“New” CRA Powers are Not so New after all! Unless…

Recent radio advertising and newspaper or online articles would have you believe that the CRA has been ramping up staff in order to break down your door in the middle of the night and arrest you for tax fraud.

Deep down inside you knew that you should have opened a BN number and GST/HST account for your child\s lemonade stand because even though they were significantly under the $30,000 sales threshold, if registered, you could have claimed the Input Tax Credits – but you didn’t and the CRA wants their money!

You also know that if you had a question, the CRA call centre were going to mislead you, or lie to you so that you would be forced to pay even more money.

You also know that you might need help for a tax accountant, tax lawyer, tax broker, tax solutions firm, or tax audit specialist… but you cannot choose because the different names must mean they do different things and you don’t know which category you fall into, and … the CRA are so coming to get you… now!

(Is that rustling in the bushes in front of my house?)

spyingWell all of these new powers and the threats that they are going to break-down your door and arrest you on the spot are not really true.

You only have to fear the CRA breaking down your door (really the RCMP, but I’m sure the CRA would be there somewhere along the way) if you have done something wrong.  Very wrong.  Criminally wrong.

You should be concerned if the CRA knows you’ve done something criminally wrong, or have been involved in terrorist financing or activity because they’ll pass that along to the police.

The Canada Revenue Agency gained the little-noticed new authority, which does not require a judicial warrant, through an amendment tucked into the government’s most recent budget bill.

Previously, confidentiality provisions in the law prevented the CRA from handing information about suspected wrongdoing, on its own initiative, to law enforcement.

The exception was information that pointed to tax-related crimes.

The new provisions apply to offences including breaking and entering, vehicle theft, arson, corruption and kidnapping and in return, the CRA can now receive information from local authorities about any offence with a minimum prison term, or one with a maximum sentence of 14 years.

The list of offences is broad and is a significant shift in confidentiality policy allowing the CRA to pass along information to law authorities without a court-ordered warrant, even when the alleged crime(s) have nothing to do with taxes.

Interim procedures for administering the new powers were issued to all CRA employees in June 2016 not too long after the legislation received royal assent.

The intended use of this new tool, is that an exchange should occur when an employee gathers information in the course of their regular duties.

This information exchange was intended to be one-way and would be closely controlled through a set of strict criteria.

As an aside, it would have been nice to know who might be carrying on criminal activity, when I was working at the CRA and went to visit a business to determine why they stopped filing GST returns, only to learn that they were conducting illegal activities and was physically threatened before getting the heck out of there.

The following day the RCMP showed up, cleaned out the place and arrested the operators.

I never did get my outstanding GST returns, however, which could have been prosecuted as a criminal offense (but was not).

All potential referrals to police will be vetted by the agency’s criminal investigations personnel and must be approved by the assistant commissioner of the department’s compliance programs branch, CRA has reported.

The key points to remember are this;

  1. If you happen to have partaken in a criminal activity, you might not want to disclose that to the CRA collector.
  2. Make sure to stay compliant!  File up to date and don’t give the CRA reasons for looking for stuff.
  3. Take all of the tax-related advertising with a grain of salt.  Their intention is to scare you and force you to drop a ton of cash at their business.  Instead, I recommend you do your research, ask questions and get the solution that fits your tax problem.
  4. If you’re not sure… Ask.  Then use your judgement.

 

Tax Freedom Day, 2017. Working For Ourselves Now… Theoretically.

June 9, 2017 is Tax Freedom Day!

What is Tax Freedom Day?

Does it really exist?

What might it mean to me?

In their annual report, the Fraser Institute, a Vancouver-based think-tank added up all forms of taxation — from income and sales taxes, to more hidden costs such as gasoline taxes, carbon taxes, tobacco and alcohol taxes, municipal property taxes, payroll taxes and even CPP and EI premiums — to come up with a figure for the overall tax burden for Canadian families, and this year, they have determined that the average Canadian family with two or more people will earn $108,674 and pay 43.4% in taxes.

Based on the Fraser Institute math, 100% of income earned thus far in 2017 has been gobbled up by government in taxes, and only now are you working for yourself until the end of the year.

Last year, in 2016, it came a day earlier, on June 8th and because of variances in all types of taxes in different provinces, Tax Freedom Day differs across the country, ranging from May 21st in Alberta to June 25th in Newfoundland and Labrador.

One of the reasons for the extra day is to account for the fact that Canadians’ tax bill has risen, on average, by $1,126 this year, according to the Fraser Institute. Of that increase, $542, came from higher income taxes, but sales taxes (up $311) and other energy-related taxes (up $204) also took a bigger bite while liquor, tobacco, amusement, and other excise taxes, payroll and health taxes, and import duties all decreased.

The Ottawa-based Broadbent Institute, however, disputes the math behind the annual Fraser Institute report, because the Fraser Institutes uses “average” tax rates instead of median tax rates.

To come up with its “average” tax rates, the Fraser Institute simply adds up the amount of cash income earned by a taxpayer, and then divides that by the number of people. It then takes “outliers” and excludes those extremes from the calculations.

The Broadbent Institute said that skews the numbers in a certain way, and a better way than the average would be to use the median — the exact mid-point between the top and bottom and the rationale behind this surrounds the fact that the average income of Canada will always be higher than the median because of the small number of very high-income earners in Canada, which skews the average income amount higher.

Adding up only federal and provincial income taxes, the “average” Canadian in prime working years (between 25 – 54 years of age) earned $62,600 last year, and paid $12,000 in taxes, or around 19%, according to tax filings. Using the Broadbent method of calculation, the median for that group earned $50,500 last year and paid $7,000, or 14%, in income taxes.

Another main difference is that the figures used by Fraser Institute report doesn’t just include income taxes. It tabulates all sorts of fees that taxpayers don’t directly pay, such as payroll taxes and resource royalties that companies pay when they extract things like oil, minerals and timber.

It also only considers what it calls “cash income” on the other side of the ledger. That excludes employee benefits, investment income from pension plans and other forms of cash income.

The Fraser report also takes into consideration indirect costs like payroll taxes and other taxes which businesses pay in their calculations because even though businesses pay these taxes directly, the cost of business taxation is passed on to Canadians.

So now that we’re working for ourselves, let’s push all levels of government to treat our tax dollars more wisely, and let’s earn as much as possible (while continuing to pay our taxes on time!)

Common GST / HST Questions asked this past week

Below are some common GST/HST questions ask by readers of this blog through either email, Facebook comments, Tweets, or search queries.  I wanted to share the question, and provide the answer to save readers some time.

Q: Can you charge HST without an HST number?

A: No.

Q: Collecting GST when not registered?

A: Don’t.

Q: When do I have to start charging GST?

A: When you register or when you earn more than $30.000.00, or $2500 in HST.

Q: Do I have to charge HST under $30 000?

A: Yes, if you’re registered.

Q: Can you charge HST without a HST number?

A: No.

Q: What is the GST $30000 threshold?

A: It is the threshold that the Canada Revenue Agency (CRA) states determines when you must register for the GST/HST.  Under $30,000 in taxable sales, registration for GST/HST is voluntary.  Once you hit $30,001, then it is required.

Q: Do I charge HST if I make less than 30000?

A: Earn, not make, and you don’t have to, but I strongly recommend it.

Q: What are the CRA invoice requirements?

Better worded as what are the invoice requirements if I am registered for the GST / HST?

A: To have your GST / HST number clearly displayed on the bottom of your invoices so people who pay you GST / HST know you are actually registered.

Q: How does GST or HST work?

A: Basically, if you sell or provide goods and services in Canada, you must charge customers the Goods and Services Tax (GST) or the Harmonized Sales Tax (HST) unless your business qualifies as an exception.

If your Canadian business fits one of the exceptions, it won’t have to charge, collect and remit GST/HST.
The two possible exceptions are:
1. You sell or provide a good or service that the CRA has classified at being “zero-rated” or “exempt”
2. You are a small supplier

Zero-rated goods and services, such as exports, medical devices or basic groceries, are charged 0% HST. Exempt goods and services, such as golf or music lessons, child care, etc., are exempted from GST/HST, so they are not subjected to the tax.

A small supplier is one who has total taxable revenues before expenses from all your businesses of less than $30,000 or less in the last four consecutive calendar quarters and in any single calendar quarter.

Q: Any industries or professions have to apply for GST / HST right away?

A: Yes. Taxi and limousine operators and non-resident performers have to charge GST/HST even if they are small suppliers.

Q: Do I want to register for GST / HST even though I’m considered a small supplier?

A: Yes

Q: How do I register for GST/HST?
CRA makes registration easy for Canadian’s. You can register by phone (call the Canada Revenue Agency at 1-800-959-5525), online, by mail or even in person at a tax office.
(Note that if your business is in Quebec, you need to contact Revenu Quebec instead at 1-800-567-4692 as they deal with GST/HST in that province.)

If your small business starts out as a small supplier and you make more than the small supplier limit ($30,000) you’ll want to register for GST/HST right away; in the eyes of the Canada Revenue Agency, you are now a GST registrant and you:
1) have to collect GST/HST on the supply that made your revenue go over $30,000;

2) have to register within 29 days of the day that you made the supply that made your revenue go over $30,000.

What causes problems for small businesses is they don’t realize they’ve gone over the limit until some time later when they’re doing the books and then discover they didn’t charge the GST/HST when they should have.  Small suppliers must watch their revenue carefully.

Q: What is a BN?

A: When you register, your business will be assigned a business number (BN); this is the number that you and the CRA will use to identify your business. (You’ll be using it on all your invoices, in your accounting system, and in all your tax-related correspondence with the CRA.)

Q: Do I need to charge the GST/HST?

(Answers the question whether or not you need to charge GST/HST on your sales of goods or services.)

A: Sales of zero-rated or exempt goods and the small supplier exception are discussed later.

Q: Shipping Out of Province: Should You Charge GST/HST?

A: Yes.  Depends on the province you are shipping to.  They pay the applicable rate in their province.

Q: What’s the difference between zero-rated and exempt goods and services?

A: These are two special classes of goods and services that the customer does not pay GST/HST on but in the case of zero-rated goods you, the provider of goods or services, can still claim input tax credits.

Hope this helps!

If anyone has any questions, concerns or comments about the GST/HST and need additional assistance, please contact us at tax@goldhar.ca.

 

 

How We Help: GST/HST, Deemed Trust, s.160 Assessment and T2’s

A couple of months ago, I received a call from a senior law partner at one of Toronto’s top law firms asking me if I could help out a client of theirs with a messy tax problem because their firm was just too expensive for the couple.

I was told there was a balance owing to the CRA for GST/HST, and that the firm was essentially bankrupt, they feel they don’t owe the money and the CRA was threatening to raise a Deemed Trust followed by a s.160 assessment.

All over $30,000 owing to the CRA.

Sounds simple enough…

Confirm the amounts, then figure out if the balance is actually owing, tie up loose ends then make arrangements between the client and the CRA to resolve both matters.

I connected with the couple, got their side of the story, then met their wonderful accountant and got her side of the story.  I took all of that information, and had a nice long chat with the Collector at the CRA.

Here is the CRA’s side;

The couple owned a business, which accumulated debt through the filing of GST/HST but never paying it.  They also failed to file T2 returns.

The company had at one point in time sought financing and ended up pledging their inventory in return.  When the business began to slow down, the lender took the assets, and sold them to pay back the money they had lent to the business.

There was a shortfall.

The CRA did not like this at all.

With money owing to the CRA, they used their Deemed Trust provision and raised a s.160 non-arms length assessment against the lender for taking the inventory and disposing of it without paying the CRA.

The CRA were just waiting for the corporations director to file for bankruptcy before they actioned the s.160 because that would survive the bankruptcy and would result in the CRA getting paid on all fronts.

But logic sold me that a business which was struggling would not have significant amounts of GST/HST owing in its final years.

Something did not seem right.

I called back the CRA Collections office who, quite frankly, was extremely unhappy about having to answer additional questions about the origin of the debts… Again.

I had asked her to go through the last 3-years worth of filed GST/HST returns and give me verbal figures for Total Sales, GST Collected, and Input Tax Credits.

She started.  The first year was fine.

The second year was fine.

The third year, she started, “Total Sales were $25,000”, “GST Collected was $1,500” and ITC’s were …

… she paused…

“No ITC’s, eh?” was my response.

“No.  No ITC’s”, she said, completely puzzled.

“So I don’t expect there to be any ITC’s on any of the returns going forward, is that accurate?” I asked.

“No ITC’s on any of the returns going forward… That’s so unusual”, was her response.

We re-filed the last 6 GST/HST returns to include the ITC’s.  They went through a desk audit quickly because of the notes indicating someone missed ITC’s, and upon posting knocked down the balance owing considerably.

The s.160 assessment was cancelled and the remaining, much smaller balance was paid in full.

I introduced them to one of the fantastic accountants in my network who quickly completed the T2’s for them.

Everyone left happy.

That’s how we help!  Knowing the ins and outs of the CRA’s collections department and even think that something might have posted incorrectly, 4-years ago.

inTAXicating by Goldhar!

 

 

Your Canada Revenue Agency (CRA) Tax Collections Questions Answered

Here are the answers to the most frequently asked CRA Tax collections questions from the past weekend:IMG_7817

  1. Can you bribe a CRA officer in Canada?

Answer: NO.

First off, bribing a CRA officer is a criminal offense and you could quickly wind up with the RCMP at your door, or under investigation, but more realistically, the staff at the CRA tend to be lifelong civil servants and one of the great benefits of working in the civil service is the great pension.  Few civil servants are willing to even entertain the thought of giving up their pensions, let alone going to jail for someone when they have hundreds of other people to collect from.

2.   Is there GST/HST on a lien?

Answer: Let’s presume that the question is asking if there is additional GST / HST on a lien, and the lien has been registered by the Canada Revenue Agency (CRA).  In that scenario, the answer is no.

The CRA would register a lien for unpaid or unfiled (and assessed) GST / HST, and the amount used for the lien is the amount owing on the day it has been registered in Federal Court.  This fact is important because from that day forth, interest continues to accrue and accumulate on the tax account with the CRA, but the lien only reflects the amount owing at a point in time.

Often, a lien will get paid out and then the CRA’s computer system kicks out an update Notice of Assessment with an additional balance owing  and taxpayers are puzzled having just paid off a lien.

They did pay the lien.

Now they pay the rest of the balance owing.

3.   Where can I get the truth about Voluntary Disclosure?

Answer: From the CRA website, of course.  The link to the VDP section of their site is here;  http://www.cra-arc.gc.ca/voluntarydisclosures/

4.   Can I claim mileage drive to and from work at the CRA?

Answer: I hope you enjoy your career at the CRA and are not an auditor, because you should know this answer!  You cannot claim mileage driving to and from work.

From the CRA website; http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/229/slry/mtrvhcl-eng.html

“If you use a motor vehicle for both employment and personal use, you can deduct only the percentage of expenses related to earning income. To support the amount you can deduct, keep a record of both the total kilometres you drove and the kilometres you drove to earn employment income. We consider driving back and forth between home and work as personal use.”

Thursday Thirteen: 13 Ways to Know You Need New Tax Representation.

Since today is Thursday, I thought a Thursday Thirteen themed post might be a good change of pace!

Here are 13 things that should NEVER be said to someone with a tax problem, from someone who claims to want to help (or just your money).

Each quote below was an actual quote uttered by a tax solution representative or accountant to a prospective client in my presence.

Sit tight, and get ready to shake your head in disbelief…

13.  “GST, HST, PST… They’re all the same.”

12.  “CRA Collectors don’t care about you.  They treat their clients like a ‘whack-a-mole’ game.  You pop your head up and they smack you on the head with a hammer.  We provide you with a helmet or advise you to stay underground until the game is over.”

11.  “You’re an alcoholic? GREAT!  Substance abuse qualifies for relief!!”

10.   “I can tell you for a fact that the Auditor General requires the CRA to close files, NOT collect money.  The benchmark is 7-years.  We can close your file in 7-years!”

9.   “You’re just a little guy! Nobody cares about you.”

8.   “If you tell the CRA anything you are shooting yourself in the feet.  That’s dumb and it hurts.”

7.   “I know the CRA have won in Tax Court, but they are wrong, and this time we have everything we need to prove them wrong!”

6.   “Just ignore them and it will all go away.”

5.   “You don’t need to speak to a Tax lawyer, or an accountant.  They’re useless.  You should never talk to the tax preparer.  Just pay us $5,000 and we can make it all go away.”

4.   “The Taxman…”

3.   “I don’t care what the CRA wants, and how soon they want it.  They’re getting what I want to give them, when I’m ready to give it to them, AND they’re going to see that I’m right and they are wrong.”

2.   “We need to reduce the amount that you owe, so I’m going to create a T2200 for you, and claim a lot of expenses that your employer has not deducted like mileage, phone, and parking.  They’ll never know its not true and on the off-chance that they ask, I have hundreds of parking receipts in my car I can give them.  It’s perfectly fine…”

  1.   “Don’t even bother opening that envelope… Just throw it out.”

 

Just missing this list, but barely, is the commonly uttered line; “Quick, transfer the house out of your name before the CRA registers a lien against it!”