Recently saw a news headline relating to the Canada Revenue Agency (CRA) and collecting taxes, that caught my eye. The headline screamed something to the effect of; “Contractors buying from Home Depot beware — the CRA is coming after you.”
I immediately began to shake my head and wonder if what the purpose of this article was. Was it written in response to an action taken by the CRA, or was the headline intended to scare Canadians who are dealing in cash and not paying their tax, into using their services.
Afterall, this really is not news.
For as long as Canadians have found ways to evade paying taxes, the CRA has had to find ways to verify that taxpayers are reporting their accurate income – and reporting at all.
The latest instance came to light recently as the CRA sought information from The Home Depot, in July, using a provision in the Income Tax Act (ITA), known as the Unnamed Person Requirement (UPR).
The CRA obtained a Federal Court order (which they are required to do) which legally required the Home Depot to disclose the identities of their commercial customers as well as the total annual amount spent by each of these customers between January 1, 2013 and December 31, 2016, Canada-wide.
Certainly, there are some Canadian Contractors who work solely for cash, and the CRA will use this information with the information that has been filed by these individuals, to determine if an audit is necessary.
The CRA will likely move quickly in cases where there are clear discrepancies, such as contractors who claimed $1 in income, who appeared at the top of the Home Depot list, and who live in, or own, millions of dollars of assets. In these cases, the CRA would send a letter, followed 30-days later by an assessment, and the taxpayer has 90-days to appeal that assessment with facts. Facts, being supporting documentation such as proof, receipts, explanations, and bank statements to prove that nothing untoward had occurred.
I’m not going to lie when I say that in the almost 11-year working in the CRA and the almost 11-years since I left the CRA, I have seen pretty much everything. Some good, some really good, but some bad, and some really bad.
The fact that the CRA found this tax evasion is part of the bigger problem around tax advice being given to people from people who have no idea what they’re saying. As a result, the CRA has to jump in, assume everyone is lying, cheating and stealing, and paint everyone with the same brush.
It gets worse, if these tax evaders filed tax returns and lied about having no income and received benefits based on earning no income, when in fact they earned considerable amounts of income and then took benefits they were not entitled to received from hard-working Canadians who pay their taxes. In those cases, these tax cheats can expect the CRA and the courts to come down much harder on them.
When taxpayers are convicted of tax evasion, they must still repay the full amount of taxes owing, plus interest and any civil penalties assessed by the CRA. In addition, the courts may fine them up to 200% of the taxes evaded and impose a jail term of up to five years.
Didn’t shop at Home Depot? You’re not out of the woods yet. In addition to this list from Home Depot, the CRA also compiled lists of municipal building permits by way of seeking out unregistered building subcontractors. The review of 8,396 building permits yielded 2,751 unregistered building contractors.
According to a CRA report released in late 2018, underground activity in Canada totalled $51.6 billion in 2016, which could have gone into the tax coffers.
When seeking permission from the court to have the Home Depot hand over their records, the CRA stated that 7% of an unidentified company’s customers had were not filed up-to-date on their personal tax returns, meaning a greater chance of tax evasion (which people think, but again, is totally not true).
Many audit and collection projects within the CRA make use of unnamed persons requirements (UPRs), tips from the CRA’s Informant Leads Line (Snitch line) and from Canadians themselves who fail to file tax returns on time.
If you, or someone you know falls into this category, you are best to contact us at inTAXicating, to help answer questions truthfully about how much exposure you might have to the CRA and what solutions are available to help.
We can be reached at: firstname.lastname@example.org
Common Audit Triggers
Audits in Canada are typically assigned randomly. There are, however, some reasons as to why some taxpayers are audited more often that others.
Here are some of the most common factors which may increase the chance of being audited by the CRA, from most common to least:
Screwing around with Trust Funds
Sorry to be so blunt, but there is nothing that raises the ire of the Canada Revenue Agency (CRA) more than finding out, or suspecting that you have been less than honest with Trust Funds – the money taken from employees or customers and held in trust for the CRA.
In these instances, the CRA comes to audit fast, and leave no stone unturned.
The addition of self-employment income, along with or instead of T4 income is an area of significant concern for the CRA.
Earning T4 income, means is likely that the sufficient amounts of tax, CPP and EI have been withheld and remitted to the CRA on your behalf and on behalf of your employer, making it low-risk.
Self-employed individuals, on the other hand, do not, in most cases, have taxes withheld at source, making it more under the scope of the CRA.
The Industry you operate in
This is a two-fold flag because not only are some sectors audited more than others – dentists, real estate agents, restaurants, construction companies, and corner stores that take cash, for example, but the CRA also uses the industry that all businesses / taxpayers operate in, and compares the numbers reported to those of the others in your industry.
If you stand out for one reason or another, expect to be asked why, in the form of an audit.
Additionally, in around November of each year, the CRA computers match and compare many pieces of taxpayer information, looking for slips which were not declared, or for outliers.
3rd Party audits
Often times taxpayers are audited simply because a related party is being audited. Sometimes this means that family members or shareholders of a closely-held corporation are audited in the course of the audit of the corporation. Other times various corporations in a supply chain may be audited because of the audit of one of them. Sometimes contractors are audited because of a payroll audit at the corporate level.
There is nothing that can be done to minimize this risk factor. Unfortunately, the more businesses and taxpayers that a particular taxpayer is involved with, the greater likelihood of a CRA audit.
We represented a construction company which had immaculate books and records, yet were under audit by the CRA for almost a year. It made no sense, because every single item requested by the auditor matched and was reported correctly.
It finally came to light that a customer of this company from 8-years-ago had tried to commit fraud and claim a receipt for services which were never performed by this company (they had changed the date and written “CASH” across the invoice).
After proving the invoice was fraudulent, the audit suddenly ceased and the taxpayer who changed the invoice was charged with fraud.
You just never know!
Informant Leads Line Tips
The Informant Leads Line / or Tips line or Snitch line, has provided way more tax and audit leads that the CRA could have ever imagined – and still does.
In light of the fact that tips relating to offshore tax evasion may yield a reward for the informant, it may never end.
Moral of the story: taxpayers who are cheating the system should not count on staying under CRA’s radar forever. They should also be careful as to who has incriminating evidence which could be reported to the CRA.
Common leads come from; ex-spouses, former employees, and neighbours. So the next time you piss someone off, you might want to make sure they don’t reported you to the CRA.
Living Beyond your means – Net Worth Assessments
Taxpayers who live in a $4 million dollar house, and who report income of $1/year, can expect to have caught the attention of the CRA. The same goes for taxpayers who have debt to the CRA and are unable to pay, yet post publicly on their social media of their travels and lavish expenditures.
Lifestyles which appears to be incongruent with the amount of declared income can expect to be audited.
Using your Vehicle for business / Claiming vehicle expenses
Vehicle expenses are often arbitrarily determined. When preparing their tax return, often times taxpayers and their accountants pick a reasonable number for vehicle expenses based on an estimate of the percentage of the vehicle usage used for business purposes.
Few taxpayers actually keep a log of every trip, yet every one should!
Not having a log, and corresponding calendar means that few taxpayers can prove to the CRA with absolute certainty, the use of a vehicle for business purposes – thus making it easy for the CRA to deny the expenses.
Real estate transaction
Thank you Liberal government and your out of control spending.
As a result of the need for tax revenue to pay down the debt and deficit, the CRA began cracking down on real estate transactions in the past 5-years. Had the Liberals won a majority government in the 2019 Federal election, there would be capital gains taxes on the sale of principal residences. Right now, it is a requirement for Canadians to track and list on their tax returns the sale of their principal residence.
To say that the CRA pays careful attention to real estate transactions would be an understatement. The CRA frequently audits HST rebates, pre-sale condo flips, new home construction, principal residence exemptions, and many other real estate transactions.
Being involved in multiple real estate transactions sharply increases the chance of being audited.
Home office expenses
The CRA loves auditing home office expenses. Home office expenses are often arbitrary and over-declared, along with the percentage of time the home office is actually used, and the percentage of the house used for the purpose of earning income.
Operating a cash business
When there is a lot of cash being received by a merchant, there is more opportunity for the CRA to recover taxes on undeclared cash income. One common trick the CRA will perform involves the deposits going into the business or personal bank account which are significant, repetitive or unsupported. In these instances, they are declared as income, and a 50% gross negligence penalty is applied.
Adjustments / Amending returns
The CRA is on top of the business or taxpayer who declares a little income and then amends their returns after the fact to report the actual, and much higher balance. Not only is the prohibited, but it’s a great way to be audited.
If the amending results in a refund, or a refund is issued and then the correct filing results in a balance outstanding, then – you can expect an audit.
Donations – Large and Tax Shelters
If charitable contributions are suspiciously large and do not seem to be possible or likely within the confines of a taxpayer’s income, such donations or contributions are very likely to be audited.
As well, charitable contributions made to organizations suspected of being involved in tax schemes are even more likely to be subjected to an audit.
As long as there are taxes there will be individuals and organizations selling (and conning) taxpayers into participating in tax schemes to reduce taxes. Some of these schemes are outright frauds, while others have no fraudulent intent, but for one reason or another fail.
The Canada Revenue Agency actively and aggressively audits taxpayers who are involved in a tax shelter, a gifting program, or any other tax scheme.
In many circumstances, taxpayers are able to receive refunds and benefits from these programs for several years prior to the CRA auditing, and then reassessing the donation. Unfortunately, since it can take a bit for the CRA to learn of the scheme, and refunds are issued / debts reduced, the participants often bring in family and friends and get them caught up in the program.
Typically, in these schemes, taxpayer may receive tens or hundreds of thousands of dollars of CRA refunds to which they were never entitled only to have the CRA come back and audit and reassess years later, along with gross negligence penalties and interest. $100,000 in illegitimate refunds can turn into more than $200,000 once penalties and interest and the passage of time have been taken into consideration.
The rule of thumb is that if it appears too good to be true, it is.
Shareholder loans which are not repaid within a year after the year-end of the corporation are often audited, because the CRA suspects they are not legitimate and were simply paper transactions.
Loans where shareholders took revolving loans from the corporation, paying each off just prior to the deadline and then taking a new loan, are also on the CRA’s radar for audit due to their tax benefits.
It shouldn’t need to be said, but taxpayers who are both shareholders and employees of the corporation should be very careful with shareholder home loans, and should have all supporting documentation available.
In order for a home loan to be treated as an employee home loan rather than a shareholder loan, the loan must be made because the person is an employee, rather than because they are a shareholder and should be available to all other employees.
The CRA regularly conducts mini-audits to ensure that parents who claim childcare expenses maintain proper documentation, and that the children actually attend the establishment for child care and not just for playdates. Claiming childcare for children who hang out with their grandparents a few days a week while the parents are not both working out of the home, would prompt an audit.
Employees who are issued a T2200 form by their employer are entitled to deduct certain employment expenses from their income. Perhaps the employee has to pay for their own vehicle to travel to sales calls, or perhaps they have to maintain a home office. As long as the employer requires that the employee pays these expenses in respect of their job, they likely can be deducted from income.
Since this is an abused area (each expense is paid for with pre-tax dollars and reduces the overall tax paid by the taxpayer) the CRA audits many employees with the T2200 to ensure that a) their form is properly completed and may be used to deduct the expenses in question and b) each of the expenses claimed was legitimate and for the purposes of their employment, as outlined in the T2200.
If the CRA keeps coming back and auditing and re-auditing every aspect of a business – and if they keep finding issues – that business or taxpayer can expect to be on the audit list for each and every year.
All business profits are subject to taxes. This includes both legitimate and illegal businesses. As far as the CRA is concerned, if you are earning income you should pay taxes. Period.
So if a taxpayer is accused of or convicted of a crime and the CRA learns about the illegal business which was taking place, they often audit and reassess the taxpayer for taxes on the proceeds of crime – whether or not the taxpayer still has such proceeds. Often times, criminal activity is weeded out during an audit, as opposed to the CRA knowing there is an illegal business and pretending that it is legitimate.
These audits usually require the supporting documentation to justify expenses, and often there are none provided resulting in extremely large assessments.
Keep your records together by year, and expect to be audited each and every year. When you are not, be thankful.
There are many questions around writs and liens – each situation can be very different – but there are some commonly asked questions which pop-up when someone realizes that the Canada Revenue Agency (CRA) has registered a lien against their property.
Commonly asked questions:
- When does a lien have to be dealt with. A:When the property needs to be sold or refinanced. Unfortunately, many Canadians realize that the CRA has actually registered a lien when the property owner is attempting to sell or refinance their property, which is also the worst time to attempt to get the CRA to work with you.
2. Can I negotiate with the CRA? A: No, the CRA will not / does not negotiate tax debts. You can negotiate a payment arrangement under certain circumstances, and you can “negotiate” penalties and interest by applying to the CRA’s Taxpayer Relief program, but no other negotiations exist outside of bankruptcy.
3. Will the CRA remove a lien if I file for bankruptcy? A: No, liens survive bankruptcy.
4. Once I pay the lien amount, my debts to the CRA are done, finished, over? A: No, actually, the lien amount represents an amount owing in your account at the time the lien was registered. There is still interest accumulating on the debt (possibly other assessments too). Once the lien is resolved, there is the additional amount(s) which must be cleared up.
5. How can I get a lien removed? A: Great question! You can, provided you are doing so for a reason. If you need the lien removed in order to refinance because that re-financing will result in the CRA getting paid, then you might be able to have the CRA temporarily lift the lien to allow for that transaction to proceed.
6. Can I transfer the property out of my name / remove myself from title? A: NO, NO, NO!!! This is very dangerous because if you transfer an asset from your name into another person’s name when you have a debt to the CRA, or may have a debt to the CRA, and that transfer is for less than the fair market value, then the person who received that asset can be held liable for your tax debts.
7. Is the CRA going to act on the lien and kick me out of my house? A: No. If there was a lien on a secondary property such as a cottage for example, then the CRA might be prompted to take action and force a sale, but for a principal residence, no they are not.
8. If I leave it long enough, will it go away? A: Unfortunately no, unless you knew something about the way the CRA operates and there were specific criteria which applied to you and your financial situation.
To help clear up some of the confusion around this topic, here is an email we received recently regarding a CRA lien. This email contains some common questions, along with some common misinformation.
Hopefully this example will help Taxpayers who have liens registered against them by the CRA.
Question: “When the CRA puts a lien on a property, we are advised to contact a lawyer. Why is that? Can we not get written confirmation from the CRA ourselves, that after the lien amount is paid, the lien will be removed within a set period of time? If they agree to do it, do they just delay anyway or check whether they want anything else from you first? Is this all true?”
Answer: There is a lot here, but let’s break it down into manageable pieces.
When the CRA registers a lien against a property – which is a regular CRA collections technique in order for the CRA to secure their debt – they know what the outcome will be. As a result, while it might be a huge inconvenience, it’s usually not a concern unless the property is going to be sold, or if it needs to be re-financed. In that case, the lien needs to be addressed. Otherwise, the amount the CRA registers the lien for is the amount owing on the day the lien was registered and interest and possibly debt continues to accrue on the account.
The CRA cannot and will not provide confirmation that once a lien is paid that the lien will be removed because there might be additional debts which the CRA is going to need to register a lien for. They prefer not to put things in writing which could come back to cause them problems collecting tax debts.
If, however, there is a just a tax debt, and the collector registers a lien and that lien is satisfied (paid) – that means the balance was paid in full through re-financing or selling the property.
The major problem that occurs here is that once a tax account is paid, that account is automatically removed from the inventory of accounts that the collector has – often without them knowing. This means they do not have the opportunity to remove the lien from the property and need to be reminded there is a lien in place so they can finish it up, remove the lien and close the account.
Otherwise, it can be very difficult to get a lien removed after the fact because there is no one assigned to it, and no one wants to take responsibility for working an account which is not assigned to them.
So if there is a lien registered and you pay it, make sure to follow up in a timely manner to ensure it’s been taken off.
Lien / Writ / Certificate Help
If you, or someone you know has a lien registered on a property that they own and are looking for suggestions, recommendations or solutions to resolve this, then look no further than inTAXicating Tax Services.
We can be reached via email at email@example.com, to get the ball rolling.
Our services will cost you much less than you expected, and your results will be far greater than you could have imagined.
Very interesting article published on June 18th, 2019 via the Canadian Press, regarding what appears to be Canadian Corporations avoiding the payment of $11.4 billion dollars in taxes owing to the CRA.
My initial reaction to that headline was likely similar to what others who saw this headline probably felt – that corporations are not paying their fair share of taxes, that corporations get all these tax breaks and that the government allows corporations to not pay taxes.
But before I would be able to properly comment on this, I would have to read the article a few times to figure out what the actual story is.
According to the article, the issues are these;
“Corporations avoided paying Ottawa between $9.4 billion and $11.4 billion in taxes in 2014″, according to a new federal report created by the Canada Revenue Agency (CRA), which estimated these figures.
The report estimates the “tax gap”, or the difference between what is owed to the government and what was collected by the CRA — for small and medium enterprises is between $2.7 billion and $3.5 billion and for large corporations, between $6.7 billion and $7.9 billion.
“The corporate figures bring the total estimated 2014 tax gap from a series of studies by a dedicated CRA unit to between $21.8 billion and $26 billion — or 10.6% to 12.6% of revenues — not including funds recovered or lost due to audits.”
By not including funds recovered or lost during audits, and not going into detail as to what “audit” specifically means, it could represent the amount of taxes assessed during an audit (where the CRA found additional taxes owing), or lost (where the CRA had assessed a corporation, only to find out during an audit that the assessment was inaccurate or invalid, and thus reversed, revised or reduced).
Taking a closer look at the figures, might be a huge shock to anyone who feels that corporations get it easy in Canada.
In 2014, Corporate tax filers reported approximately $298 billion in taxable income and $40.9 billion in total federal tax payable. Even though they made up only about 1% of the 2.1 million corporate tax filers, large corporations reported about 52% of the total corporate taxable income and contributed about 54% of the federal tax.
More than half the taxes collected in this country come from large corporations!
After being fed data which explained that the corporate tax gap for 2014 was between $9.4 billion and $11.4 billion, then the government goes on to mention that the “total” estimated 2014 tax gap is $21.8 billion and $26 billion, meaning between $12.4 billion and $14.6 billion is taxes owed by individuals who are not paying their taxes…
Then the government explains that after the audits, which were left out of the equation, are finalized, the corporate tax gap will actually be reduced by between 31-40% for small enterprises and between 64-75% for large corporations, which means overall, the corporate tax gap for 2014 is actually somewhere between $3.3 billion and $5.3 billion and not $9.4 billion to $11.4 billion.
So that means the actual tax gap, taking into consideration the post-audit figures that the CRA anticipates, is actually between $15.7 billion to $19.9 billion, and of those taxes owing, most of it is owing from individual Canadians who are not paying.
Meanwhile, large corporations pay 54% of the total taxes paid to this country to fund services, roads, healthcare, and the many benefits that we have all come to appreciate.
Why is this article geared towards corporations? Shouldn’t it be thanking the corporations and pointing fingers at the Canadians who are not paying their fair share? Why was it positioned this way?
Since that answer could be anything, ranging from inaccurate reporting to political manoeuvring, then the only question that remains from this article surrounds what constitutes “taxes owing”? Is that figure based on amounts reported by Canadians who just never paid the taxes, or does that figure include assessed amounts owing that the CRA created, and which may or may not be owing? If it’s the latter then it’s highly likely that the tax gap is even smaller.
Ask me one day to tell the story about the notional assessments that I raised while working at the CRA at the request of my team leader to “get the attention” of the business… It got the attention of more than the business! It got the attention of the Minister of Finance. Lesson learned.
So, to conclude, there is a tax gap. There will always be a tax gap because not every Canadian has the ability to pay their taxes in full and on time, each and every year. As well, not every Canadian files their taxes on time, or are required to file on time, which means the full picture will never be forthcoming because of all the moving parts.
The timing and content of this article leads me to believe that the Federal government and the CRA going to come after corporations. They shouldn’t, based on the actual figures, but corporations do not vote in elections – people do.
What the true intent of this article is, however, is very unclear to me.
The Canada Revenue Agency (CRA) has announced on their website that a Winnipeg-based insulation company has been fined after underreporting its taxable income by more than $1 million.
The CRA’s Investigators found irregularities in the books and records of Thermo Applicators Inc., such as, that the company’s president included personal expenses in the company’s books, including construction costs for a cabin near Kenora, Ont. and a vacation home in Mexico, as well as a fly-in fishing trip. None of these are eligible tax deductions.
Thermo pleaded guilty in Manitoba provincial court on May 21 to two counts of making false or deceptive statements in the 2009-14 tax years. The court found $1,139,000 million in taxable income went unreported, in addition to the claiming of ineligible expenses.
As a result, the company is being ordered to pay $190,142 in income tax and $47,611 of sales tax that should have been withheld. In addition to paying the taxes, the company was fined $237,753.
Once penalties and interest are added to the debt dating back to 2009 the balance will shoot up well over $500,000.
This conviction is a clear reminder that failing to declare income and claiming false expenses can be very costly should the CRA perform and audit and find it.
Keep good records, report all income and claim eligible expenses.
A Coaldale, Alberta man has been arrested for fraud after allegedly being one of the central figures in a so-called “gifting” scheme which has taken in about 500 individuals across the province of Alberta.
Gifting schemes have been under the microscope at the Canada Revenue Agency for over a decade, and in all cases, the CRA have rejected these schemes, and denied the donation receipts of the contributors.
While these cases play out in Tax Court, the participants are left to fend for themselves, often accruing penalties and interest which far exceed the amount of their contribution or their tax benefit.
In this specific scheme, Steele Cameron Tolman, 57, was charged with fraud over $5,000 and possession of the proceeds of crime over $5,000. He is scheduled to appear in court in Lethbridge on May 17 to answer LPS charges he is a “main presenter” or “promoter” of a gifting circle fraud which began in September 2018.
These schemes – and this scheme specifically – operate under false pretences, whereby people are recruited by telling them that if they contribute $5,000 they will eventually receive $40,000 with no risk.
The fraud occurs when that $5,000 is used to payout the $40,000 to one of the earlier members which means new members must be recruited in order to continue paying out members.
If this scheme was promoted out of a parking lot, and some guy’s back of their van, they are going to say this scheme was completely ridiculous, however, this was promoted by friends and family who received the $40,000 payout which added additional legitimacy to the scheme.
The fraud is criminal in nature because the recruitment of new members occurs under the false pretense of “no risk. Those who participated and received their $40,000, are in receipt of the proceeds of crime, which is illegal, and those who received their payouts must declare that income to the Canada Revenue Agency.
What is truly amazing is that people who participate in schemes and scams like these can claim that they did so thinking it was legal, and have used that argument in conversations with the police and the CRA.
If you give someone $5,000 and they give you back $40,000 – which seems too good to be true… Means it is too good to be true.
Much in the same way that someone donating $1,000 to a “charity” and receives a tax receipt for a donation of $2500. It’s illegal, and you’re going to get caught and the penalties and interest will far exceed the amount of benefit received.
Be careful with your hard earned money. There are no fast and easy ways to make a buck. Don’t fall for scams and schemes and get left with a tax debt, or worse.
The CRA has reported that their NETFILE service is down, along with their My Account functionality.
The CRA has been working on the fix since very early this morning, and have kept the public fairly well informed on social media.
Thankfully today is the 25th of March and not the 25th of April, so it shouldn’t pose a significant problem for the CRA provided they can plug the system back in and get it running fast.
I was thinking about posting an update earlier this morning, but figured it wasn’t a huge story, but then my mobile phone shot to life with a text from my 14-year-old son, which read, “Dad! The CRA site is down”.
So with that, the CRA site is presently down. Please be patient as it will soon be back up.
I don’t normally posts jokes. Taxes are not funny.
But this was sent to me, and it made me laugh as a former employee of the CRA responsible to collections, compliance and a variety of other responsibilities.
Here it is;
A local Canadian bar, You Moose Be Joking, was so sure that its bartenders – Bob and Doug McKenzie – were the strongest men in the Yukon, that they offered a standing $1000 bet to anyone who dared to take them up on their challenge.
Each bartender would squeeze a lemon until all the juice ran into a glass, and then they would each hand their lemon to a patron, and if that patron could squeeze just one more drop of lemon juice out of that lemon, they would win the money.
Over the years, many people, and a couple of Moose had tried, but failed. That list includes: weightlifters, longshoremen, radiologists, race-car drivers, doctors, lawyers, politicians, students, and even duct cleaners.
Nobody could squeeze one single drop out of the lemons.
Then one cold, windy day, a scrawny, pale, tired looking man walked into the bar, and with a very faint almost unassuming voice, he went over to the bar, pushed up his thick, dirty glasses, and meekly said; “I’d like to try the lemon bet.”
The bar went silent, as everyone looked at the man, and sized up his chances of succeeding at this challenge.
Once the laughter died down, the bartender said, “OK. Let’s do it!” He gathered the other bartender, and they each grabbed a lemon, and squeezed them until their faces went red, and not a single drop was left in the fruit.
They each handed the wrinkled remains of the rind to this man, and without any effort, he squeezed the lemons – one in each hand – until drops of lemon juice poured out of his hands, down his wrists and onto the floor.
The crowd fell silent.
Then, after realizing that he had succeeded at this challenge, the crowd erupted, gathered up the man and put him on their shoulders.
“Drinks are on me!” The man said.
“How did you do that?”, the bartenders queried. “Are you a lumberjack? Or a weight-lifter? How did you do that?”
The man smirked and said; “I’m great at getting blood from a stone! I work for Revenue Canada.”
There is quite a lot of information on the Internet around the Canada Revenue Agency’s (CRA) Taxpayer Relief Program (formerly known as fairness). Understandably, there is also a lot of misinformation around this program. After having spent almost 11 years working in the CRA – beginning as an entry-level collector and working my way up through the division to a team leader before taking my MBA and heading into the private sector – I have learned quite a lot about how the Taxpayer Relief program actually works.
This post will identify the key objectives of the program straight from the CRA, and then highlights some common myths about the program and the actual fact about why it makes sense to invest considerable time and effort into an application, or engage the services of someone who knows the program inside and out.
The Taxpayer Relief program was set up to allow for the Minister of National Revenue to grant relief from penalty and/or interest when the following types of situations prevent a taxpayer (individual or corporation) from meeting their tax obligations:
- Extraordinary circumstances;
- Actions of the Canada Revenue Agency (CRA);
- Inability to pay or financial hardship;
- Other circumstances
The program distinguishes between “cancelling” and “waiving” of penalties and/or interest as the CRA understands that granting relief to a taxpayer only to see them smothering in penalties and interest again is an exercise in futility.
The term “cancel” refers to a penalty or interest amount that is assessed or charged for which relief is granted, in whole or in part, by the CRA.
The term “waive” refers to a penalty or interest amount that is not yet assessed or charged for which relief is granted, in whole or in part, by the CRA.
The term “Taxpayer” includes individual, employer or payer, corporation, partnership, organization, trust, estate, goods and services tax/harmonized sales tax (GST/HST) registrant or claimant.
Now, you or your client, has been charged penalties and / or interest and you want to know if you qualify. Look no further than the CRA website, and their section on Taxpayer Relief, here.
Circumstances that may warrant relief include;
Penalties or interest may be cancelled or waived in whole or in part when they result from circumstances beyond a taxpayer’s control. Extraordinary circumstances that may have prevented a taxpayer from making a payment when due, filing a return on time, or otherwise complying with a tax obligation include, but are not limited to, the following examples:
- Natural or human-made disasters, such as a flood or fire;
- Civil disturbances or disruptions in services, such as a postal strike;
- Serious illness or accident; and
- Serious emotional or mental distress, such as death in the immediate family.
Actions of the CRA
The CRA may also cancel or waive penalties or interest when they result primarily from CRA actions, including:
- Processing delays that result in taxpayers not being informed, within a reasonable time, that an amount was owing;
- Errors in CRA material which led a taxpayer to file a return or make a payment based on incorrect information;
- Incorrect information provided to a taxpayer by the CRA (usually in writing);
- Errors in processing;
- Delays in providing information, resulting in taxpayers not being able to meet their tax obligations in a timely manner; and
- Undue delays in resolving an objection or an appeal, or in completing an audit.
Inability to pay or financial hardship
The CRA may, in circumstances where there is a confirmed inability to pay amounts owing, consider waiving or cancelling interest in whole or in part to enable taxpayers to pay their account. For example, this could occur when:
- A collection has been suspended because of an inability to pay caused by the loss of employment and the taxpayer is experiencing financial hardship;
- A taxpayer is unable to conclude a payment arrangement because the interest charges represent a significant portion of the payments; or
- Payment of the accumulated interest would cause a prolonged inability to provide basic necessities (financial hardship) such as food, medical help, transportation, or shelter; consideration may be given to cancelling all or part of the total accumulated interest.
Consideration would not generally be given to cancelling a penalty based on an inability to pay or financial hardship unless an extraordinary circumstance prevented compliance, or an exceptional situation existed. For example, when a business is experiencing extreme financial difficulty and enforcement of such penalties would jeopardize the continuity of its operations, the jobs of the employees, and the welfare of the community as a whole, consideration may be given to providing relief of the penalties.
The CRA may also grant relief if a taxpayer’s circumstances do not fall within the situations described above.
The CRA expects these guidelines to be used when applying for relief and that the requests are made within the deadlines for requesting relief, which is limited to any period that ended within 10 years before the calendar year in which a request is submitted or an income tax return is filed. The 10-year limitation period rolls forward every January 1st.
If filed using the correct form, with sufficient supporting documentation, a response from the Taxpayer Relief Program can take anywhere from 3 months to 2 years due to the amount of requests. In order to ensure that you are making the best claim possible, you really should engage the services of a professional, as they would be able to assess whether or not your request is sufficient, and they would ensure that you meet all the other conditions which must be in place for the CRA to review and consider your application.
At the end of the day, if you have a reasonable chance of being successful under this program, the investment made to have it written, reviewed or monitored by an expert is a worthwhile expenditure.
Now let’s have a look at some common myths around this program which are floating around the Internet.
Myth: That the CRA’s Taxpayer Relief program is a one time program and that you had better take your best shot the time you decide to apply.
Reality: Not true, This program is available to all Canadians who have been charged penalties and / or interest and as such, they have the right to ask for relief each and every time it is warranted. The Taxpayer Relief Group do not maintain collection inventories and as such they review each case on the merit of its submission without any influence from the permanent collections diary or the collector assigned to the case.
Myth: That the CRA’s Taxpayer Relief Program is used in order for the CRA and a taxpayer to negotiate a deal which would resolve the taxpayer’s debt issue by settling the debt and accepting less than the actual amount owed to them.
Reality: Never, ever, ever! The CRA does NOT settle debts outside of bankruptcy or a proposal, and they certainly do not use the taxpayer relief program for this purpose. As a matter of fact, I can speak of a first hand experience where a collector used the word “settle” in the permanent collection diary of a corporation which had paid a principle tax debt of $650,000, because they wanted to fight the $775,000 in penalties and interest through Taxpayer Relief. The CRA sent back the $650,000 and re-opened negotiation with the corporation because they did not want to set the precedent of settling tax debts through the Taxpayer Relief Program.
Myth: I cannot afford to pay my taxes, so I am not going to file my tax return, and then when I have a debt, I can ask for relief because I had no money?
Reality: Failure to file a tax return is a criminal offence which can result in prosecution, so you should always file, and be clear to the CRA upfront that money is tight. But before an application is made to the Taxpayer Relief Program, all outstanding returns must be filed up to date, and all installments must be accounted for. Otherwise, the application is set aside until everything is current.
Myth: Having a disability or illness from birth qualifies me for Taxpayer Relief.
Reality: Probably not. If you have managed to conduct your affairs for a period of time without any tax issues, but then something happens which cases the accumulation of penalties and interest, you cannot use your disability or illness when applying for relief, unless something happened during the period in which the penalties and / or interest were applied as a result of a worsening of your disability / illness. In that case, you would need to substantiate this with supporting letters from your doctors and specialists.
Myth: I met with someone who is going to write a letter to the CRA asking for relief and they have sent me the letter to review. If I sign it, and they send it off, am I now being considered for relief?
Reality: Not any more. Years ago, taxpayers were able to send in letters to the fairness department which contained their reasons for asking for relief and some would include supporting documentation, while others would not. However, since the CRA revamped the Taxpayer Relief Program, they require that the form RC4288 be included in the package or the claim will be rejected.
Myth: I need to be pre-qualified for the CRA Taxpayer Relief Program.
Reality: No. You can determine if you may qualify, or you can seek a professional to help you determine if you have grounds for relief, but there is no pre-qualification of this program.
Myth: If my claim is rejected, then I have to pay the penalties and interest.
Reality: You should make arrangements to pay the penalties and interest in any case in order to stop the interest clock from ticking should the claim be denied – wherever possible, however, the Taxpayer Relief Program allows for a second-level review to be performed (usually with additional information provided) and there is an option for judicial review should the second level review be unfavourable.
So take some time to look around when you are considering an application under the Taxpayer Relief Program and make sure that if you engage someone you do so for the right reasons.