The Biggest Taxation No-No’s. EVER!

Canada Revenue Agency
Canada Revenue Agency (Photo credit: John Bristowe)

Working in the Canada Revenue Agency for almost 11-years, I learned a thing or two about how the CRA operates as well as what is a red flag for them and what the CRA often let’s slide.  It helps when I negotiate with them that I know their policies, procedures and how to navigate their systems as well as they do, or even better.  I’ve used this knowledge to help my clients save millions of dollars of taxes.

With that in mind, I want to help you save unnecessary expenses, so I decided to reveal the 8 Biggest Taxation No-No’s EVER.

8.  Try and do it yourself.  Taxation is a complicated topic for many and if you don’t live and breathe tax then you should consider either hiring someone to help you along or at the very least hire someone to set you up correctly and who will take the time to learn about you and your business so that you are getting all of the tax deductions and credits available to you all the time.

7.  Think that you are above taxation.   Everyone pays taxes no matter their income level; whether it be income tax, payroll tax, or consumption tax.  To think that there is a magic “Pay no tax” card is a huge mistake and the CRA does not take “detaxers” or the underground economy lightly..

6.  Brag about not paying taxes / scamming the government.  Our tax system here in Canada is a self-assessing system with the government’s responsibility being the checks and balances.  It’s not that they don’t trust you but… They don’t trust you, which is why they have huge departments responsible for catching the tax cheats.  If the government doesn’t get you, your ego might;

5.  Post information online about yourself or your business and think that the government will not see it and use it against you.   The “government” are a bunch of people like you and I who are trying to make a living.  If you claim you are suffering from financial hardship yet post pictures on Facebook showing yourself living it up, or if you claim to be Canadian and your profile states that you are born in the US, the collectors or auditors will find it and us it against you.

4.  File late, miss installment payments or fail to make remittances.  All this will do is add penalties and interest onto your tax account and there are very few excuses the government will accept to have them reversed or cancelled.   Many large tax debts start in just this way.

3.  Carry a balance.  If at all possible it is critical to make sure that you do not carry a balance with the CRA.  With interest being charged at a floating rate of just over 10%, compounding daily, your balance can grow at a shocking rate.  The CRA is not a bank and you should not think it’s okay to treat their debt as a bank loan.

2.  Don’t be afraid to search online for your tax advice.  Not only has the CRA moved to strengthen their online presence but there are a lot of professionals online who have posted their experiences with the CRA and steps they took to resolve tax problems for themselves and their clients.  Anyone suggestion otherwise is doing so to avoid you from finding out there are other – better – tax solution providers in Canada.

1.  Thinking that anyone can help you.  This is the absolute biggest tax no-no I have encountered in 17-years of taxation.  If you have an electrical problem at home, do you call a plumber?  Would you ask a dentist to perform open-heart surgery?  How about asking a former auditor to help you with a collections problem, or an appeals officer to help you correct your payroll nanny account issues?  How about going to an Insolvency firm to have a lien removed from you house which was placed there by CRA collections?

It doesn’t make sense but don’t get me wrong.  If you have created a tax crime, such as tax evasion,  you will need a tax lawyer, and if you need tax returns prepared, they need to be done by an accountant, and a former CRA auditor is the right solution if you have a difficult, complex corporate tax audit underway,

In taxation it is critical that you have experience on your side when you work to resolve your tax issues and understanding the way the CRA operates is more important than you could imagine.

Tax debts begin with audit or compliance issues.

Then they go to collections.

Collections leads to enforcement – garnishments, requirements to pay (RTP), liens, seizures, director’s liability, and much more.

You need experienced former collections staff to help you, and with almost 11-years of progressive collections experience in all areas, from collector to resource officer, to team leader, believe me when I say that experience helps!

When your representative knows more than the collector, or trained that collector, you know you have the best representation possible.

To leave your $250,000 tax liability to anyone else would keep me up at night too.

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CRA Tax Auditors Target Condo Sellers in Hunt for Flippers – Nothing New!

We, at inTAXicating, came across an article this morning in the Toronto Star newspaper entitled; “Tax Auditors Target Condo Sellers in Hunt for Flippers“, and immediately read through looking for something new or developing in the Canada Revenue Agency (CRA) battle to tax those who should be taxed on taxable transactions.

But there was nothing new here.  While the article does, however, get a very important message across in a somewhat alarming and shocking manner probably meant to draw the attention of those who have no interest in taxation – the truth speaks for itself.

Capital Gains tax or proof, please.
Capital Gains tax or proof, please.

CRA auditors have always been looking at condo sellers and house sellers to determine who are flipping these properties for profit,  If they are, then they have to pay a capital gains tax on the profit they make during the flip.  If they hide it and are found out, then they have to pay the capital gains tax on the flip, plus they get required to pay a penalty plus interest.

For those of you who are unaware of what the article said, it essentially outlined that there are citizens who were not aware that if they buy a property and sell it within 6 months, or if they buy it but never move into it and sell it. they are liable to be taxed by the CRA, in what a Toronto tax lawyer referred to as “abusive audit practices” by the CRA.

The article seems to focus on the fact that the CRA audit group are reviewing condo sales in the two hottest markets – Toronto and Vancouver – for instances where a flip was evident and in doing so are trying to find the truth.  To do that, the CRA follows their usual practices which means some people get phone calls, some get letters, some legal warning letters and some just get assessed.  In the Canadian tax system, the burden of proof is on the taxpayer, so in this case they would have to prove (or explain) why they should not be subjected to a capital gains tax when all evidence points to it being owed.

At issue here is that there are some people who were forced to sell within that 6-month window due to circumstances beyond their control and they have been hit with a massive tax bill – or in the most recent case I successfully defended, a letter from the CRA real estate audit group indicating that the CRA would assess unless other information was provided.

From the article, even the Toronto Real Estate Board (TREB) stated; “the rules are generally clear on the amount of time one has to occupy a unit (as a principal residence) to benefit from a capital gains exemption.”

So what is the problem?

According to this article, the law does not stipulate a specific amount of time so people have been receiving assessments “for at least 50 per cent of any gains made if they’ve sold before living in the property 18 months to two years.”  An assessment like that, I would certainly challenge!

The CRA, however, through their spokesman Sam Papadopoulos, said; “We’ve just been a little more aggressive in sending out questionnaires.”

In addition to keeping an eye on capital gains, the CRA also are seeing an increase in GST/HST housing rebates being claimed, so if a letter is sent your way regarding missing information, it is advisable to provide the information to the CRA, or seek professional help, such as the Tax professionals at Intaxicating Tax Services to make sure the CRA is comfortable with the information provided and that your interests are represented throughout the discussions.

While I would not agree that this is a “full frontal attack on everybody out there who has bought and sold a property”, I would recommend anyone who received a questionnaire or an assessment notice from the CRA but do not fall in the 6-month window, or who were required to sell for reasons beyond their control, to contact us, because we can help.

Recently, we helped out a former Live-in caregiver who came to Canada almost 20 years ago, and worked 2 jobs to buy her dream home.  She purchased a condo which was scheduled to be built in 15 months, and when her floor was ready, she moved in.  When tragedy struck her family back home, she was required to sell the condo and send home money to help her family.

To add insult to injury, the CRA sent her a bill for $45,000.

She had no idea such a tax existed and was an emotional wreck at the time we met.

After 2 weeks of discussions and negotiations with the CRA auditor (some of which surrounded our clients actual ability to pay for a condo based on her income of $350/yr – the auditor was reading the educational expenses, not the income field) our client received a letter from the CRA stating that the CRA would not be raising the assessment.

Problem solved.

So no matter what tips or tricks, or techniques the CRA utilizes, the approach is consistent;  If you have the facts, and you can support them, then do so.  If the CRA disputes your facts, then you can file an objection and you can present your case to an appeals officer.

If you have questions, or don’t know something, then ask.

Contact us today for a free consultation, or to help you resolve your tax problem(s) once and for all.

inTAXicating Tax Services is a full-service boutique tax firm run by actual former CRA staff who over a combined 22 years have learned, applied and taught other CRA staff about the ins and outs of the CRA’s collection and enforcement divisions.

Who better to trust that the people who trained the CRA on how to do their jobs!

Our website is http://www.intaxicating.ca.  Our blog can be found on our website, and here, at http://www.intaxicating.wordpress.com

We can be found on Facebook here, and on Twitter, here.

Our email is info@intaxicating.ca

 

Claiming Gas or Mileage? How to avoid having this expense denied by the Canada Revenue Agency.

Many taxpayers here in Canada are advised to “keep their receipts” when they claim mileage and / or gas on their tax returns.  The thought here is that the Canada Revenue Agency (CRA) might audit your tax return and will deny your claim if you cannot show proof, but what are you allowed to deduct?  Does it matter if you are self-employed or if you are a salaried employee?  Did you know that just keeping your receipts is not enough and there might be deductions you are entitled to that you are not claiming?

It all matters.

If you are claiming vehicle expenses and you are a salaried T4 employee working for someone else, then you need to know this;

Or, if you are self employed, you need to know this;

So if you rely on your accountant to take care of this for you, or if you wish to use the services of Intaxicating Tax Services, at the very least, you need to be aware of this important fact;

The CRA regularly rejects gas receipts from taxpayers who pay for their gas with debit cards.  Why?  Because they are not sure if you are getting cash back on the transaction – that does not show on the debit slip.

Example: I go to fill up my car 3 times a week, and each time I put in $20.00 worth of gasoline, but get cash back of $80.00 each time.  My debit slip reads $100.00, and I claim $300.00 worth of gasoline expenses for that week on my tax return when in actual fact I was only entitled to receive a deduction in the amount of $60.00.

In addition, if you are required to travel a lot for work, make sure that you have a calendar at home and at the office (on the office computers) which show the location of the meeting, the name of the organization and / or people that you are meeting, as well as the purpose of the meeting (ie/ sales, cold call, delivery).  Make sure that you track the mileage as well.  This way when the CRA questions the high claims, you can show them with 100% certainty that your travel claims are for work purposes.

It also helps to keep all the gas transactions on the same credit card for organizational purposes.

It takes a little effort and organization but it’s worth it.

Intaxicating Tax Services can be found @ http://www.intaxicating.ca and make sure to drop by our helpful blog here.

Employee or self-employed worker? Federal Court of Appeal’s 2-Step Process.

[109/365] Taxation.
Taxation. (Photo credit: kardboard604)
It is important to determine whether a worker is an employee or a self-employed individual.  Employment status directly affects a person’s entitlement to employment insurance (EI) benefits under the Employment Insurance Act.  It can also have an impact on how a worker is treated under other legislation such as the Canada Pension Plan and the Income Tax Act (ITA).

The facts of the working relationship as a whole determine the employment status.  If the worker is an employee (employer-employee relationship), the payer is considered an employer.  Employers are responsible for deducting Canada Pension Plan (CPP) contributions, EI premiums, and income tax from remuneration or other amounts they pay to their employees. They have to remit these deductions along with their share of CPP contributions and EI premiums to the Canada Revenue Agency (CRA).

An employer who fails to deduct the required CPP contributions or EI premiums has to pay both the employer’s share and the  employee’s share of any contributions and premiums owing, plus penalties and interest.

If the worker is a self-employed individual and in a business relationship, he or she is considered to have a business.

The best way to be sure if there is any doubt is to request a ruling from the CRA.  A ruling determines whether a worker is an employee or is self-employed, and whether that worker’s employment is pensionable or insurable. If you have a payroll account and are registered on My Business Account, you can use the “Request a CPP/EI ruling” service in My Business Account.

As well, an authorized representative for the payer can also request a ruling electronically through the Authorized Representatives Section of the CRA website, here.

A payer or a worker can request a ruling by sending a letter or a completed Form CPT1, Request for a Ruling as to the Status of a Worker Under the Canada Pension Plan and/or the Employment Insurance Act, to their tax services office (TSO).

Recently, the Federal Court of Appeal (FCA), in the case of 1392644 Ontario Inc. (Connor Homes) v. Canada (National Revenue), 2013 FCA 85 (CanLII) weighed in to reconcile competing tests on the proper way to determine whether an individual is a contractor or truly an employee through a 2-step process.

This appeal in this case  involved 3 women who worked for Connor Homes, a licensed operator of foster homes and group homes for children with serious behavioural and developmental disorders, as area supervisors and/or child and youth workers.  Each worked under a contract that stipulated she was an independent contractor “responsible for payment of all necessary remittances, including CPP, EI and Taxes”.  Each was paid at a specified hourly rate or flat rate that depended on the service provided and provided those services in accordance with the homes’ policies and procedures manual.

The CRA ruled that each of these workers were engaged in employment for purposes of the Canada Pension Plan and the Employment Insurance Act., which Connor Homes disagreed with.

In hearing the appeal, the FCA commented that the question of an individual’s working status has become increasingly important with the trend towards outsourcing and short-term contracts and the consequent effect on entitlements to Employment Insurance and Canada Pension Plan benefits. The Court also acknowledged that although the question is simple in theory, it is difficult to apply with any degree of certainty given its fact specific nature and the ever-changing workplace.

Many employers also tend to categorize employees as independent contractors so they are not responsible for withholding and remitting CPP, EI and Tax to the CRA on behalf of the employee and to avoid being responsible for benefits.  If the CRA determines  otherwise, the employer is responsible for both the employer and the employee portions of CPP, EI and tax (plus P&I) until they are current.

The FCA refined a number of lower court decisions into a two-part test;

1st step: Is there a mutual understanding or common intention between the parties regarding their relationship? This step generally will be determined by the written contractual arrangements and behaviour of the parties and is quite subjective.  For example, is there a written agreement, were invoices issued for services rendered, was the service provider registered for GST/HST, were the income tax filings consistent with that of an independent contractor?

If so, then;

2nd step:  Do the pertinent facts support that the worker is providing services as a business on her own account?  The factors to consider include the level of control exercised over the worker’s activities, and whether the worker provides her own equipment, hires helpers, manages and assumes financial risk, and has an opportunity of profit in the performance of her tasks.  This step is very objective.

In this appeal, the FCA found that, although the parties intended their relationship to be that of independent contractors, they were, in fact, employees.  The degree of control exercised over their work was the same as that exercised over employees, they were limited in what they could earn and they took on no financial risks.  Although the individuals were expected to use their own motor vehicles, this factor was insufficient to outweigh all others.

So if after this ruling and after a review of the CRA website, you are still unsure if you, or your worker is an employee or an independent contractor, then it’s best to get a ruling to be sure.

CRA: The Ten Year Rule for forgiveness on penalties and interest overturned at the court of appeal.

 

 

The Ten Year limit on Penalty and interest relief applications changed in June 2011, as a result of a decision rendered in the Federal Court of Appeal (FCA) in the case of Bozzer V. Canada.  This ruling changed the Taxpayer Relief Program and the way the Canada Revenue Agency not only reviews these submissions, but the way they handle their files.

The Change:

From the CRA website;

“10-year limitation period for interest relief requests.
This notice is to advise taxpayers of the change in policy regarding the 10–year limitation period for requesting interest relief under the taxpayer relief provisions of the Income Tax Act (ITA).  The change has been implemented as a result of the Federal Court of Appeal decision in the case of Bozzer v. Canada.

Please read IC07-1 together with the information on the Revised 10-year limitation period for interest relief.”

The CRA will be making a revised version of the Information Circular on this topic available soon.  Currently, Information circular, IC07-1, consolidates and cancels information circulars IC 92-1,Guidelines for Accepting Late, Amended or Revoked Elections, IC 92-2, Guidelines for the Cancellation and Waiver of Interest and Penalties, and IC 92-3, Guidelines for Refunds Beyond the Normal Three Year Period, all dated March 18, 1992.

This purpose of the Taxpayer Relief Program (formerly known as Fairness) is to provide the CRA the ability to administer the income tax system fairly and reasonably and to provide an avenue to assist taxpayers resolve issues that have arisen through no fault of their own.  This program allows the CRA to apply a common-sense approach in dealing with taxpayers who, because of personal misfortune or circumstances beyond their control, could not comply with a statutory requirement for income tax purposes.

Under the Taxpayer Relief Program, a taxpayer can ask for relief in accordance with the provisions of the ITA and after consideration of the provided facts and circumstances relevant to the case, a delegated official of the CRA will decide whether it is appropriate to:

  1. waive or cancel penalties and interest under subsection 220(3.1);
  2. extend the filing-due date for making certain elections or grant permission to amend or revoke certain elections under subsection 220(3.2);
  3. authorize a refund to an individual (other than a trust) or a testamentary trust under paragraph 164(1.5)(a), even though an income tax return is filed outside the normal three-year period; or
  4. authorize a reassessment or redetermination for an individual (other than a trust) or a testamentary trust beyond the three-year normal reassessment period under subsection 152(4.2), where the adjustment would result in a refund or a reduction in an amount payable.

Overturned:

As a result of the decision rendered in this court case of Bozzer v. Canada, the Federal Court of Appeal issued a decision in June 2011 that went against the CRA’s restrictive interpretation of the ten year rule (that a taxpayer can only go back 10 years when asking for penalty and / or interest relief).

Since 2004, the discretionary power of the CRA to waive or cancel interest and penalties has been limited to amounts “in respect of” the ten taxation years preceding the date of an application for relief (s. 220(3.1)).  The CRA has interpreted this ten year rule to mean they do not have the discretion to cancel interest charges in situations where the underlying tax debt occurred outside of the ten year period.

In this case, both of Mr. Bozzers applications to the Taxpayer Relief program seeking an cancellation of interest charges were denied on the grounds they were outside of the ten year period for relief.  Mr. Bozzer sought a Judicial Review of the CRA’s interpretation of the legislation, and while initially unsuccessful, he was successful in appeal when the FCA noted that the relevant section did not clearly stipulate the year of assessment as a benchmark starting point and found that the words of the section could potentially support either interpretation.  Being so, the language was declared ambiguous and the Court embarked on a “textual, contextual and purposive analysis” to find a meaning that is in alignment with the intent of the ITA.

The Court concluded that the ten year limit represented a restriction of a right previously enjoyed by the taxpayer and that any ambiguity should rightfully be resolved in favour of the taxpayer.  As such, the FCA confirmed that the ten year limit should be interpreted to allow for consideration of relief for interest that has accrued in the previous ten years without reference to the year in which the tax was originally payable.

The Minister of National Revenue does still have the discretion over the granting of relief, but the CRA can no longer use their interpretation of the law as an excuse to not grant forgiveness.

In English:  

The Canada Revenue Agency (CRA) has made a recent policy change to the administration of the 10-year limitation period under subsection 220(3.1) of the Income Tax Act for requesting interest relief for a tax year that ended more than 10 years ago.  For more information, the
CRA made available a news release, Taxpayer relief deadline is December 31, 2011.  

The change applies to interest relief requests made on or after June 2, 2011.

On June 2, 2011, the Federal Court of Appeal (FCA) rendered its decision in Bozzer v. Canada and 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.

Example:

If a request is made for interest relief in December 2011 and the request is for interest dating back to the 1998 tax year, the Minister may cancel any interest that accrued during the calendar years from 2001 to 2010.   Prior to this FCA 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, or in this case no later than December 31st, 2008, for the 1998 tax year.

Please note that the information provided below on the revised 10-year limitation period is specific to interest relief requests.

The information on the 10-year limitation period in IC07-1 (paragraphs 12 to 16) still applies, and has not changed, for penalty relief requests; requests to accept certain late-filed, amended or revoked elections; and requests for a refund or reduction in tax payable beyond the normal three year period. For these other types of requests, a taxpayer has 10 years from the end of the relevant tax year to make a request to the CRA for relief.

Limitation period on exercising ministerial discretion and deadline to apply for interest relief

For requests made on or after June 2, 2011, the Minister may grant relief from interest that has accrued during the 10 calendar years before the year in which the request is made for any tax year (or fiscal period in the case of a partnership).  Due to this limitation period, a taxpayer has 10 years from the end of the calendar year in which the interest accrued to make a request to the CRA for relief.

The 10-year limitation period rolls forward every January 1.

Reminder that for requests that are made in the current calendar year, the Minister has no authority to cancel interest that accrued in a calendar year that ended more than 10 years before the year in which the request was made.

Example: 

An initial request made during the 2012 calendar year related to any interest that accrued during the 2002 and later calendar years, for any tax year, is eligible for relief.

Any interest that accrued during the 2001 and previous calendar years is not eligible for relief.

Example:

An initial request made during the 2013 calendar year related to any interest that accrued during the 2002 and previous calendar years, for any tax year, is not eligible for relief, since those calendar years are beyond the 10-year period. Only interest that accrued during the 2003 and later calendar years is eligible for relief.

The Minister has no authority to grant relief from the interest that accrued during the 2003 calendar year, for any tax year, unless the taxpayer has made an initial request on or before December 31, 2013.

For requests made before June 2, 2011, that were considered late-filed beyond 10 years after the end of the tax year under the previous interpretation of the limitation period, the CRA may grant relief from the interest that accrued within the last 10 calendar years effective from the 2011 year or the year in which the new request is made, whichever is later. The revised 10-year limitation period will not be applied from the 2010 or prior calendar year in which the initial late-filed request was made.

The Ruling:

Federal Court of Appeal Date: 20110602

Docket: A-97-10

Citation: 2011

FCA 186

CORAM: SHARLOW J.A. TRUDEL J.A. STRATAS J.A. BETWEEN: RONNIE LOUIS BOZZER Appellant and HER MAJESTY THE QUEEN IN RIGHT OF CANADA (as represented by the Minister of National Revenue in his capacity as Minister responsible for the Income Tax Act), CANADA REVENUE AGENCY and THE ATTORNEY GENERAL OF CANADA

Respondents Heard at Vancouver, British Columbia, on December 1, 20ten. Judgment delivered at Ottawa, Ontario, on June 2, 2011. REASONS FOR JUDGMENT BY: STRATAS J.A. CONCURRED IN BY: SHARLOW J.A. TRUDEL J.A. RONNIE LOUIS BOZZER Appellant and HER MAJESTY THE QUEEN IN RIGHT OF CANADA (as represented by the Minister of National Revenue in his capacity as Minister responsible for the Income Tax Act), CANADA REVENUE AGENCY and THE ATTORNEY GENERAL OF CANADA Respondents

REASONS FOR JUDGMENT STRATAS J.A.

[1] Subsection 220(3.1) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) allows the Minister to waive or cancel any portion of interest or penalties owing under the Act. It prescribes a ten year limitation period. But how is that ten year period to be determined? The answer to that question, a question of statutory interpretation, will determine the outcome of this appeal.

[2] The Federal Court judge agreed with the Minister’s view of how the ten year period is to be determined under subsection 220(3.1) of the Act:20ten FC 139 (CanLII), 20ten FC 139. The appellant, Mr. Bozzer, disagrees and, in this Court, proposes an interpretation that is more generous to taxpayers.

[3] As this is a legal issue concerning the proper interpretation of subsection 220(3.1) of the Act, the standard of review of the decision of the Federal Court judge is correctness: Redeemer Foundation v. M.N.R., 2006 FCA 325 (CanLII), 2006 FCA 325 at paragraph 24 (affirmed, without comment on this point, at2008 SCC 46 (CanLII), [2008] 2 S.C.R. 643, 2008 SCC 46).

[4] For the reasons below, I am of the view that Mr. Bozzer’s interpretation of subsection 220(3.1) is the correct one. A. Subsection 220(3.1) of the Act [5] Subsection 220(3.1) provides as follows: [5] Subsection 220(3.1) provides as follows: 220.

(3.1) The Minister may, on or before the day that is ten calendar years after the end of a taxation year of a taxpayer (or in the case of a partnership, a fiscal period of the partnership) or on application by the taxpayer or partnership on or before that day, waive or cancel all or any portion of any penalty or interestotherwise payable under this Act by the taxpayer or partnership in respect of that taxation year or fiscal period, and notwithstanding subsections 152

(4) to (5), any assessment of the interest and penalties payable by the taxpayer or partnership shall be made that is necessary to take into account the cancellation of the penalty or interest. [emphasis added] B. The basic facts

[6] On December 6, 2005, at a time when Mr. Bozzer had tax debts that arose in his 1989 and 1990 taxation years, Mr. Bozzer applied to the Minister under subsection 220(3.1) of the Act for a waiver of interest accrued on the tax debt.

[7] The Minister denied the application for the following reasons: As of January 1, 2005, the Agency’s policy with regards to fairness requests was amended to exclude debts over ten years of age from the date of submission. The ten years expired on December 31, 1999 for the 1989 taxation year and December 31, 2000 for the 1990 taxation year. For this reason we are unable to consider your request for departmental delay or error and have concluded it would not be appropriate to cancel or waive the interest.

[8] Mr. Bozzer applied to the Minister for a second-level review. The Minister denied that application as well, for the following reasons: The above legislation [subsection 220(3.1)] is applicable because you applied for interest cancellation on December 6, 2005. Therefore the Minister has no discretion under subsection 220(3.1) to waive or cancel any interest otherwise payable under the Act in respect of your 1989 and 1990 taxation years. This is because it has been more than ten calendar years since the ends of your 1989 and 1990 taxation years. In addition, you applied after 2004, which is more than ten calendar years after the ends of your 1989 and 1990 taxation years.

[9] Mr. Bozzer applied to the Federal Court for judicial review of the Minister’s decision. The Federal Court judge dismissed the application, finding (at paragraph 51 of his reasons for judgment) that “the time limit in subsection 220(3.1) of the ITA is for the ten calendar years after the relevant taxation year, namely the year of assessment.” In my view, this interpretation cannot stand, as the ten year period in subsection 220(3.1) of the Act does not start in the year of assessment. Nowhere does subsection 220(3.1) mention the year of assessment as a relevant consideration. C. The parties’ competing interpretations of subsection 220(3.1) of the Act and how they apply to the facts of this case

[10] Before this Court, the parties presented competing interpretations of subsection 220(3.1) of the Act. These competing interpretations result in drastically different results on the facts of this case.

[11] The parties’ competing interpretations of subsection 220(3.1) concern only a portion of it and relate particularly to the phrase “interest payable in respect of [a] taxation year” (« d’intérêts payable pour [une] année d’miposition »): 220. (3.1) The Minister may, on or before the day that is ten calendar years after the end of a taxation year of a taxpayer…waive or cancel all or any portion of any …interest…payable…by the taxpayer…in respect of that taxation year…. [emphasis added] (1) Mr. Bozzer’s interpretation

[12] Mr. Bozzer submits that “interest…payable…in respect of [a] taxation year” means any interest accrued in that taxation year on a tax debt. On his view of the matter, subsection 220(3.1) permits the Minister to exercise his discretion to cancel interest accrued in any taxation year ending within ten years before the taxpayer’s application for relief, regardless of when the underlying tax debt arose.

[13] Under this interpretation, Mr. Bozzer analyzes the facts of this case as follows. He had tax debts that arose in the 1989 and 1990 taxation years. Interest accrued on those debts in every subsequent taxation year. On December 6, 2005, he applied to the Minister for a cancellation of interest. On his view of the matter, subsection 220(3.1) permits the Minister to cancel any interest that accrued in the ten taxation years preceding his application, that is, from January 1, 1995 to December 31, 2004. On this analysis, the fact that the tax debt arose in 1989 and 1990 is irrelevant. (2) The Minister’s interpretation

[14] The Minister disagrees. The Minister submits that “interest…payable…in respect of [a] taxation year” means any interest accrued on a tax debt that arose in that taxation year. Therefore, the Minister may exercise his discretion to waive interest otherwise payable under the Act only if a taxpayer applies within ten calendar years of the end of the taxation year in which the underlying tax debt arose.

[15] In Mr. Bozzer’s case, the underlying tax debt arose in 1989 and 1990. On the Minister’s view of the matter, Mr. Bozzer had to apply for a waiver of interest on his 1989 tax debt by December 31, 1999 and his 1990 tax debt by December 31, 2000.

[16] Therefore, the Minister says that he has no statutory authority to consider Mr. Bozzer’s application for a waiver of interest in this case. Mr. Bozzer’s application was on December 6, 2005. On the Minister’s view of the matter, that was nearly five years too late. D. The proper approach to interpreting provisions in taxation legislation

[17] In Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54 (CanLII), [2005] 2 S.C.R. 601, 2005 SCC 54 at paragraph ten, the Supreme Court of Canada set out the proper approach for interpreting taxation statutes: The interpretation of a statutory provision must be made according to a textual, contextual and purposive analysis to find a meaning that is harmonious with the Act as a whole. When the words of a provision are precise and unequivocal, the ordinary meaning of the words plays a dominant role in the interpretive process. On the other hand, where the words can support more than one reasonable meaning, the ordinary meaning of the words plays a lesser role. The relative effects of ordinary meaning, context and purpose on the interpretive process may vary, but in all cases the court must seek to read the provisions of an Act as a harmonious whole. The Supreme Court went on to observe (at paragraph 13) that the Act “remains an instrument dominated by explicit provisions dictating specific consequences, inviting a largely textual interpretation.” But where the text is equivocal, “greater recourse to the context and purpose of the Act may be necessary”: Placer DomeCanada Ltd. v. Ontario (Minister of Finance), 2006 SCC 20 (CanLII), [2006] 1 S.C.R. 715 at paragraph 22. E. The interpretation of the text of subsection 220(3.1)

[18] The parties’ submissions on how the text of subsection 220(3.1) should be interpreted, summarized above, persuade me that the text is ambiguous. The words “interest…payable…in respect of a taxation year,” examined in isolation, are conceivably capable of bearing either of the meanings suggested by the parties.

[19] As part of its submissions on how the text of subsection 220(3.1) should be interpreted, the Minister submits that an earlier decision of this Court is directly on point: Montgomery v. M.N.R., 95 D.T.C. 5032; reflex, [1995] 1 C.T.C. 196.

[20] In my view, Montgomery is distinguishable. In Montgomery, this Court did not interpret the text of subsection 220(3.1) that is in issue in this appeal. Rather, this Court interpreted a transitional provision concerning subsection 220(3.1): S.C. 1993, c. 24, subsection 127(5). That transitional provision limited the application of subsection 220(3.1) to the “1985 and subsequent taxation years.” This Court simply held (at paragraph 11) that the Minister’s discretion was limited to the waiving of interest otherwise payable under the Act for a taxation year that is either the 1985 taxation year or any later taxation year. Montgomery offers no guidance on the interpretation issue before us in this appeal.

[21] Since the text in this case is equivocal, in accordance with Placer Dome, supra at paragraph 22, it will be necessary for us to have “greater recourse” to the purpose of subsection 220(3.1) and the context surrounding it. F. The purpose of subsection 220(3.1) (1) What is the purpose?

[22] Subsection 220(3.1) is one of several taxpayer relief provisions in the Act. It was introduced in 1991 as part of what was called a “fairness package.” The Minister has explained the purpose behind these provisions as follows: The legislation gives the CRA the ability to administer the income tax system fairly and reasonably by helping taxpayers to resolve issues that arise through no fault of their own, and to allow for a common-sense approach in dealing with taxpayers who, because of personal misfortune or circumstances beyond their control, could not comply with a statutory requirement for income tax purposes. See Information Circular 07-1, “Taxpayer Relief Provisions,” May 31, 2007, at paragraph 8.

[23] In law, the Information Circulars of the Canada Revenue Agency are nothing more than administrative policy statements. They are not finally determinative of the meaning of a provision of the Act.

[24] However, in this case, the plain words of subsection 220(3.1) support the description of purpose in the above passage, and there is nothing in the history behind subsection 220(3.1) or in related sections that would cast doubt on it. Indeed, in 2004 the Department of Finance confirmed it. It stated that subsection 220(3.1) permits the Minister to waive or cancel interest or penalties “in situations where factors beyond the taxpayer’s control, such as illness or a natural disaster, prevented a tax return from being filed on time”: Canada, Department of Finance, 2004 Budget, Budget Plan, March 23, 2004, annex 9, at page 347.

[25] Therefore, I am prepared to accept the description of purpose in the above passage as the purpose that subsection 220(3.1) is meant to further. (2) Testing the parties’ competing interpretations against the purpose of subsection 220(3.1)

[26] One method of testing the parties’ competing interpretations is to imagine factual scenarios in which subsection 220(3.1) might be applied, apply subsection 220(3.1) to those scenarios, examine the results, and then compare those results with the purpose that subsection 220(3.1) is meant to further.

[27] For this purpose, I shall examine two scenarios. Scenario A

[28] Suppose that a taxpayer is obliged to remit income tax instalments during taxation year X but fails to do so. He files his income tax return for taxation year X on time, but fails to pay the resulting tax debt.

[29] At some point in year X+1, the Minister assesses the tax payable for taxation year X, with accrued interest, including interest on the unpaid instalments for taxation year X. Later, the taxpayer decides to apply for a cancellation of the interest accrued on the unpaid instalments for taxation year X.

[30] In this scenario, both the Minister’s interpretation of subsection 220(3.1) and Mr. Bozzer’s interpretation of subsection 220(3.1) will lead to the conclusion that the taxpayer must submit his application within ten years of the end of taxation year X. Scenario B

[31] Suppose that this same taxpayer is about to file his income tax return for taxation year X on time. As in scenario A, the taxpayer was obliged to remit tax instalments during taxation year X but did not do so.

[32] However, in January of taxation year X+1, just before preparing the income tax return for taxation year X, the taxpayer is seriously injured in a car accident. In taxation year X+11 – after going through a coma, enduring many operations, recovering slowly, dealing with physical and mental challenges, and going through years of rehabilitation and retraining – the taxpayer finally gets around to filing his tax return for taxation year X.

[33] In taxation year X+12, the Minister assesses the tax payable for taxation year X, with accrued interest, including interest on the unpaid instalments for taxation year X. Again, the taxpayer decides to apply for a cancellation of the interest accrued on the unpaid instalments for taxation year X.

[34] On the Minister’s interpretation of subsection 220(3.1), the taxpayer would be barred from asking for any waiver of interest. The tax debt on which interest accrued was eleven years ago, past the ten year limitation period.

[35] On Mr. Bozzer’s interpretation of subsection 220(3.1), the taxpayer could apply for a waiver of interest that accrued during the ten taxation years preceding his application. Assessment of the scenarios

[36] Scenario B shows that the Minister’s interpretation of subsection 220(3.1) leads to a harsh result that is contrary to the purpose of subsection 220(3.1): to allow taxpayers to ask for relief against penalties and interest and to allow the Minister to grant such relief where, in his view of the overall fairness of the situation, it is appropriate to do so. In the words of the Information Circular, subsection 220(3.1) is one of several that are supposed to give the Minister an ability “to administer the income tax system fairly and reasonably” by “helping taxpayers to resolve issues that arise through no fault of their own.” In particular, according to the Information Circular, this subsection is one of several designed “to allow for a common-sense approach in dealing with taxpayers who, because of personal misfortune or circumstances beyond their control, could not comply with a statutory requirement for income tax purposes.”

[37] Admittedly, scenario B will not be a commonly-occurring circumstance. But it does show that the Minister’s interpretation can prevent him from addressing, in a fair and reasonable way, taxpayers’ problems that were caused by personal misfortune or circumstances during the statutory ten year period that were beyond the taxpayers’ control, contrary to the purpose of subsection 220(3.1).

[38] As scenario B demonstrates, Mr. Bozzer’s interpretation is fairer and, thus, more consistent with the purpose of subsection 220(3.1). Mr. Bozzer’s interpretation gives the Minister a greater ability to address a taxpayer’s misfortune or circumstances within the statutory ten year period that were beyond the taxpayer’s control. G. Subsection 220(3.1), viewed contextually (1) The legislative history of subsection 220(3.1)

[39] Before 2004, there was no ten year limitation period in subsection 220(3.1). At any time, a taxpayer could ask the Minister to waive interest that accrued since 1985. The pre-2004 version of subsection 220(3.1) is as follows: 220. (3.1) The Minister may at any time waive or cancel all or any portion of any penalty or interest otherwise payable under this Act by the taxpayer or partnership and, notwithstanding subsections 152(4) to (5), such assessment of the interest and penalties payable by the taxpayer or partnership shall be made as is necessary to take into account the cancellation of the penalty or interest.

[40] In 2004, subsection 220(3.1) was amended to include a ten year limitation period: S.C. 2005, c. 19, subsections 48(1) and (2). This resulted in the version of subsection 220(3.1) in issue in this case, which is reproduced here with the amendment emphasized: 220. (3.1) The Minister may, on or before the day that is ten calendar years after the end of a taxation year of a taxpayer (or in the case of a partnership, a fiscal period of the partnership) or on application by the taxpayer or partnership on or before that day, waive or cancel all or any portion of any penalty or interestotherwise payable under this Act by the taxpayer or partnership in respect of that taxation year or fiscal period, and notwithstanding subsections 152(4) to (5), any assessment of the interest and penalties payable by the taxpayer or partnership shall be made that is necessary to take into account the cancellation of the penalty or interest. [emphasis added]

[41] The 2004 amendment represents a restriction of a right previously enjoyed by the taxpayer. In my view, in this particular situation, it was incumbent on Parliament to be clear in its language imposing the restriction and any doubt should be resolved in favour of the taxpayer. I note the following passage from the judgment of Estey J. in Morguard Properties Ltd. v. City of Winnipeg, 1983 CanLII 33 (SCC), [1983] 2 S.C.R. 493 at page 509: …[T]he courts require that, in order to adversely affect a citizen’s right, whether as a taxpayer or otherwise, the legislature must do so expressly. Truncation of such rights may be legislatively unintended or even accidental, but the courts must look for express language in the statute before concluding that these rights have been reduced.

[42] The words chosen by Parliament are ambiguous. In my view, in this particular situation, this ambiguity should be resolved in favour of the taxpayer. (2) The Minister’s Technical Notes

[43] The Minister submitted that certain Technical Notes published at the time of the 2004 amendment to subsection 220(3.1) are relevant to the interpretation of the subsection. The Minister submitted that the Technical Notes reveal that the ten year limitation period was introduced in 2004 because of a concern that “administrative problems would arise if the Minister were required to verify claims going back as far as 1985” (Minister’s memorandum of fact and law, paragraph 44).

[44] The Minister says that if Mr. Bozzer’s interpretation is adopted, the Minister might have to verify details relevant to any past taxation year, even years before 1985, as long as the interest in question had accrued within the past ten years.

[45] I do not accept this as a plausible explanation for the ten year limitation period in the case of subsection 220(3.1).

[46] It might be an explanation for other provisions that were amended to include a ten year limitation period. For example, a taxpayer might try to use subsection 152(4.2) to claim a deduction for a business expense incurred 15 years ago. In that context, the addition of a ten year limitation period to that subsection does eliminate “administrative problems.” Similarly, a taxpayer might try to use subsection 220(3.2) to file an election that he or she should have filed 15 years ago. The election goes back so many years that one might anticipate “administrative problems” for the Minister.

[47] But the ten year limitation period in subsection 220(3.1) is not needed to eliminate “administrative problems.” Under subsection 220(3.1), both before and after 2004, the Minister, in considering whether to grant relief, would only have to know the amount of the original tax debt upon which interest accrued, and what payments have been made and when. From there, the interest is determined by a mathematical calculation. There is no evidence that this poses an “administrative problem,” and the record discloses no basis upon which the existence of any such problem can be inferred.

[48] I would also note that, based on Montgomery, supra the Minister can never be obliged to look to years prior to 1985 when considering an application under subsection 220(3.1). (3) The Minister’s Voluntary Disclosures Program

[49] Mr. Bozzer pointed to the Minister’s Voluntary Disclosures Program as another reason why its interpretation should be accepted by this Court.

[50] The Voluntary Disclosures Program is a policy (Information Circular IC00-1R2) of the Canada Revenue Agency, not law. Under this policy, taxpayers can make disclosures to correct inaccurate or incomplete information, or to disclose information not previously reported. If the Canada Revenue Agency accepts a taxpayer’s disclosure as having met the terms of the policy, it will not charge the taxpayer penalties or prosecute the taxpayer regarding the matters disclosed.

[51] Mr. Bozzer submits that the Minister’s statutory authority to relieve the taxpayer of penalties in such a case is found in subsection 220(3.1) of the Act, and nowhere else. Then he points to paragraph 13 of the policy, which describes exactly what penalties can be waived under this policy: [13] For income tax submissions made on or after January 1, 2005, the Minister’s ability to grant relief is limited to any taxation year in which the submission is filed. For example: in an income tax submission made on May 1, 2007, the limitation would apply so that relief would only be available for the 1997 and subsequent taxation years. Mr. Bozzer notes that this is consistent with his interpretation and not the Minister’s interpretation of subsection 220(3.1).

[52] But policy statements are not determinative of what statutory provisions mean in law. I do not consider Mr. Bozzer’s submissions on the Voluntary Disclosures Program to be helpful on the legal issue of how subsection 220(3.1) of the Act is properly interpreted. (4) Parliament’s ability to draft sections in the Act that achieve the effects it wants

[53] The Minister would like subsection 220(3.1) to have a forward looking effect, so that the ten year period runs forward from the year in which the tax debt occurred.

[54] As I have stated above, subsection 220(3.1) does not use language that clearly suggests that it should have a forward looking effect.

[55] But Parliament certainly knows how to draft sections that have a forward looking effect. For example, Parliament has drafted another subsection in section 220, namely subsection 220(3.201), using language that clearly causes a “forward looking effect”: 220. (3.201) On application by a taxpayer, the Minister may extend the time for making an election, or grant permission to amend or revoke an election, under section 60.03 if (a) the application is made on or before the day that is three calendar years after the taxpayer’s filing-due date for the taxation year to which the election applies; and (b) the taxpayer is resident in Canada (i) if the taxpayer is deceased at the time of the application, at the time that is immediately before the taxpayer’s death, or (ii) in any other case, at the time of the application.

[56] If Parliament meant subsection 220(3.1) to have a forward looking effect, it certainly knew how to draft it. It did not do so. This is another consideration in support of Mr. Bozzer’s interpretation of the subsection. (5) Effects on other sections of the Act or the administration of the Act

[57] If this Court were to adopt Mr. Bozzer’s interpretation of subsection 220(3.1), would there be an unintended or unwelcome effect on other sections in the Act or in the administration of the Act? If there were, that might be a clue as to Parliament’s intentions concerning subsection 220(3.1). However, in his written or oral submissions, the Minister did not identify any such effects. H. Conclusion

[58] For the foregoing reasons, I agree with Mr. Bozzer’s interpretation of subsection 220(3.1) of the Act.

[59] Accordingly, the Minister has the statutory authority to cancel interest on Mr. Bozzer’s 1989 and 1990 tax debts, to the extent that it accrued during the ten taxation years preceding his application to the Minister for interest relief under subsection 220(3.1) of the Act. Mr. Bozzer’s application was made on December 6, 2005.

[60] Therefore, on the facts of this case, the interest that is the subject of Mr. Bozzer’s application is the interest accrued under the Act from January 1, 1995 to December 31, 2004. I. Proposed disposition

[61] Therefore, I would allow the appeal, set aside the judgment of the Federal Court, allow Mr. Bozzer’s application for judicial review, and refer his application for interest relief back to the Minister for reconsideration in accordance with these reasons, all with costs to Mr. Bozzer both in this Court and in the Federal Court.

“David Stratas” J.A. FEDERAL COURT OF APPEAL NAMES OF COUNSEL AND SOLICITORS OF RECORD DOCKET: A-97-10

APPEAL FROM A JUDGMENT OF THE HONOURABLE MR. JUSTICE SHORE) DATED FEBRUARY 11, 20ten, NO. T-826-08 STYLE OF CAUSE: Ronnie Louis Bozzer v. Her Majesty the Queen in Right of Canada (as represented by the Minister of National Revenue in his capacity as Minister responsible for the Income Tax Act) and Canada Revenue Agency and The Attorney General of Canada

PLACE OF HEARING: Vancouver, British Columbia DATE OF HEARING: December 1, 2010

REASONS FOR JUDGMENT BY: Stratas J.A. CONCURRED IN BY: Sharlow J.A. Trudel J.A. DATED: June 2, 2011

APPEARANCES: David E. Spiro Angelo Gentile FOR MR. BOZZER Michael Taylor FOR THE RESPONDENT SOLICITORS OF RECORD: Fraser Milner Casgrain LLP Toronto, Ontario FOR MR. BOZZER Myles J. Kirvan Deputy Attorney General of Canada FOR THE RESPONDENT.

June 15th Unincorporated Filing Deadline (Canada) is Fast Approaching, Plus Year-Round Tax Tips!

The chaos and stress that comes with tax filing season in Canada has ended for most of us unless you are operating a sole proprietorship or partnership because you have until June 15th, 2013 to file your income tax (T1) return.  Any amounts owing to the Canada Revenue Agency (CRA) were due to the CRA by April 30th, but you have the extra month-and-a-half to file the information return, so don’t be late.

In addition, June 15th falls on a Saturday this year, so the actual return is due in the hands of the CRA by midnight on Monday June 17th.  Mailing it on the 14th is not the best option, so if you are waiting until that weekend to complete the return, I strongly recommend that you walk it into the closest CRA Tax Services Office at get it stamped with the 17th on it, or courier it to a tax centre to ensure it arrives on the due date.

If in completing the return you now find out that you actually owe(d) the CRA money, you need to pay that amount in full.  If paying it in full is not an option, then send in the amount you can best afford, and contact the CRA to make a payment arrangement on the remainder.  If doing that is not an option or if you have been carrying a balance with the CRA and this return is going to add to that balance then you have a tax problem and you are likely going to need professional help to keep enforcement actions at bay.

The CRA charges interest daily, beginning the day after taxes were due and a late-filing penalty of 5% of your balance owing plus 1% of your balance owing for each month your tax return is late, for a maximum of 12 months.   Once you caught up in the web of CRA collections and enforcement it can be very difficult to get out.  The collectors are not going to advise you how to best handle your affairs.  For the most part, then don’t understand how businesses operate, let alone your business and all they want is full payment in order to close their file.

It is in your best interest to resolve these tax matters as soon as possible, before penalties are charged and interest accumulates.  Accepting these extra fees in hope that the Taxpayer Relief Program is going to grant you relief is not a wise bet to make.

At Intaxicating Tax Services, we have seen all types of tax problems over the 17-years we’ve been helping taxpayers resolve their tax issues with the Canada Revenue Agency.  As a former Collections officer, Enforcement officer, Complex Case Officer and Team Leader I have personally handled files with every level of complexity, and all revenue types, and have recommended the same course of action for all of them – Find someone trustworthy, who knows the way CRA collections operate and leverage that expertise to get out of this mess once and for all.

If negotiating a payment plan with the Canada Revenue Agency was easy and without risk, there would be no need for Collections staff at the CRA.  The truth is, it can be very difficult to work out a payment plan with the Canada Revenue Agency while making sure that you do not give them any collection sources that they do not already have, so they can secure their liability at your expense.

Don’t let them take advantage of your good will.

Intaxicating Tax Services can help you with this!

Here are some tax facts to keep in mind as your prepare you finances for the 2013 tax filing season.

13. Contrary to popular belief the top 10% of Canadian earners pay half of all personal income taxes, while the half of earners with the lowest income pay less than a tenth (1/10th) of the total.  These high income earners keep the economy moving by having money to spend and by actually spending it.  It is this reason why those in the highest tax brackets need (and can afford) to best lawyers, accountants and tax experts, as they are already well into planning for their tax returns for 2013 and beyond.  They DO have some choice as to how much they want to spend and how much they plan to save.  All Canadians have this choice too.  By spending less, we pay less consumption taxes (GST/HST/PST), if we downsize our homes or live outside of metropolitan areas we can reduce or pay less property taxes, if we walk, cycle or carpool more, we pay less gasoline taxes, and if we are more organized and smarter with how much money we spend in total, we pay less bank fees, late fees, interest on credit cards, etc.  Everyone, not matter their income has to be smart with their money.  Paying penalties and interest to the CRA is NOT a smart way to handle our money.

12. Regardless of where you are and what you do, you really should file a tax return.  Canadian reporting is voluntary in certain conditions, but be sure you are exempted before you pass on filing.  The CRA provides details as to when you need to file and why you should file right here.

11. You have the option to defer the paying of taxes, in some cases, when you save for retirement inside a RRSP / IRA or any other form of registered retirement savings plan.  In these plans, you defer payment of income taxes until later in life. There are taxes assessed when you withdraw the money, after you have reached a certain age but those tax rates are probably lower than you would be paying now, if you have above-average income.  If your income is below average, you may be better off to pay taxes now and save in a tax-free savings account (TFSA).  If you save for your family inside a registered education savings plan or a registered disability savings plan, there will be a deferral of taxes on interest earnings, other investment returns and government grants.  Then the child or other relative for whom the plan was set up for, will likely pay little or no taxes on those savings.

10. Before you file make sure you have all your slips – it’s best to have a place where they can go throughout the year, and periodically, you should take them out, write on them what they were for and keep them all together at time of filing.   Amending tax returns is a long, tedious process, plus having to search the house or business for these slips one day before filing deadline can be extremely stressful.

9.  Make sure the government has correct information for you – address, name, direct deposit (if you never owe money) because you want your refund and if they audit you, they might not be re-assessing you, but rather they may be looking for an additional copy of a receipt they lost in the processing of 20 million tax returns.   If they do not have a correct address and they need information or something gets lost along the way and a balance arises, they will take it from your bank account or freeze that account until they get all your information – but now you are in collections…

8.  Do not ignore government mail.  Open it and action it.

7.  File electronically – but keep your receipts handy for audit and verification purposes.  It is the quickest way to file, and you may even get your refund quicker.   As an added bonus, you are also being environmentally responsible and saving trees.

6.  If you owe money, make sure that you address it properly.  Do not write a note and attach it to your return – those notes get tossed during the mass-processing cycle – but instead, contact the government and make a payment arrangement and honor it.   Anything you attach to your return – even if it is written with a glitter pen (don’t laugh, I have received MANY letters written this way during my time at the CRA) comes into the processing centres, the processors, who are usually temporary hires to help the CRA get through the tax season, rip of cheques and process that right away, then tear off any unnecessary paperwork and send the returns to a data processing group.  Anything not a return or money gets shredded.

5.  Think before you complain.  Paying taxes means your earned more money than you had to pay out.  Good for you.  As well, a third of all income in Canada is paid in taxes, which may seem really high, but before you consider moving out of the country, consider that the Canadian tax burden is less than that of 19 other developed nations. We, as Canadians only pay more taxes than 10 developed nations.

4.  Ever wonder what the CRA does with the tax money they collect?  Well, the Minister of National Revenue uses 62% of it to pay for health care, education and social assistance, including unemployment benefits.  The other 38% goes for everything else we need, like infrastructure, social programs, etc.

3.  Not everything in Canada is taxed, and here are some prime examples; There is no tax on a winning Lottery tickets, on scholarships, inheritances, gifts, the Guaranteed Income Supplement (GIS) to the taxable Old Age Security (OAS) pension, Canada Child Tax Benefit cheques or child support payments after a divorce. You pay no tax on at least the first $9,000 of waged earnings or $40,000 of income per year if you receive only eligible corporate dividends and $18,000 if you receive only capital gains.

2.  On the flip side, there are some high-tax items, some you can make the choice to avoid, and one you might accept regardless of the amount of tax owing; The Federal income tax rate on income greater than $135,054 a year in 2012 is 29%, plus Provincial tax rates which bounce between 10%-21% based on the Province.  Taxes on cigarettes in Ontario was 63.5%; alcohol, 52.7%; and regular gasoline 39.47%.

1.  Tax relief opportunities are available, but you need to either research them or ask an expert how to qualify and what they are.  For example, there are tax breaks and benefits for those who better themselves, or the economy through getting a higher education, earning high grades, raising children, moving closer to a job, belonging to a professional group or organization, taking public transit, making charitable and political donations, investing in companies, starting a small business, and saving for retirement.   We all have the opportunity to save money, pay less tax and help ourselves and others in the future, but whatever you choose to do today, or tomorrow it’s never too late to make a change for the better.

Start today.  Stop paying the government late filing penalties, or penalties for missing installments.  Stop paying the government interest at 10% and don’t be afraid to open that brown envelope.  If you have a tax problem, we  can help.  We understand how these can spin out of control and we certainly do not judge.  With 17-years of actual tax expertise, 11 of them in the CRA, why would you trust anyone else?

Call today for a free consultation.

The Minister of National Revenue can have your tax dollars to run the country.  All Canadians thank you for that.

You don’t need to pay them penalties and interest.  You do not want to know that the CRA do with the penalties and interest money it collects!

Lien on Me: The CRA and Liens. Questions Answered.

When the Canada Revenue Agency (CRA) registers a lien against your home, they are securing their interest by attaching the repayment of their debt to your property.

CDAHQsignage2

The CRA considers a lien to be enforcement action and this tool is commonly applied where there are properties in the name of a taxpayer who has a tax debt.  Collection officers at the CRA should be registering liens, or securing the Crown’s interest, much more frequently then they currently are, and it should be done whenever there is a tax debt of a considerable amount owing.

Below are some answers to common questions about CRA property liens to help you understand what to do, and where to turn for help.

1.  How to tell if there is a lien registered against your property 

A title search on your property will reveal the existence of a lien.

It is CRA policy that they advise you by letter when a Certificate has been registered in Federal Court which identifies the property in question and the balance owing for which they are preparing to register a lien.  This does not mean that a lien has been registered, but this is essentially a warning of impending action.

If, however, the CRA does not have your correct address you will not receive any notices and thus may only discover there’s a lien when you try to sell or refinance your property.  A title search reveals the existence of liens.

2.  When the CRA registers a Certificate do they always then register a lien?

Not necessarily.  The CRA could be using the Certificate in several ways, including; to secure their interest in the property to make sure that before the tax debtors interest in the property is liquidated, the tax debt is paid in full, or in order to get the attention of the property owner so they will begin negotiations with the CRA, or they may have the intention of proceeding with the seizure and sale of the property in order to pay off all or part of a tax liability.

3.  Will the CRA take my house and leave me homeless?

It is CRA policy to not seize and sell a property when it would result in the property owner having nowhere to live.  If this property is an income property or cottage or secondary place to live, then the CRA will likely proceed to realize on the property and pay off their debts.

4.  Have I lost title to my home?

No. A lien is a registration on the title of that property which prevents you from selling or refinancing that property until either the tax debt owing is paid in full, or there is a written arrangement to have the proceeds from a sale or refinancing directed to the CRA for full payment of the debt.

5.  What is a Writ of Fi Fa / Writ of Seizure and Sale?

If a Certificate has been registered in the Federal Court and the tax balance still exists, the Canada Revenue Agency (CRA) will register a Writ of Fi Fa (abbreviation of “fieri facias” which is Latin and means “that you cause to be made”).  It is a writ of execution obtained in legal action which is addressed to the sheriff and commands him to, in this case, seize and sell, the property of the person against whom the judgement has been obtained.

This is a very serious enforcement action and after your property is sold, you are entitled to any proceeds left over after the tax arrears have been paid in full.

6.  What are my options now that a Certificate has been registered and a lien applied to the property?

Even though the CRA has an interest in the property, you can still access the equity and use that equity to make arrangements with the CRA – or the Department of Justice – to refinance the property or even sell it with the understanding that this can only be done in conjunction with the CRA receiving full payment of their tax debt.

7.  What is the CRA’s priority regarding my property should I decide to sell it?

Assuming your mortgage is a traditional mortgage through a recognized financial institution, the proceeds from a sale should fall in this order (depending on the type of tax(es) owing);

1. Financial institution holding the mortgage

2. Secured lenders

3. Canada Revenue Agency

4. Other creditors who have registrations against the property

5. Property owner.

So if you have other debts including a tax liability (and the two tend to go hand-in-hand), then it is possible in this scenario to have nothing left over by the time the property is sold and all debtors are paid off.

8.  What if I owe CRA more than there they get from the sale of my property?

If, after the sale of your property there are still taxes owing to the CRA, them your tax balance is reduced by the amount the CRA is paid and the remainder is still owing to the CRA.

9.  What if I am not the only one on title – ie/ jointly with a spouse?  

In the case where there are more than one person on title in addition to you, it’s important to keep in mind that the CRA can only realize proceeds from your share of the equity in the property.  So if you sell, re-finance or are forced to sell, only your share of the equity can be paid out the CRA. The CRA cannot seize your spouses’, or anyone else’s equity.

Keep in mind that in order to get the Certificate, the CRA has to reconcile the account, determine the share owned by the tax debtor and then use that figure when sending the Sheriff out to seize and sell the property.

10.  The CRA has registered a lien against my property.  Can I sell my interest to someone else and get removed off title?

If a tax debtor initiates a transaction which puts an asset out of reach of the Canada Revenue Agency not at Fair Market Value, the CRA has the ability to initiate a section 160 Non-Arms Length assessment and assess the person(s) who received the asset for your liability (minus consideration received).  

11.  Will bankruptcy free me of a lien?

Filing for bankruptcy, or filing a consumer proposal, does not discharge a lien against your property. If you go bankrupt on your CRA debt, the lien remains and – even worse – accrues interest over time. Even after your discharge from bankruptcy, the lien remains in force, until you eventually sell your home and the CRA’s priority is now second in line after the bank.

If after all that the tax debt is still remaining, then and only then because of the bankruptcy, will the tax debt no longer be owing.

Who Can Help?

The bottom line here is that tax liens can cause serious problems and it’s best to seek our help to resolve your tax issues before it gets that far.  Even if a lien is in place in order to secure the Crown’s interest, it’s best not to ignore the CRA.

We have handled hundreds of liens, and will find the best solution for you.  I might be re-financing your mortgage, paying out the lien, or temporarily lifting the lien in order to improve your arrangement with the CRA.  Whatever the problem, no matter how complex, we’ve helped.

Initial consultations are always free.

Visit our new website at http://www.//GoldharTaxSolutions.ca, or drop us an email at tax@goldhar.ca.  You can also reach us by phone at 647.812.0181, or Toll Free at 1.877.TAX.AID1.

Toronto-based.  Canada-wide.