True Story – Canadian’s Bank Account Frozen Over a $4,000 Tax Debt that was only 7 Months Overdue (And CRA Had Cheques!)

We came across an individual recently (we promised not to disclose their information) who had a horrendous experience with CRA, one that was so ridiculous that we asked for their permission to post the story.

Jan (name changed) is self-employed and filed her T1 Gens for her 2012 tax year in April 2013, before the tax deadline. She had a small tax debt owing of $10,000.00. When she received her acknowledgement and Notice of Assessment in June of 2013, she promptly made out 10 cheques to CRA in the amount of $1,000 per month, making copies and sending them to CRA by registered mail. CRA commenced cashing the cheques and by January of 2014 Jan’s tax debt was only approximately $4,000.00. Jan was out of the country and unbeknownst to him/her the cheques stopped coming out of the bank account. Around March of 2014 (3 months after the last cheque came out of the bank account), Jan returned to the country, went to the bank and learned that his/her bank account was frozen by CRA.

First, the bank teller said that there was an issue with Jan’s bank account and then went to get a supervisor. The whole thing was extremely embarrassing. In Jan's case, she had the $4,000 available so CRA received their money right away. Infuriated by the entire situation, Jan called CRA and was told that they didn’t have a record of the last 4 cheques and so when they ran out they proceeded to freeze the account. CRA also acknowledged not sending Jan any notice that they would be freezing the bank account or any sort of demand to pay. The only paperwork Jan had received up until the account was frozen was regular monthly statements.

In this instance, Jan was lucky because she had the money to pay. However, many people in similar situations do not. Those who experience having their bank accounts frozen over much larger amounts of tax debt can face a very serious problem.

The key things to note here are:

1) CRA didn’t need a court order to seize Jan’s bank account.

2) CRA didn’t send any notice or warning to Jan (they do have a form that they often send out called a Requirement to Pay which usually comes around the time an account is frozen).

3) CRA often does not wait for long periods of time before taking enforcement action. If they are in a position to collect on a debt they will do so.

A frozen bank account is both embarrassing and inconvenient, especially when you have other bill payments coming out of it. This can quickly cause significant financial strain, and should be dealt with immediately.

If CRA has taken enforcement action against you, or you are afraid that they are going to soon, please contact Tax Solutions Canada today by calling 1-888-868-1400.

Second Quarter of 2014 and Over 65 Prosecuted for Income Tax Evasion and Other Tax Infractions

We are well into the second half of 2014, and already 68 individuals/businesses have been prosecuted for income tax evasion and other tax infractions. The Canada Revenue Agency is well-known for their aggressive and often underhanded methods when it comes to collecting what they believe people owe, and if they find any questionable behaviours (whether intentional or not), they are quick to prosecute. 

Often those prosecuted for income tax evasion find themselves in this position because of unintentional actions. We all know how busy life can get, and sometimes filing tax returns or keeping our books up-to-date can be put to the side in favour of other, more important issues. But there are repercussions, and CRA isn’t interested in your life story or the circumstances that can lead to tax issues.  These represent just a few of the many individuals/businesses prosecuted for such actions, from April to June. 

April 2014

-        British Columbia resident Stacy Senger was sentenced to fines for failing to comply with an order to file income tax returns and HST returns. The fines, totaling $5000, must be paid by October of this year.

-        Ontario resident Ken Gibbs was sentenced to fines totaling $7000 for failure to file personal and GST/HST returns. Gibbs was given 12 months to pay the fines.

May 2014

-        Manitoba – Winnipeg resident Ken Blackmore was charged with failing to file personal income tax returns and given a $12000 fine ($2000 for each missing return). He was ordered to file the returns within 60 days, and given 12 months to pay the fines. Failure to do so could result in a jail sentence.

-        Nova Scotia resident Michael Astephan was charged with four counts of failing to file his personal income tax returns for 2007 to 2010, resulting in a fine of just under $5000 ($1000 per count plus court costs). Astephan was given until May 2015 to pay the fines, and 30 days to file the outstanding returns.

June 2014

-        Alberta – 60 year old Tony Huether was prosecuted for failure to file personal income tax returns for 2007 to 2010. As a result of these charges, Huether was charged $1000 for each year, for a total of $4000. He has been given until October 1^st to pay the fines. 

-        British Columbia – West Kelowna businessman Bruce Roch Perrin was charged with income tax evasion and excise tax evasion after failing to report income. A CRA investigation resulted in a $28,922 fine and 9 months’ probation. Perrin was given 24 months to pay the fine.

If you believe that an income tax evasion charge might be looming, get it sorted now before you find yourself in the same predicament as those listed above. CRA can be ruthless, so protect yourself and solve the problem before they find out.

For more about CRA prosecutions for income tax evasion, or to get tax help, please contact Tax Solutions Canada today by calling 1-888-868-1400.

Collections Agents – Your Rights and Defending Yourself

The CRA is well known as an extremely difficult institution to work with – and with good reason. When they believe that you owe money, they are tenacious about collecting and closing the file so they quickly go from friendly and cooperative to cunning and fierce in their efforts to get the results they want. Even if you believe an assessment is incorrect, it can be incredibly difficult to get someone to listen to (and actually hear) you. 

Business logic and common courtesy (along with logic and fairness) seem to go right out the window. It isn’t as though you can just call CRA and have a logical and informative conversation that moves things forward to fair conclusion. 

When it comes to enforcement action, CRA collections agents are well trained to use all tools at their disposal to get you to surrender and hand over your hard-earned money.  Calls to your home and work place can be troublesome and embarrassing. Frozen bank accounts usually result in serious financial issues (cannot pay suppliers, or your mortgage and car payments).

One other big factor that makes this situation unique: CRA is not like any other creditor – they do not need a court order or even a hearing before they go after you.  Without specific notice to you CRA can (and do) place liens on people’s homes, freeze bank accounts and seize wages.  After they have sent the assessment or other notice they expect compliance and if it does not happen to their satisfaction their collection officers will take increasingly aggressive action.

So, when it comes to collections agents, how can you protect yourself? Are you just expected to bend to their will and give up? No. Defend yourself effectively – don’t let CRA intimidate you! You have rights.

The Taxpayer Bill of Rights is a document which outlines your rights as a Canadian taxpayer. It details the treatment that you can expect to receive, and explains how you can obtain recompense when a wrong has taken place. There are 16 rights relating to issues such as service, language and confidentiality. For example, the rights discuss how CRA must provide you with information in a timely manner, in a language that is clear and easy to understand, as well as the fact that you must have a chance to object to penalties and reassessments that you believe are incorrect.

Making a complaint according to your rights is a formal process – it is more than the simple making of a call. Depending on the type of complaint, you must correctly complete the appropriate form and submit it to the appropriate department. If, once you have received notice regarding your complaint and a resolution has been met and you are still dissatisfied with the outcome, you can file a complaint with the Office of the Taxpayers’ Ombudsman. The Ombudsman’s role is to complement and enhance the accountability of CRA, and provide more recourse for action on your behalf.

Keep in mind, no matter your complaint, the Taxpayer Bill of Rights is unlikely to end in the elimination of a tax debt. That being said, it is critical to know your rights with regard to your responsibilities as a taxpayer, as well as the ways in which the Bill of Rights works to protect you.

 
To find out more about defending yourself against CRA collections agents, as well as the Taxpayer Bill of Rights, please visit www.taxsolutionscanada.ca or call 1-888-868-1400.

How to File Late Income Tax Returns and Avoid Interest Penalties

So you have fallen behind filing your income tax return – now what? That depends on whether or not you will owe money. 

If the government will owe you money, go ahead and file your late returns. Note though that if you are a small business owner and your past due returns are more than 4 years old, you will not be entitled to the HST/GST input tax credits which could result in an unanticipated tax debt.

What if you anticipate that you will have a tax debt? Brace yourself, because once late filing penalties and interest are added the total tax debt will likely grow exponentially.

How you go about filing your late income tax returns will depend on different factors.

If the debt is more than 1 year old and CRA has not contacted you by mail or by phone requesting that you file any late returns then you may be a candidate to file an application under the Voluntary Disclosure Program (VDP). The VDP is a program created by CRA whereby if you disclose income to them before they learn of it on their own, they will accept your tax filing and you will not be subject to penalties for late filing and the interest you pay is at a markedly lower rate.

If CRA has contact you by mail or by phone requesting that you file your late returns – you must get them filed as soon as possible. You cannot just refuse to file your returns – it is against the law (tax evasion is a criminal offence). Once your late returns are filed it is true that having a tax debt may be stressful, however there are different solutions to deal with a tax debt:

·        A payment plan with CRA – this can be a tough negotiation if you need more than a month or two so that should be undertaken by a professional

·        A lump sum payment and then direct payment plan

·        Borrowing against an asset like a home or investment to raise the capital to pay in full

·        If none of the above are viable options, seek out a professional who specializes in these types of tax problems who can provide protection to help you deal with the financial aspect of your tax problem without losing everything that you have. 

Also, if you are suffering from extreme financial hardship, a medical problem or some extraordinary circumstance has led to your tax problem you may qualify to have some or all of your penalties and interest cancelled through the Taxpayer Relief Program. 

The thought of having to get late returns filed is fun – but it is better to just deal with it now and move forward on a fresh footing than face terrible CRA consequences.

For more information about how to get late returns filed please visit www.taxsolutionscanada.ca or call 1-888-868-1400.

 

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.