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.

How to Get a CRA Wage Garnishment Removed or Reduced

Imagine that you owe the Canada Revenue Agency (CRA) a lot of money (or maybe you don’t have to imagine) and you’ve been ignoring their collection letters and now the phone calls have begun. You decide to ignore those calls too. Guess what the CRA is going to do next and without any further warning?  That’s right…a CRA wage garnishment!

A CRA wage garnishment is one of the most common collection tools that CRA will use to enforce payment of your outstanding debt. CRA does not need to go to court and get permission before issuing this powerful document. A CRA wage garnishment can be issued at any time once your debt becomes legally collectible (i.e. if you haven’t filed a Notice of Objection to dispute the amount). 

CRA will usually give you one written warning that legal action will commence if they do not receive payment in full within 14 days. Once that deadline passes, all bets are off in terms of what CRA will do next, but whatever they do, it won’t be pleasant.

What does a CRA wage garnishment mean for you? If you are an employee, CRA will issue this garnishment to your employer, directing them to take up to 50% of each of your pay cheques and send it to CRA. Once the garnishment is received, your employer has no choice but to do as CRA commands.  In addition to the financial pain that a wage garnishment will inflict on you, what about the pain of embarrassment?  Now your employer has been made fully aware of all your tax problems with the CRA.   Word will often start to spread throughout your company, and soon most of your colleagues become aware of your CRA problems. 

The best thing to do is to seek help before the problem reaches the point of a garnishment. However, don’t despair if the garnishment has already been issued! There is still an excellent chance to get it reduced or better yet removed all together!  Make no mistake, once CRA has the garnishment in place, they are now in a position of strength and have you at a distinct disadvantage. 

This is where knowing how to properly negotiate with the CRA collector comes in handy. The collector is playing a game – a very serious one – but you don’t know the rules. You do have rights – and CRA cannot keep legal action in place that causes you “undue hardship”.  The key is that you have to prove to CRA what your ability to pay is toward this debt.  If you can only afford $500/month and the garnishment is taking $1,000/month from you, then they are violating their own collection policies!   A voluntary payment arrangement is the way forward with the CRA, but that is easier said than done. Dealing with a CRA collector is not a “do-it-yourself” project.  

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.

An Overview of the GST/HST New Housing Rebate

Taxpayers who purchase a new home may qualify for a partial rebate of the GST/HST paid on the purchase.

The GST/HST New Housing Rebate allows purchasers to partially recover the federal and provincial portion of the sales tax that is paid on the purchase price of a new or substantially renovated home that was purchased with the intention to make it the primary place of residence by the purchaser or a qualifying relation. Typically, the New Housing Rebate is claimed by the builder of a new home on the purchaser’s behalf and adjusted in the final purchase price of the property. In some instances, purchasers may file for the rebate independently.

Similar to the New Housing Rebate, taxpayers purchasing a new condo or home to earn rental income may recover the GST/HST paid on the purchase through the GST/HST New Residential Rental Property Rebate, which offers partial recovery of federal and provincial sales tax on new residential rental properties.

Rebate Amounts

New homebuyers in Ontario are charged 13% HST on their purchase, consisting of a 5% federal tax and 8% provincial tax. The New Housing Rebate essentially refunds 36% of the federal portion of the HST (up to a maximum of $6,300) and 75% of the Ontario portion of the HST (up to $24,000). Similar rebate amounts are available under the New Residential Rental Property Rebate.

Eligibility

You may be eligible for these tax rebates if you’ve done any of the following:

·         Purchased a newly constructed home

·         Purchased a new condo

·         Built a house

·         Contracted someone to build a house

·         Substantially renovated a house or condominium

·         Contracted someone to extensively renovate a home or condo

·         Added a major addition to a home

·         Rebuilt a home that was destroyed by fire

·         Bought shares in a newly constructed cooperative housing project

·         Converted a non-residential property into a home

It is important to note that a key requirement for the New Housing Rebate is that the property must be purchased with the intention that the purchaser (or a qualifying relation) will make it their primary place of residence.

In order to qualify for the New Residential Rental Property Rebate, purchasers must ensure that the property is leased for a minimum of at least one year before disposition. The rebate may have to be repaid if the property is sold within one year after it is first occupied as a place of residence and the purchaser is not buying the unit as a primary place of residence for themselves or a qualifying relation.

Pitfalls and Traps

In recent years, CRA has become increasingly aggressive in auditing New Housing Rebate applications. Quite often, purchasers are reassessed many years after receiving their rebate on the basis that they do not meet the conditions necessary to qualify for the rebate. If they believe that you did not stick to conditions, then penalties can be harsh.

Want to learn more about these rebates and if you qualify? Contact Tax Solutions Canada today by calling 1-888-868-1400.

Trying to Negotiate a CRA Payment Plan with CRA Could Lead to Burns on Your Bank Account

You file your taxes, but cash is tight, so you don’t remit payment.  Time goes by and you still don’t manage to pay. You may occasionally receive a statement of account from the CRA, reminding you of your outstanding balance and indicating the amount of interest that continues to increase your taxes owing. More time passes – maybe as little as 90 days from the date your tax return was assessed, or maybe several months or even years.

And then one day you open a letter from CRA Collections, notifying you that you only have 14 days to pay your debt in full, and to contact CRA Collections. The letter warns you that failure to do so will result in legal action. Receiving this letter means that CRA is no longer willing to wait for you to pay your taxes in your own timeframe, and has assigned a collector to your account whose mandate is to get your account paid NOW. So, what do you do?

If you choose not to respond to this letter, you can expect increasingly unpleasant correspondence from the CRA to follow in due course. You will likely receive a form which confirms that the CRA has certified your tax debt in federal court, which is the official pre-cursor to the CRA proceeding with formal legal action against you. Failure to respond to the CRA at this point will most certainly result in legal action being taken. CRA may issue a Requirement to Pay – to your employer (garnishment of wages), to your bank (to freeze and drain your bank accounts), or even to your customers (forcing your accounts receivable to be paid directly to the CRA). The CRA may also register a lien on your home, or on other property you own.

CRA’s authority to impose collection action on taxpayers is vast. Add to this the fact that while some collectors will treat a taxpayer fairly and respectfully, there are many collections agents who will intimidate, threaten or pressure a taxpayer into a payment arrangement which they actually cannot afford, leaving them in even worse circumstance than before.

The CRA’s own Taxpayer Bill of Rights (found at http://www.cra-arc.gc.ca/E/pub/tg/rc4417/rc4417-13e.html) clearly spells out how taxpayers are entitled to be treated.  However, collectors aren’t actually required to inform you of those rights - it’s up to you or your authorized representative to know the boundaries that CRA must respect, even while trying to collect money from you.  Being uninformed puts you in an extremely vulnerable position when negotiating with the CRA - know your rights!

Call Tax Solutions Canada before you call CRA. We can help inform you about your rights as a taxpayer and protect you through the negotiation process. 1-888-868-1400.

Dispute with CRA? To Object or Not Object – That is the Question

So you’ve been audited by the Canada Revenue Agency (CRA) and received a reassessment on your income tax and/or GST/HST returns. You may have even been hit with gross negligence penalties. What do you do? How do you fight the reassessment? Is there any hope?  Yes! You can protect your rights and file a Notice of Objection to settle your dispute with CRA.

A Notice of Objection is a formal dispute resolution process which allows you to make your case that the CRA auditor was wrong regarding your tax situation. The Notice of Objection is your best shot at telling your side of the story and getting some or all of the auditor’s adjustments reversed. 

It is important to point out that the Notice of Objection is not a court-based process and you do not need a lawyer to represent you. However, this doesn’t mean you should go it alone – far from it!  You absolutely should hire a tax specialist who knows how to best present your case in order to give you the greatest chance of a successful outcome.  

Here are some key points to keep in mind about the Notice of Objection:

-       Act quickly!  In most cases, you only have 90 days from the date of the reassessment to file your Notice of Objection.

-       What if I didn’t file within 90 days?  Don’t lose hope!  You have 1 year after the 90^th day to request an extension of time to file your Notice of Objection. Your chances of getting your request granted is better the earlier you make it.

-       What about CRA collections? (Part I) If you are objecting to an income tax issue, the good news is that the objection protects you from the CRA collector.  However, as long as the debt remains unpaid - even while it is under objection - interest will continue to build.

-       What about CRA collections? (Part II) However, unlike an income tax assessment, if you are objecting to an excise tax issue (i.e. GST/HST), the CRA collector will still want their money while you wait to have your objection resolved. 

Let’s say you have been assessed a gross negligence penalty and want to have it removed. Some may ask if they should file a taxpayer relief application instead of a Notice of Objection.  While the Taxpayer Relief Program does review requests to remove penalties, a Notice of Objection would be a much better choice. Why? A Notice of Objection is a formalized process in which the CRA must reverse the auditor’s position if your case is proven to be superior to that of the auditor.  A taxpayer relief application is at the sole discretion of the employee reviewing your file. In the case of a gross negligence penalty, your chances of success are slim as you would have to prove “exceptional circumstances.”  Also, filing a Notice of Objection stops collection action (see below) while a relief application does not.

I often get asked if filing a Notice of Objection is really worth the effort. I can answer that question with a resounding “YES”!  A properly filed and represented Notice of Objection gives you an excellent chance to successfully resolve your dispute with CRA. 

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.