot have been contacted by CRA with respect to the tax year in question.

4.      The disclosure must be complete. You have to ensure that your application contains ALL of the information, tax slips, claims, etc.

If you know that you have made a mistake on a return in the past, or if you have failed to file and are constantly worrying about it, it might be time to consider making an application for tax amnesty before it is too late and CRA notionally assesses you.

Accessing the VDP has to be done correctly the first time – there are no second chances.  That is why it is always a smart choice to consult a tax professional and engage their services first. They can help steer you successfully through the VDP process, assess whether or not you qualify, and assist in filling out the application properly.   As we said above – there is no opportunity to redo the filing.  One strike and you are out!

For more information about tax amnesty through the Voluntary Disclosure Program, please contact Tax Solutions Canada today by calling 1-888-868-1400.

What is a Notional Assessment or a CRA Tax Assessment?

With the Canadian income tax deadline behind us, those who, for whatever reason, chose not to file this year (or any past year) may be thinking that it is too late and that there is no real urgency to file now. Many people don’t file their annual tax returns because they know that they will owe money that they do not have (so why tell on yourself?) or because they made income that they don’t want to report. Regardless of your situation, if you have failed to file your 2012 income tax return beware - Canada Revenue Agency (CRA) simply completes a notional assessment (CRA tax assessment) on those individuals who have not filed their returns. 

What is a notional assessment, commonly known as an involuntary CRA tax assessment? This is when you have not filed your tax returns and CRA arbitrarily completes a tax assessment on your behalf. This means that they will estimate (guess) your income and file your tax return for you. The CRA does not prepare the return in your best interests.  If you are notionally assessed as owing, your tax debt, along with interest and penalties, will be applied retroactively, and CRA will attempt, through all their various means, to collect the money from you.

If you are late filing your tax returns, how does CRA conduct an arbitrary or notional tax assessment? A prime example is your client being audited. Any payment to you will be found during the audit, and CRA may assess you as a result. If you work as a subcontractor, the contractor who pays you will file a tax slip indicating the income they paid you for the year (if you are not being paid in the name of a business). If a builder or homeowner pays you for a side job by cheque, and you don’t report that payment, the homeowner may claim it on their tax return. If CRA asks them for the receipt or invoice to support their expense the dots will then connect back to you.  CRA auditors are experts at looking for and connecting these dots.

Tax slips may have been filed by someone else or calls may have been made to the CRA Snitch Line, meaning the government often becomes aware of your unreported income and that leads to involuntary CRA tax assessments. It does not matter why you failed to report all of your income, whether because you were unaware that you were required to or because you were trying to buy time because you didn’t have the money to pay. The CRA Snitch Line is often used as a revenge or spite site for unreported income, a very common occurrence, especially with ex-spouses or ex-business partners. In both of these scenarios a CRA tax assessment could ensue, or worse, an audit or investigation could begin.

Once you have been notionally assessed, you need to (re-)file your returns voluntarily and right away. This may result in less debt owing. If you operate a business you may not be eligible to claim input tax credits for HST on tax years older than 4 years, so time is of the essence.  It is also a good idea to retain professional representation, especially if you feel that the CRA tax assessment is incorrect. It is never a good idea to try to negotiate with CRA directly, as they will attempt to obtain information from you which can be used against you in the future. 

If you have been sent a notional assessment it is important to act quickly rather than ignoring the involuntary CRA tax assessment. A tax professional that can negotiate on your behalf and help you navigate the entire process is a great way to keep yourself protected.

If you are dealing with a notional assessment (involuntary CRA tax assessment) and need help, please contact Tax Solutions Canada by calling 1-888-868-1400 or visit us online at www.taxsolutionscanada.com.  

Does the CRA Actually Prosecute People for Tax Evasion?

People often ask “does the CRA actually prosecute people for tax evasion.” Scarily, it happens all the time and convictions are actually posted on the CRA website.

Here is a great example of a man who owned a viable business and let his tax problem get out of control, resulting in the CRA prosecuting him for tax evasion.

In December of 2012 an Ontario businessman was fined $116,000 for tax evasion. The fine represented 75% of the taxes evaded. In addition to having to pay this massive fine the taxpayer’s company was ordered to pay back taxes, interest and civil penalties totaling more than $800,000.

The taxpayer was in the lumber business and the prosecution ensued as a result of an investigation that had taken place with respect to the taxpayer’s 2005 and 2006 tax years. The debt arose because the taxpayer had deducted expenses he had incurred building a home on his company’s tax returns.

This is an extreme example of something that happens all the time with self-employed individuals. It can be very tempting to write off personal expenses like travel or work on your home on your business’s tax returns, but doing so can result in severe consequences. In Canada in 2013, 43 taxpayers have already been convicted of tax related offences – and these are the cases that made it through tax court.

The more likely scenario that occurs and what thousands of taxpayers face is that the CRA will simply levy interest and penalties so massive to penalize you for non- compliance that they do not always prosecute as well. They can then leverage enforcement remedies like wage garnishments, freezing your bank accounts, placing liens on property and more… This is often easier for the CRA because they don’t need to go to court or to have a court order to take these enforcement actions against you. 

But you cannot gamble with your freedom and turn a tax/money problem into a criminal record and jail time.  We all know that CRA will prosecute all different types of tax offenders just to keep the pressure on taxpayers to comply.

If you know that you filed a return with the CRA where you were aggressive in calling personal expenses business deductions you can ask us to help you take the CRA carrot and avoid their very big stick (and having to look over your shoulder for years to come). Come clean with the CRA as soon as you can and avoid penalties and prosecution. This pathway is only available to taxpayers who have not been contacted by the CRA about the tax year(s) in question.

If you are in a situation where you have income you would like to declare or the CRA has assessed you and you have a huge tax debt, you can recover but you will need a plan. Seeking professional consultation with a company specializing in helping taxpayers deal with tax problems is the essential start.  As we have written elsewhere, this is dangerous ground when you go to the CRA to confess to your offences and ask for forgiveness and understanding.  We have sadly seen too many well intentioned taxpayers make matters worse only because they or their accountants are not experienced in this particular field. The faster you commit to dealing with your tax problem, the faster you can put it behind you.

If you have a tax problem and you need help, please contact Tax Solutions Canada at 1-888-868-1400 or visit www.taxsolutionscanada.com.

Be Careful Who You Hire to Deal with Your Tax Problem

In March of 2013 the CRA reported on their website that a Brampton tax preparer who they had prosecuted was sentenced to house arrest for a tax fraud scheme.

From 2005 to 2010, Adegboyega Adenekanad Adebukunola (whom we will refer to in the rest of this blog as AAA) operated a business providing tax preparation services, financial planning and accounting services. AAA was discovered by the CRA because he had made over $858,000 in false charitable donation claims on 129 income tax returns. These fraudulent claims included fraudulent receipts and the false claims resulted in a collective tax debt to the taxpayers involved of over $245,000

On March 1, 2013, AAA plead guilty to one count of fraud over $5,000.00. He was sentenced to 6 months of house arrest and three years of probation.

When you hire a tax preparer or accountant to prepare your tax returns and they suggest risky ideas to reduce your tax liability or increase your refund – tread lightly, especially where charitable claims are concerned.  As always if it seems too good to be true it likely is.

If you have claimed false expenses (maybe having received credits or rebates from the government) you can be subject to serious consequences. Returns are frequently re-assessed resulting in a much higher tax debt because of interest and penalties. And it could get worse.  If convicted of tax evasion the court may issue a fine of up to 200% of the amount of the tax evaded and you can also be sentenced for up to five years in jail.

Even if you went to a tax preparer like AAA who becomes a convicted criminal, you are still responsible for what has taken place and any tax debt that results. If the CRA thinks that in any way you knew or were a part of any tax scam they can are required to look into criminally charging you.

If you know or suspect that you have had returns that were prepared using “aggressive accounting tactics”, you can come clean with the CRA and avoid prosecution, penalties and interest. The Voluntary Disclosure Program is a program available through the CRA where you can disclose income you did not declare or expenses that you claimed that you should not have been entitled to, and if your application is accepted it will include the CRA’s promise not to prosecute you or charge penalties on the assessed tax debt

If you want to make an application under the Voluntary Disclosure Program then it is important to consult a professional. To qualify under the Voluntary Disclosure Program your disclosure must be voluntary. You cannot qualify for this program if the CRA has already contacted you. Also, disclosure must be complete so you must be prepared to come clean about all non-disclosures you are aware of.

A tax professional with expertise in making applications under the Voluntary Disclosure Program can help you identify if you qualify. If you do, they can help complete the application, and if you don’t they can help you come up with another plan to deal with your tax problem.

If you are being pursued by the CRA because you had your tax returns prepared by a sketchy accountant, please contact Tax Solutions Canada at www.taxsolutionscanda.com or call 1-888-868-1400.

 

The CRA Financial Disclosure Form – An Invitation From Your Enemy to Shoot Holes in Your Own Feet.

The CRA financial disclosure form is a dangerous form that the CRA routinely sends out. If one is provided to you by the CRA, it might be time to acknowledge that they are getting ready to take collection action against you (if they haven’t already).

The CRA financial disclosure form is a few pages long and asks you for information about where you work, information about your spouse’s income, information about your household income and expenses, information about where you bank, what assets you have (this could include your home, vehicles, investments like RRSPs), and more.

The most common instance where the CRA will ask the taxpayer to complete one of these forms is when the taxpayer is trying to negotiate a payment plan with them. Here is why this is a dangerous CRA form.

For example:

·        You have a tax debt of $45,000 and based on your budget you propose to the CRA a payment plan of $750.00 per month.

·        The CRA says they will consider your offer if you fill out a financial disclosure form.

·        You fill it out and include all of your expenses, like your car and credit card payments. Once all is said and done you have $750.00 per month of income left over and so, on that basis, you are offering it all to the CRA.

·        Once the CRA receives the financial disclosure form they advise you that their payment should come before all other creditors so the amounts that you pay to your loans and credit cards should be added to the $750.00 per mo. you are offering and that they want you to pay $1500.00 per month.

Well, if you did this you would ruin your credit because you would not be able to make payments to your other creditors. The problem now is that you have completed a financial disclosure form and provided the CRA with all the information they need to garnish your income, freeze your bank account and place a lien on your property.

Once a CRA tax debt is owed it can be very difficult for the taxpayer to negotiate directly with the CRA and that is why, when the CRA starts sending you forms like a financial disclosure form, you should seek out a professional opinion and even representation.  Even if you think the CRA agent seems nice or friendly, they are not your friend – they work for the government and it is their job to collect the tax debt you owe and close their file. A company who has expertise representing people with these types of tax problems should have no problem negotiating a fair repayment plan that you can afford and that the CRA will accept and also limit what information is disclosed to the CRA about you.

If the CRA is asking you to fill out a financial disclosure form or you have a tax problem and need help, please visit www.taxsolutionscanada.com or call us at 1-888-868-1400.

 

CRA Can Make You Pay Another Person’s Taxes! Say Hello to Section 160 of the Canadian Income Tax Act

Hopefully as a spouse, family, friend or business associate you never get a letter that goes like this:

“Dear Mr./Ms. “X”, you received an asset from a taxpayer who knew or ought to have known he/she owed money at the time you paid less than full market value for the asset. We, the CRA, deem you to now stand in shoes of that taxpayer and we order you to pay the amount of the tax $BIG plus interest immediately”.

If you owe money to the CRA and have transferred assets into the names of loved ones for any reason (but often to protect them from creditors and on the advice of uninformed lawyers and accountants) then this article may disappoint you, and if you are the person who received the asset then this article may terrify you.

When you have a tax debt and then transfer assets into the name of another, like transferring your home into the name of your spouse for example, the CRA can use Section 160 of the Income Tax Act to transfer your tax debt to the name of your spouse and still attack not only the asset but your spouse as well. The Canadian Income Tax Act outlines all of the federal provisions and regulations regarding personal and business taxes for the country. It outlines what is required by all taxpayers in Canada.

What is Section 160 of the Canadian Income Tax Act? Section 160 is a portion of the Income Tax Act which relates specifically to the transfer of property from one individual to another. It states that if a person with a tax debt owing to the CRA transfers property to a spouse, common-law partner, someone under the age of 18, or someone not dealing with the individual at arm’s length, both the transferee and the transferor are responsible for a portion of the transferor’s tax debt. This means that, if property is transferred to you, you may be liable for their tax debt.

In this case, the Canadian Income Tax Act says:   

The recipient of the property can be assessed the lesser of:

      1.  The tax debt owing by the transferor; and

      2.  The difference between the fair market value of the transferred property and the consideration received by the transferor.

This means that, if you have not given fair market value to the transferor, you are liable for that amount and can be assessed based on that amount – ultimately you could be on the hook for that portion of the transferor’s tax debt.

This transfer of property seems to be a common go-to method for those attempting to deal with their tax debt without having to pay. However, it is easy for the CRA to investigate and assess the transferee for a tax debt under Section 160 of the Canadian Income Tax Act.

The best thing that you can do if you have a tax problem is deal with it - before the CRA starts going after your property. The earlier you deal with your tax problem, the less interest you end up paying and the better to avoid penalties, and if you attack the problem before the CRA takes enforcement action, you will have more leverage when negotiating with them.

The Excise Tax Act has very similar provisions for HST/GST.

If you have found yourself assessed for someone else’s tax debt under Section 160 of the Canadian Income Tax Act and need a solution, please contact Tax Solutions Canada by calling 1.888.868.1400 or visiting us online at www.taxsolutionscanada.com.