This blog is written by a former Canada Revenue Agency (CRA) Employee of the Year who worked in, managed and trained CRA's Collections Department staff for almost 11-years. inTAXicating provides information, support and solutions for everything CRA related, including but not limited to; Collections, Enforcement, Audits, Liens, Back-Filing, Assessments, Director's Liability, s160 Assessments, Taxpayer Relief, Voluntary Disclosure, Bankruptcies, Proposals, Mortgages and diagnosing and solving the most complex of tax problems. Contact us for a free consultation! Should you need to hire us, you will find us to be Experienced, Honest and On Your Side. Email us at email@example.com, and let's begin solving your tax problems together!
What Do Lionel Messi, Cristiano Ronaldo and Floyd Mayweather have in common aside from being top atheletes in their respective sports, and extreme wealth?
Ronaldo and Messi with the Spanish Tax Authroity, and Mayweather with the IRS, which just goes to show you that no matter how much money you have, or don’t have, you still have to report income, file on time and pay your taxes!
In Ronaldo’s case, the Spanish Hacienda tax authority believes Ronaldo failed to pay €14.7 million in taxes pertaining to income earned on his “image rights” between 2011 and 2014. The belief is that he used (and still uses) a shell company in the British Virgin Islands and Ireland, to hide at least €78m in image rights.
Ronaldo’s camp claim that he has fulfilled all his tax obligations, maintaining that the majority of his image-rights income is earned abroad and therefore not liable for Spanish tax.
How does Ronaldo’s situation differ from Lionel Messi’s tax case?
Barcelona star Lionel Messi and his father Jorge were found guilty of tax fraud in July 2016 after it was found they had hidden image-rights income from the Spanish authorities. Messi was fined €3.6m and sentenced to 21 months in prison (which was suspended) for defrauding €4.1m between 2007-09.
The Messi family had previously paid over at least €10m in back taxes and charges, long before their case made it to court.
In Messi’s case, the court determined there was a total failure to fill his tax obligations on image rights income.
A huge concern stemming from the The Supreme Court’s judgement in the Messi surrounded the role that Messi’s tax and financial advisors played and how both parties were not indicted as part of the prosecution since they there was evidence that they advised the player on how to evade taxes.
In Spain, a guilty verdict for an aggravated tax crime means a mandatory jail time of two to six years, while conviction of the lesser offence brings a suspended sentence. If Ronaldo admits to the details in front of the judge within two months after being accused, and pays over the amounts allegedly defrauded, his punishment could be reduced.
Messi’s 21-month prison sentence for tax fraud was reduced to a €252,000 fine, while his father’s 15-month prison sentence was reduced to a €180,000 fine.
These fines are in addition to the re-payment of the taxes originally owing plus any penalties and interest accrued to the balance.
Floyd Mayweather, and his estimated net worth of $340 million is in trouble with the IRS and has apparently filed a petition asking for a temporary reprieve from unpaid taxes from 2015 until after his fight with Conor McGregor in August.
Apparently, while he has substantial assets, those assets are restricted and primarily illiquid. The upcoming fight against McGregor, however, would provide Mayweather with enough liquid cash to pay the IRS debt from 2015 in full.
Mayweather, made $220 million alone from his 2015 fight against Manny Pacquiao. It is unclear how much he owes the IRS in taxes. Given a 15-month lapse since the 2015 tax due date, Mayweather would owe 7.5% in penalties plus accruing interest on top of what he was already scheduled to pay.
Forbes estimated Mayweather’s net worth at $340 million in January.
So the moral of the story is this;
Not everyone wants to pay their taxes, and some will go to great lengths to reduce or avoid paying taxes. If that is something that you feel you must do, you have to be prepared for the consequences of your actions when and if the government comes back to you.
File on time.
Pay on time.
Don’t pay the government more than you should.
If you need help because you’re carrying a balance with the CRA and you want to discuss options, contact us today!
A couple of months ago, I received a call from a senior law partner at one of Toronto’s top law firms asking me if I could help out a client of theirs with a messy tax problem because their firm was just too expensive for the couple.
I was told there was a balance owing to the CRA for GST/HST, and that the firm was essentially bankrupt, they feel they don’t owe the money and the CRA was threatening to raise a Deemed Trust followed by a s.160 assessment.
All over $30,000 owing to the CRA.
Sounds simple enough…
Confirm the amounts, then figure out if the balance is actually owing, tie up loose ends then make arrangements between the client and the CRA to resolve both matters.
I connected with the couple, got their side of the story, then met their wonderful accountant and got her side of the story. I took all of that information, and had a nice long chat with the Collector at the CRA.
Here is the CRA’s side;
The couple owned a business, which accumulated debt through the filing of GST/HST but never paying it. They also failed to file T2 returns.
The company had at one point in time sought financing and ended up pledging their inventory in return. When the business began to slow down, the lender took the assets, and sold them to pay back the money they had lent to the business.
There was a shortfall.
The CRA did not like this at all.
With money owing to the CRA, they used their Deemed Trust provision and raised a s.160 non-arms length assessment against the lender for taking the inventory and disposing of it without paying the CRA.
The CRA were just waiting for the corporations director to file for bankruptcy before they actioned the s.160 because that would survive the bankruptcy and would result in the CRA getting paid on all fronts.
But logic sold me that a business which was struggling would not have significant amounts of GST/HST owing in its final years.
Something did not seem right.
I called back the CRA Collections office who, quite frankly, was extremely unhappy about having to answer additional questions about the origin of the debts… Again.
I had asked her to go through the last 3-years worth of filed GST/HST returns and give me verbal figures for Total Sales, GST Collected, and Input Tax Credits.
She started. The first year was fine.
The second year was fine.
The third year, she started, “Total Sales were $25,000”, “GST Collected was $1,500” and ITC’s were …
… she paused…
“No ITC’s, eh?” was my response.
“No. No ITC’s”, she said, completely puzzled.
“So I don’t expect there to be any ITC’s on any of the returns going forward, is that accurate?” I asked.
“No ITC’s on any of the returns going forward… That’s so unusual”, was her response.
We re-filed the last 6 GST/HST returns to include the ITC’s. They went through a desk audit quickly because of the notes indicating someone missed ITC’s, and upon posting knocked down the balance owing considerably.
The s.160 assessment was cancelled and the remaining, much smaller balance was paid in full.
I introduced them to one of the fantastic accountants in my network who quickly completed the T2’s for them.
Everyone left happy.
That’s how we help! Knowing the ins and outs of the CRA’s collections department and even think that something might have posted incorrectly, 4-years ago.
If you are fighting a losing battle, find your most successful competitor and do what they do!
If you are one of the many people who have paid tens of thousands of dollars to a prominent tax lawyer because they told you a lawyer was absolutely required to save you from the “taxman,” you are going to be really disappointed to learn the firm itself no longer feels that way.
As a result of a drawn-out and very public dispute with the Law Society of Upper Canada over their retention of client retainer fees to keep them from the reach of the Canada Revenue Agency (CRA), DioGuardi Tax Law has been forced to reinvent themselves into our firm, inTAXicating, by saying when people owe tax to the Canada Revenue Agency, a lawyer is no longer the most effective choice for ending the problem.
From their press release, Philippe DioGuardi is reported to have said “People who owe tax are vulnerable to the Canada Revenue Agency’s aggressive collection tactics. They need fast and affordable ways to fix their tax trouble before the CRA comes after them with bank and wage garnishments or liens against their home and other property.”
Something I have been saying for the past 10 years!
In an effort to possibly save their business, the press release goes on to explain that hiring lawyers for CRA collections matters is time-consuming (read: expensive for clients) and slow: “They know what I know about fighting the CRA. And because they’re not lawyers, they can work more quickly to end people’s tax debt trouble for less than a lawyer would charge. Frankly, when the trouble is that you owe tax, you don’t need the hassle of hiring a lawyer to fix it.”
Unfortunately, the aggressive negotiation tactics DioGuardi’s firm is known for and which the CRA despises are still at the centre of their campaign. They also boast a network of resources to assist people who need help with financing, and to slide people into bankruptcy when they cannot get financing.
DioGuardi’s previous radio advertising warned Canadians against searching for Tax Solutions on the Internet (so you will not find answers or firms like inTAXicating) and against so-called Tax Solutions firms, which are really Bankruptcy firms offering to “help” you with your tax debt by plunging you into bankruptcy after drawing out your tax file to incur more fees.
So inTAXicating now has a little competition … kind of … in the field of tax solutions and assistance with CRA issues. You can either choose 17 years of tax experience – 11 of which were spent recently working in and managing CRA collections – or you can choose a firm which used to believe only lawyers can solve tax problems, but now tells you lawyers are not needed to solve tax problems, and oh, hey, they also used to work somewhere in the CRA 25 years ago.
Once this model wears out, watch for them to morph into Tax “Brokers” so they can do the work, and get paid after the fact, all in an effort to “protect” your money from the “Tax Man”. It’s all the same everything, just dressed up in different clothing.
For us, nothing has changed.
If you have a tax question, issue, lien, or concern with the CRA, or RST, or need help regarding an audit or Taxpayer Relief, or just want to ask a tax question, then send an email to firstname.lastname@example.org and you will have your answers. If you need to hire us, we’ll tell you. If you can handle it yourself but need a little guidance, we will tell you.
Our reputation is as important as your reputation.
I had a nice long conversation with a client the other day regarding the potential that either the Canada Revenue Agency (CRA) or the Provincial government (in Ontario) were going to pursue a Director’s Liability assessment against him for the debts of his now-deceased corporation. Part of the discussion surrounded how the Canada Revenue Agency and the former Ontario Retail Sales Tax (RST) group handled assessments, and the criteria they used when reviewing whether or not to pierce the corporate shield, plus the importance of a due diligence defense.
During my employment at the Canada Revenue Agency (CRA), I felt I needed to gain a more thorough understanding of Director’s Liability and figure out why there were so few assessments raised in our office compared to other offices. I personally had not raised any Director’s Liability assessments mainly because I was effective on the phone and combined with meetings, was able to resolve many debts prior to the assessment stage. Still, Senior Management encourage the Collections staff to utilize this collection tool more, so as the Resource and Complex Case Officer, I asked for, and was given, the Director’s Liability inventory to control.
By controlling the Director’s Liability inventory, that meant I needed to know the ins and outs of Director’s Liability – section 227.1 of the Income Tax Act and section 323 of the Excise Tax Act, because if anyone in our office wanted to raise an assessment, I would have to review their account, ensure all of the much-needed grunt work had been completed, then ensure they had spoken to the Director(s), given them sufficient notice, provided them time for a Due Diligence Defense, at which point I could sign off and begin to track the file.
After organizing that inventory and rolling out the new procedures, I began to scour the accounts in our office for potential Director’s Liability assessments, then, in addition to my other inventories, provide recommendations and suggestions to the staff on how to proceed if I felt there was a possibility for an assessment. Management decided instead of burdening the staff, I should just take those accounts I felt were ready for Director’s Liability assessments and work them, plus all of the other accounts I was tracking where assessments were raised too.
It was a fair amount of work, but more importantly, it was very enlightening, to review the government’s policies on Director’s Liabilities plus review the procedures in place, compare that to how other office’s handled their files and really tighten up the process. If an account was a sure-fire Director’s Liability assessment, it was raised, and if there was no chance, or not the right time, the file was returned to active collections.
I found the first common misconception around Director’s Liability was that the issuance of the Director’s Liability Pre-Assessment Proposal Letter (which notifies director’s that we are reviewing them for Director’s Liability) was being used as just another letter by the Collections staff to remind directors of their obligations, when in fact the CRA intended on using this letter to notify Directors’ that an assessment was beginning. Internally, the Canada Revenue Agency was actually starting to investigate the personal ability to pay of the director(s) at the time this letter was issued.
Going forward, that letter was not to be used lightly, and it was not to be sent to the Director(s) numerous times. A Director would then have the assessment raised against them and wonder why it was raised this time, and not earlier when one of those letters went out, so in order to prevent a possible loss in Tax Court, the decision was made to send it once, and then follow-up with the Due Diligence defense letter before raising the assessment.
Ignoring the Due Diligence defense letter (which happens often) meant the one opportunity a Director had to start their case on the record was lost, and with the CRA building their case in the permanent diary, the Director(s) stood little chance of preventing the Canada Revenue Agency from raising the Director’s Liability.
Once that waiting period passes, the file usually gets very quiet…
From the Director’s point of view, either the assessment is raised and they receive a letter from the CRA stating that, or the assessment is raised and the letter gets lost in the mail (tossed out), or the assessment is raised and before the Director is notified, their personal assets come under fire. There is of course, the possibility that nothing happens and the Director(s) are left in limbo, but without having a dialogue with the CRA, or experience around the policies and procedures, there is no way that the Director(s) will know when and if the CRA is coming – if at all.
Once raised, the Director(s) have quite limited options.
A recent court case, which I will highlight below demonstrates a situation where an assessment was raised, and in Tax Court, the decision was turned over and the assessment cancelled. I guarantee it won’t happen again, as the CRA will ensure their processes are tightened even more to close this loophole.
The case was Bekesinski V The Queen.
The link to the case on the website for the Tax Court of Canada, is here.
In this case, Bekesinski was the Director of a corporation who was personally assessed by the Minister of National Revenue (CRA) in the amount $477,546.08 for the corporation’s unremitted income tax (T2) and employer contributions of CPP and EI for payroll (source deductions) plus penalties and interest for the 2001, 2002 and 2003 fiscal years.
Under Director’s Liability, the CRA can assess directors for payroll and for GST/HST, but not Corporate Tax liabilities.
The Tax Court of Canada held that since the taxpayer had resigned as a director of the corporation more than two years after the CRA’s assessment, the CRA was statue barred from raising the Director’s Liability assessment.
This was something the CRA should have known before raising the assessment and something that the director (or his representatives) should have mentioned at any point during the pre-assessment proposal period, especially at the due diligence defense stage, but was never mentioned.
Brief Overview of the Facts
In 1992 the taxpayer purchased D.W. Stewart Cartage Ltd., a general cartage, trucking and warehousing company where he served as a Director of the corporation.
When the corporation fell behind on filing obligations and as the balance owing to the CRA began to grow, the Director began to receive numerous letters from the CRA warning him that he could be held personally liable for the corporation’s tax debts as a Director of the corporation. He did not notify the CRA at any time that he had resigned as a Director of the corporation.
On October 15, 2010 the CRA raised Director’s Liability and issued a Notice of Assessment (NOA) to the taxpayer for unremitted income tax, employer contributions plus penalties and interest in the amount of $477,546.08.
The Director then argued that he should not have been assessed as a Director because he resigned as Director of the corporation on July 20, 2006 by way of a Notice of Resignation which would have made the raising of the assessment statute barred.
The CRA argued that the taxpayer was in fact a director and that the taxpayer had backdated the resignation to qualify for the exception, which happens more than you could imagine, and to counter this trick, the CRA often requests an “ink date test” to determine the authenticity of the Notice of Resignation.
Unfortunately for the CRA, the results from the ink date test was excluded by the Tax Court because the CRA did not advise the Court that they felt the Notice of Resignation was back-dated. Even the judge felt the Notice of Resignation was backdated, however since the CRA failed to mention it, it was not open for review in the Court.
In summation, Bekesinski avoided Director’s Liability for the corporate tax debts due to a litigation misstep on the part of the CRA, a mistake they are unlikely to be repeat.
It is highly advisable for corporate directors to carefully document their resignations so as to avoid potential future Director’s Liability assessments, because I guarantee, the CRA will challenges to the authenticity of backdated resignations on each and every case going forward.
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.
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.
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!