You Can File for Taxpayer Relief if the Debt Occurred More Than 10 Years Ago - With One Caveat

If you have received notice regarding a re-assessment of your tax filings and have been notified of a tax debt owing, this will often occur many years after the tax year in question. If you file your tax returns late, you will have your returns assessed in a batch and penalties and interest will be calculated retro-actively. A common complaint for taxpayers in this situation is that a reassessment that goes back several years often results in high interest and penalties. Once this occurs you have one of two choices: object to some or all of the penalties and interest assessed or apply for Taxpayer Relief.

If an objection is filed it can take years, depending on the grounds for your objection, before a decision is made, and if your objection is rejected, your next option is an application for Taxpayer Relief.

Where taxpayer relief is concerned, CRA has said that you cannot file for relief of penalties or interest on tax years over 10 years old. The challenge is that many taxpayers, especially those who have gone through the process of filing an objection - have their Taxpayer Relief applications rejected for this reason. This is unfair because it is often the slow process of the CRA that causes delays in processing that result in additional interest and result in the time being stretched out.

Prior to 2011, the Canada Revenue Agency (CRA) staunchly refused to grant relief from penalties and interest on a debt that occurred more than ten years previous, stating that the Minister had no power to grant taxpayer relief after the ten year period had passed. However, in 2011, the Federal Court of Appeal heard the case of Bozzer v. The Queen, and the landmark decision changed things significantly.

Bozzer v. The Queen: In December 2005, Mr. Bozzer applied for relief of interest on a tax debt assessed for his 1989 and 1990 taxation years. This request was denied because CRA policy excludes debts over 10 years of age. Following this rejection, Mr. Bozzer made his way up the court ladder, ending up in the Federal Court of Appeal. It was determined that the Minister, based upon the legislation which sets out to “administer the income tax system fairly and reasonably by helping taxpayers to resolve issues,” should be able to use his/her discretion with regard to all cases.

According to CRA’s website: “The FCA [Federal Court of Appeal] found that the Minister has the discretion to cancel interest that accrued during the 10 calendar years preceding the year in which the request for relief is made, regardless of the tax year in which the tax debt arose. For example, a request made in December 2011 for the 1998 tax year, the Minister may cancel any interest that accrued during the 2001 to 2010 calendar years. Prior to this decision, the CRA's position was that the Minister could not cancel any interest where the request was made more than 10 calendar years after the end of the tax year in which the tax debt arose.” 

What does this mean? For taxpayers, this decision means that it is up to the discretion of the Minister whether relief can be granted, regardless of whether the 10 year period has passed – rather than just receiving an outright no.

Sounds great right? Well in a perfect world CRA would no longer refuse to consider a relief application that involved interest and penalties over the 10 years preceding the application. Unfortunately we do not live in a perfect world and so taxpayers continue to have their Taxpayer Relief applications rejected, citing the 10 year rule even with the Bozzer ruling on the books.

The challenge with the Taxpayer Relief process is that:

1.      You may make a first application

2.      If rejected, you may provide more information and ask for another review

3.      If rejected you can ask for a judicial review = tax court

If you have had a first application rejected because of the 10 year rule, then it is important that you have your second review prepared professionally and cite the correct case law in order to optimize your chances of being successful. 

For more about Bozzer v. The Queen, the impacts to Taxpayer Relief, or to file for relief, please contact Tax Solutions Canada by calling 1-888-868-1400 or visit us at www.taxsolutionscanada.com.  

Brampton Landscaper Prosecuted by CRA - Impacts of Late Tax Filing

As the summer winds down and we are greeted by the emergence of fall, filing your taxes may be the farthest thing from your mind. For those individuals who remain tax compliant year in and year out, once the returns are filed and the assessments returned taxes are usually forgotten about until the following spring. 

What about those individuals who missed the tax deadline? Out of sight, out of mind right? Not so much. The Canada Revenue Agency has the power and resources on hand to uncover those late filers - and they do. For example, a recent CRA conviction saw Tuccio Zita, a Mississauga landscaper, convicted of failing to file both a corporate tax return and a GST return, resulting in a fine for each offence. 

How does the CRA find out about non-compliant taxpayers? There are several ways. The CRA Snitch Line that individuals can call to report non-compliance, is quickly becoming an important avenue for discovery for the CRA. For example, angry ex-wives/husbands, jealous competitors, etc.  Also, if clients receiving receipts then file those as part of their own individual returns, these can come back to haunt the owner of a business. There are various other methods, but the important thing to remember here is that if you have not filed, it IS just a matter of time.

What happens if you are caught not filing your tax returns? This is an example of the penalties:

-        If you failed to file your 2012 tax return, the CRA will apply a 5% penalty to the amount that you owe, plus an additional 1% per month for up to 12 months.

-        If you have missed the deadline several years in a row, this penalty may jump to 10% plus 2% per month for up to 20 months.

-        Interest - don't forget about this. The numbers above are just penalties, and once the debt has been applied you will be charged daily compound interest on both the tax debt owed and the penalties.

-        If you miss the tax deadline two or more times over a four year period you may find yourself saddled with a 'repeated failure to report income' penalty, to the tune of 20% of the total income that was earned but not reported.

These fines are stiff, but you are not without options. If you know that you have missed the 2013 tax deadline and are hoping that the problem will just fix itself by next tax season, beware. If the CRA catches up with you (as it did with Mr. Zita) your options are sharply reduced. Please speak with a professional tax expert about the Voluntary Disclosure Program. If you have not yet been contacted by the CRA the VDP can help get you relief from interest and penalties. Keep in mind that the process is complex and you only have one chance - so it needs to be done right the very first time.

If you have missed the tax deadline, don't avoid the issue. Tax evasion is a very real issue, and if you are facing this charge it may be a long road ahead. Instead, stop it before it starts.

For more information about what to do if you have missed the tax deadline, or for helping dealing with your tax problem or tax debt, please contact Tax Solutions Canada today at 1-888-868-1400.

Does Tax Evasion in Canada Always Mean Jail Time?

Tax evasion in Canada is a very serious criminal offence, and many Canadians are faced with court each year as a result of tax non-compliance. Depending on various factors, tax evasion can result in hefty fines, house arrest and a jail term. However, although tax evasion is taken very seriously, it does not always mean jail time.

Many of those convicted with tax-related offences are those who ignored the problem in the hope that it would never be discovered. If you have missed the tax deadline there are many different methods that the CRA utilizes to uncover unreported income and so these issues simply have to be attended to.

Leaving them hanging will only allow the problem to grow – and you will bear the penalties.

CRA can find out about undeclared income by auditing one of your suppliers, your clients or even your accountant, and if this happens and they see something questionable they will take a close look at you too. Contractors beware: even if you are not having taxes deducted at the source, your income source may be filing tax slips with the government which will lead to an arbitrary/notional assessment.

So, how can you deal with a tax problem before it gets to the point of being tax evasion? By becoming compliant. That doesn't mean calling the CRA directly to report your unfiled returns, as this is never a good idea – in fact it is outright dangerous. Many a well-intentioned taxpayer speaks with a CRA agent that sounds friendly, but the agent is acting simply to get information from you so you can implicate yourself. Instead, speaking with a representative of a professional tax solutions organization can help you work through the intricate process and solve your tax problem.

Having a tax problem can be very stressful, both personally and professionally, and can impact greatly various aspects of your life. There are a number of different programs offered by the Canada Revenue Agency to alleviate some of the stress caused by a tax problem and can mitigate financial, punitive and criminal consequences that can accompany noncompliance. While none of them will eliminate the debt entirely, some can reduce or get rid of the interest and penalties leveraged on a tax debt.

One such program is the Taxpayer Relief Program. The Taxpayer Relief Program is offered by the CRA as a way to assist taxpayers with a tax debt due to extenuating circumstances. That being said, this relief is only available in certain situations.

Taxpayer Relief Reasons:

1.            Extreme financial hardship

2.            Health issues - including addiction and mental health issues
3.            Death
4.            A natural disaster like a fire or flood
5.            An error on the part of the CRA
6.            An extraordinary circumstance

With the items listed above it is at the discretion of CRA to decide who they will approve for relief and even with one of the above present you could still be denied. Relief applications must be fully documented and contain supporting evidence. It is only with experience that a professional, in dealing with tax problems, can know if that aspect of the application carries enough weight to win the argument and how to properly present it.  A relief application, in nearly all instances, should be prepared by a professional. You are asking the government to forgive your mistakes, errors and negligence – not surprisingly they are going to hold you to a very high standard to give you this relief and still be able to show that CRA is treating all taxpayers fairly.

If you are approved for Taxpayer Relief the penalties associated to your tax debt may be reduced or eliminated and any interest associated to the penalties may also be cancelled.

If CRA hasn't caught on to you yet and hasn't contacted you, another avenue to come clean and put the problems behind you is the Voluntary Disclosure Program. This is another official program where, if your disclosure is complete, voluntary, involves a tax debt at least 1 year old and involves penalties, you may be able to declare income that CRA is unaware of and avoid penalties, interest and prosecution. There is one caveat: if they determine that your disclosure is not complete (perhaps they dig something up from another tax year or you have forgotten to include something) you could have the application struck down, after telling them about the income which can open a whole other can of worms. It is recommended that you have a professional who specializes in VDP review your case, advise you if you qualify and prepare the application for you.

If you are nervous that your inability to file your tax return may lead to a notional assessment or discovery by the CRA, speak with a company today to get the problem ironed out.

For more information about the Taxpayer Relief Program, or to find out how to become tax compliant, please contact Tax Solutions Canada today by calling 1-888-868-1400 or visit us online at www.taxsolutionscanada.com  

What Happens to Accountants Who Cook Their Clients' Books - A True Story

When you enlist the services of an accountant to work through and file your annual tax returns, the assumption that these returns are done correctly is usually the right one. However, it is becoming more and more common for tax accountants to make false claims (both with and without their clients'

knowledge) in an effort to decrease the amount owed or increase the tax rebate. Several reasons exist for this type of illegal and immoral behaviour, including hoping to look effective to you and gain more business, etc. But the end result is the same.

When an accountant makes false claims on a client's behalf, there are serious consequences. For example, earlier this year, Brampton chartered accountant Mr. Imad Kutum was charged with one count of fraud brought about by his falsified claims. The trial resulted in a two year jail term and a fine of $100,000. Also this year, accountant Ms. Doreen Tennina was found guilty of two counts of fraud for a tax evasion scheme, resulting in a fine of almost $700,000 and a maximum 10 year jail sentence. These represent only two of a long list of tax accountants whose dubious activities have led to harsh prosecution.

But buyer beware, the accountants are not the only ones who are affected by these schemes. Once the Canada Revenue Agency commences an audit of a company or individual accountant, all of their documentation is fair game. This means that if they are being audited by the CRA, you will also inevitably become a target.

Now, if you deal with a bad accountant, don't think that these examples mean that your accountant will be prosecuted and you will be off the hook. Often these accountants are not prosecuted and CRA may still come after you. If they think that you were complicit in a tax scheme (including aggressive accounting that was not completely honest), you could be prosecuted.

So what happens if you have dealt with an accountant who has cooked your books? At the worst you could be prosecuted for tax evasion, at best you could be subject to an exorbitant amount of penalties and compound interest, applied retroactively - this can easily double or triple the size of a tax debt.

Think ignoring the problem is your best bet? Often people in these situations feel as though CRA investigations won't lead to them being hit with a tax debt - but it is all too common. It's a chain reaction - it only takes one person getting audited to lead to a string of audits. If they find out about you before you go forward with respect to your issue the consequences are far worse than if you come clean under a program like the Voluntary Disclosure Program, which can offer you a shot at tax amnesty and protection from penalties and prosecution. If you find yourself loaded down with a tax debt, having been sent a revised letter of assessment - the CRA wants their money now - not when you can pay.

A tax problem this bad will most certainly necessitate guidance from a professional who knows how to deal with serious CRA tax problems. Every time you contact CRA they take the opportunity (even when seeming nice) to gather information from you that will be used against you in the future.

Whether you are worried that a future audit may lead to a CRA investigation or if you already know that you will/do owe the CRA, get in touch with someone who can walk you through the various options that exist to help you get rid of your tax debt.

If you are facing a tax debt, or want to become tax compliant before the CRA comes after you, please contact Tax Solutions Canada at 1-888-868-1400 or visit us online at www.taxsolutionscanada.com

Restaurant Owners with Point-of-Sale Terminals (P.O.S.) Look Out!

The restaurant business has long been an industry that the Canada Revenue Agency monitors for possible tax evasion schemes. As all restaurant owners and their advisors know, it can be an incredibly difficult industry to compete in and underreporting of sales is very common.  More recently, many restaurants have had unreported income discovered by CRA through investigations of their Point-of-Sale terminal providers. You can't be a successful operator in the restaurant business without using POS terminals; however the use of these systems is leading to audits as POS terminal providers are being audited and those audits are identifying differing degrees of information about the customers (you the restaurant owner) which, when CRA compare to the records you have/have not filed, leads to you being audited (or worse – an investigation for criminal tax evasion). 

What does this mean? If the company that provides your Point-of-Sale system gets audited, Canada Revenue Agents are going to go through all of their information with a fine-toothed comb. This will inevitably lead to an audit of your company. If CRA finds income that you have not reported, you will be liable for not only the tax debt, but also the interest and penalties that accompany it. Worse still, tax evasion in Canada can carry a jail sentence. 

If you are a restaurateur who has failed to report income, you need to be very concerned about the fact that the CRA is no longer uninformed about the existence of those electronic devices designed to help you evade paying taxes, nor are they weak in their auditing or prosecuting ability. 

Owing money to the government is not a crime - but failing to declare income and/or filing false returns are. If you know that you have made false claims it is best to come clean before the CRA catches on and audits you. A CRA audit can lead to consequences, both for you as an individual and as a business owner. Don't wait until you are audited. Let an experienced tax solutions professional help you get on your way to complete tax compliance. 

If you have failed to report income and the CRA has caught on, you need to be extra careful so as to protect yourself as best you can. Simply making full disclosure to the CRA can be harmful (though not as harmful as not coming forward and getting caught). Instead of just giving CRA agents whatever they ask for in the hope that this will seem compliant, make sure that you seek representation from a tax company. Don't think that just because you are now being compliant that the CRA will go easy on you - they won't.  They can and do use this evidence to assess penalties and/or to prosecute criminally.  

For more information about tax audits and what to do if you are being audited by the CRA, please contact Tax Solutions Canada by calling 1-888-868-1400.

Charity Schemes in Canada - What To Do If You Have Been Implicated in One

Thousands of Canadians claim charitable donations each year on their annual tax returns. If those donations are significant they can end up lowering the amount individuals have to pay (or increase the amount they get back). But what if those claims are false? Charity tax schemes in Canada are a type of income tax fraud.

Income tax fraud involving charitable donations is a serious issue. In May, tax preparer Dele Afolabi was convicted of tax evasion and sentenced to six months of house arrest and a fine of $1000. This came as a result of false charitable donation claims made on behalf of his clients. The claims, totaling over $370,000, were made on 59 separate income tax returns made between 2006 and 2008, reducing the amount of taxes owed by over $100,000.

But this is someone else's fault, so those clients are not liable, right? Wrong. It is your responsibility to ensure that your tax returns are correct, so if there are mistakes the consequences of this income tax fraud will impact you as well. As far as the Canada Revenue Agency is concerned, taxpayers who claim false deductions (this includes charitable donations) are responsible for correcting those mistakes and paying any amounts of tax owing, plus penalties and interest.  Therefore, Afolabi's clients are liable for the money owed due to the false reporting.

If you find yourself in the situation that Afolabi's clients now find themselves, you do have some options - but you need to make sure that you approach it the way that will not make your situation worse.  Even with the best of intentions and the best taxpayer history one wrong step in this complex area and your credibility with CRA and your eligibility for a fair resolution may be destroyed. Rather than calling the CRA directly (this may only lead to further problems as they attempt to extract more information from you), contact a professional organization and let them take you through the process of disclosure and repayment. The Voluntary Disclosure Program is an important option to consider as it may give you relief from the penalties for incorrect filing; however, you will still be required to pay any taxes owing.

If the CRA has already approached you about involvement in a charity scheme, the Voluntary Disclosure program will no longer be an option to you and you will need representation quickly to mitigate possible consequences. This could include filing an objection or making an application for Taxpayer Relief - both of which should be prepared and filed by a professional.

Once CRA has assessed your tax debt, penalties and interest, and in the absence of an objection or appeal to tax court, they will proceed with collection action. They will often try several different methods of collection, especially if you are unable to pay the full amount on demand. Wage garnishments, property liens and frozen bank accounts are all realistic techniques that the CRA may employ. These can cause significant strain on your personal and professional life.

Unfortunately, when you employ the services of a tax preparer, you are still required to ensure that your returns are filed correctly. If they are not, as is the case with those individuals who used Mr. Afolabi's services, you will be on the hook for any discrepancies.

Our advice? If you know you may have participated in a charity scheme, have your professional advisor get to CRA before they get to you. Get in touch with an organization that can work with you on a realistic and achievable resolution to your tax problem.

For more information about the consequences of charitable income tax fraud, please contact Tax Solutions Canada at 1-888-868-1400 or visit us online at http://taxsolutionscanada.com.

Tax Evasion in Canada - Do People in Canada Actually Go to Jail for Tax Evasion?

We often hear about individuals in the US being prosecuted for tax evasion and being sentenced to hefty jail terms. Not filing tax returns and not declaring income is a crime in the USA - but is it in Canada? Do people actually go to jail in Canada for tax evasion? Yes. 

In Mid-July, The Toronto Star reported on a Brampton businessman, Najam Mahmood, who has been sentenced to a one year jail sentence, coupled with a $687,000 fine payable over ten years. This sentencing comes about after Mahmood was charged with eight counts of income tax evasion and failing to submit goods and services taxes. 

Mahmood ran a business teaching other individuals about currency trading and making money - but in the process failed to collect GST or file taxes. According to Canada Revenue Agency investigators, the total income not reported was approximately $1.5 million.

Mahmood's sentence is just one example of the many CRA convictions for tax evasion that occur each year in Canada. Whether as a result of questionable accounting, deliberate evasion, or because of a lack of knowledge regarding what reporting is required, not filing tax returns correctly (leaving out some or all of the income you earned) can lead to a jail term, fine, or both.

What can you do if you know that you have not reported income or have reported it incorrectly? Well, the worst thing that you can do is ignore it - this will often only make the problem worse. The CRA employs hundreds of investigative agents to uncover mistakes or find those individuals not filing tax returns - they will eventually find you (and the longer you wait, the greater the consequences - both monetary and non-monetary).  A smart alternative is to speak with an organization experienced with dealing with these types of tax problems.

What types of help are we talking about? In this situation, where you know that you have misreported, underreported, or failed to report entirely, a great program that may be available to you is the Voluntary Disclosure Program.  Through the Voluntary Disclosure Program, the CRA gives you the opportunity to amend past filings and file late returns and can decrease (and in some cases eliminate) the penalties for incorrect reporting. You are still required to pay the tax debt that accrues, but relief from late filing penalties can be a significant benefit.

The Voluntary Disclosure Program can be incredibly valuable - but you have to meet certain criteria and you only have one shot.  You have to get it right and with the potential consequences you cannot afford to learn on the fly.  This is why it is best to have assistance from someone who knows the process well. Our advice - don't try it on your own. If you are unsuccessful with the application, you will have alerted the CRA to your problem and will have no recourse for relief. If you know that you have a tax problem as a result of not filing tax returns correctly (or at all), speak with a representative from an organization that can get you the help you need.

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