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.