The Canada Revenue Agency (CRA) Knows Who Cheats on their Taxes!

Are you on the Canada Revenue Agencies radar?  How about on the CRA’s Audit Radar?  Have you been “flagged”?

Have you ever wondered how the Canada Revenue Agency (CRA) decides who to audit?  Are there red flags?  Or does the CRA know how you operate your business which makes you more or less likely to be audited?

Here is the answer that you might be looking for;

The CRA knows who Cheats on their Taxes!

Do you fit their profile?

Are you at risk?

First, some background.

While I was still working at the Canada Revenue Agency (CRA), we released the results of a study that was put together to profile what kind of person poses the most risk for the CRA’s collections and audit groups.

The CRA spent a lot of time going through the main accounts; personal tax, payroll, GST/HST, and Corporate Tax, and we looked at who filed on time, who filed late (and how late they filed), and who was regularly compliant, and who needed a follow up verification audit, and what the result of those audits were.

This study focused on Tax Compliance, specifically;

  • Percentage of Taxpayers who accurately reported income and expenses (95%)
  • Percentage of Taxpayers who file on time (93%)
  • Percentage of Taxpayers who made payments on time with their filing (91%).

When it comes to reporting compliance or honestly reporting all your income and/or expenses, this study found that males are more likely to underreport their tax owing than females.

The study also found that underreporting is highest among taxpayers aged 35 to 54 and lowest among taxpayers under 35.

Underreporting of tax was also lowest for taxpayers who are married and highest for those who are separated, with single taxpayers somewhere in between.

Not surprisingly, underreporting of tax is higher among taxpayers whose main source of income is either capital gains or self-employment income versus taxpayers whose main source of income is wages, where most of the tax is withheld at source by the employer.

So who is on the CRA’s radar?

The prime candidates for the CRA to audit, or perform a desk review of expenses, are the separated or divorced males between the ages of 35-54 years old.

Do you fall into that category?

If so, know that the CRA is keeping one eye on you and the other on what you report and when it is reported.

Contact us at inTAXicating, and let us help you ensure that you remain compliant, and ensure that you have the knowledge necessary to organize your records so that you can quickly and easily get through a CRA audit.

EXAMPLE:

Here is an example of a case where the CRA used the criteria identified earlier to quickly descend on a taxpayer who fell behind in his filing and remitting duties.

Case: Tax Cheat?  Or Disorganized Business Owner?

I was approached by a business owner who ran very loosely with his books and records.  He kept a box of receipts and while most of the business receipts made the box, many got lost along the way.  Additionally, this business owner charged business expenses on his personal credit card, and personal expenses on his business card.  He travelled quite a lot for work, and he posted a lot of content on social media, but he failed to keep a thorough and accurate log documenting his personal versus business travel.

Additionally, because he was always on the go, had no time to review the details of the tax side of his business.  He had money in his business bank account, then he knew he was earning money.  At year-end, he would bring his half-completed records and his shoebox to his accountant for the preparation of his returns.

In June he would receive a refund.

A series of events, however, changed his life forever.

  1. His accountant began to get busy
  2. As a result, he was late getting payroll figures, and was late making the payroll remittance
  3. Then the GST/HST numbers were delayed, so that filing was late
  4. His personal tax filings were delayed
  5. His business tax filing was delayed.
  6. His business made money.
  7. While all of this was going on – he continued to send his info to the CA, and pay the CA’s invoices.  He would get the odd notice from the CRA and send it to his accountant to “take care of”.

This is very typical and a common occurence.

What he didn’t know was that everything was not okay.

One day a CRA field officer showed up to discuss his non-compliance and to arrange a payroll audit because the company was 6-months behind on remittances.  There was also a balance owing to the CRA of over $35,000.

Shocked, he contacted his CA who said that she would look into it, that it was going to take some time and she felt the CRA was completely wrong.

Convinced that the accountant was right, the business owner went back to work, and the accountant was going to find the error and fix the problem.

Only problem that he didn’t know was that there was no “error”.  The balance owing to the CRA was legitimate.  By filing late over that 6-month period, the accountant had amassed a significant balance due to late filing penalties and the balance was jumping by leaps and bounds as a result of the 10% interest the CRA charges on outstanding balances (compounding daily).

Then one day he received a call from one of his main suppliers who was concenred because not only did he cheque bounce, but there was a CRA officer there earlier in the day asking questions.

He contacted his accountant.

She appeared stunned and said that she would call the CRA and fix it.

She was just buying time.

A week later, the garnishment was still on the account, interest was accruing, and the accountant was telling stories of the CRA being unfair, and mean, and not listening or returning calls.

Frustrated and panicked that he might have to close his business without a bank account, he contacted his CA and asked for his books and records.

She refused.  Realizing that this was the end of the relationship with her client, she told him that she had done a lot of work with the CRA and she demanded payment before she would give up his information.

He refused to pay – how could he?  He had no access to his bank account and the CRA had taken all of his funds.

In fact, it took him 8-months and a small claims court date for this process to resolve itself.  She took him to court for unpaid work, and thankfully, the judge was wise to this CA and her practices and awarded the client his books and records in return for payment of the work actually completed, not the entire invoice.

The damage was done.  The business was also close to being done.

The CRA doesn’t care about the reasons why someone becomes non-compliant – they look at the business, the owner, and then set their course to fix it.

The fact that this business owner fit the category did not help him at all, as the CRA quickly and aggressively went after every asset that he had, raised assessments for the missing payroll and GST/HST figures, and sent Requirements to Pay to his business bank account, contacted his receivables (clients) and quickly moved to raise director’s liability so they could go after his personal assets.

Conclusion

Running a business is difficult.

Running a business without a business bank account is also difficult.

Running a business without a bank account, after the CRA notified your clients that you owe considerable amounts of tax money is next to impossible.

What killed this business was a combination of bad accounting, bad advice, lies, deception and some really bad luck.

The reality is that many, many businesses and individuals have this experience on a daily basis.  It is next to impossible for the CRA to determine if the information being told to them is legitimate or a made up story – but when the owner of the business is a perfect fit for commiting tax fraud – the CRA takes notice.

Could this have been fixed?  Of course.

If you owe money to the CRA, or if you have fallen behind on compliance, or if you suspect that your tax advisor is giving you bad advice, contact us now.  At inTAXicating, we’ll look at the facts, and help you run your business while we work on solving the problem.

Visit our website @ www.intaxicating.ca.

Send us an email to: Info@intaxicating.ca

 

 

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Former Canada Revenue Agency (CRA) Auditor Not Guilty of Fraud

A former Canada Revenue Agency (CRA) auditor and his wife were found not guilty of fraud when a judge rules that the CRA failed to prove that the fraud was intentional.

This is significant, folks!

The original article can be found here;

https://www.surreynowleader.com/news/former-canada-revenue-agency-auditing-employee-and-wife-found-not-guilty-of-tax-evasion/

What I truly hope is that this ruling provides the CRA with a much clearer understanding that there are actually some Taxpayers and businesses (and even former employees) who might not fully understand the CRA’s rules and regulations and their application, and that there exists a chance that people make mistakes.

I’m not saying in this case that there was a mistake – and I don;t believe that the judge was saying that either, but what was very clear from this ruling is that the for the CRA to win a case they need proof and facts.

The CRA obviously will be appealing this decision.

My experience in the CRA has afforded me this insight which I happily pass along to each of you who read this…  It’s okay to make mistakes.  We all do.  The CRA does not expect each and every Canadian Taxpayer to be tax experts, but where the CRA has zero tolerance is where Taxpayers try to circumvent the rules and do so knowingly.  At that point, you can’t claim you didn’t know the rules.  You’ll be no mercy from the Crown at that point in time.

As well, there are many, many, many opportunities to resolve the tax issues before having to bear the expenses of going to tax court!  This ruling was the first of it’s kind, and considering how many people want to sue the CRA or take the CRA to court, it makes you wonder who is advising them, and who is paying their bills!

To understand where you stand and what your options are, you can start by contacting inTAXicating Tax Services, at http://www.intaxicating.ca, and start dealing with you tax issues with the facts.

info@intaxicating.ca

Auditor General Report Points Out The Obvious: CRA takes too long to resolve tax objections.

In some not-news of the day, the Federal Auditor General has found that the federal government takes months — sometimes years — to make decisions, costing Canadians time and money when it comes to resolving tax disputes.

Audits of the Canada Revenue Agency unveiled exceedingly long delays which fall short of public expectations in an era of advanced technology and instant communications.  He noted that departments, like the CRA, assess the time it takes to make decisions against their own internal benchmarks, giving little heed to what the taxpayers they serve might consider a timely decision.

The Canada Revenue Agency often leaves taxpayers waiting for months after they file formal objections to their tax assessments.  Appeals officers seeking help from other parts of the agency often wait a year or more.

Over the last 10 fiscal years, the inventory of outstanding cases at the CRA grew by 171%, while the number of employees dedicated to resolving them grew by only 14%, the audit found. The backlog of unresolved cases as of March 31 represented more than $18 billion in federal taxes, the audit said.

But the solution here is not necessarily to grow the public service, but rather a review of the internal policies and how the union impacts the employees ability to do their jobs might need to be reviewed and revamped.

I remember when I started working in the CRA and was “advised” that I should be working 7 accounts per day.  I can tell you this, when you begin your day at 7:15, and are completed your work by 8:30 there is only so much coffee you can drink per day.  I wound up holding several inventories of accounts, and assisting my teammates in order to keep busy.

Eventually, as rules loosened, I was in charger of a collections / compliance team and we were working upwards of 90 accounts per day each which made such a significant dent in the total amounts coming into collections that they disbanded the team.

Our office had to take on work from other tax offices in order to have enough work for each employee and as stay left, took on other positions outside of collections or took leaves they were not replaced.  Our tax office at 50% less staff was resolving 400% more accounts…

But like everything else in life, there was a downturn, contracts up for renegotiation, people moved on (like myself) and now the Auditor General reports there are too many accounts which cannot be handled at current staffing levels.

Ahhh, government.

Back from vacation and catching up! How we can help – details included.

Just wanted to drop a quick note to all of you who called, emailed and hit me up on the blog or on social media that we’re back to work and trying to get to everyone as soon as possible.

If anyone has an urgent matter, please send an email to info@intaxicating.ca, in the subject line, please write “urgent” and that will be the top priority.

For new readers of this blog or who are seeing this blog through our website, here is what you need to know!

inTAXicating is a Canadian tax consulting business which provides solutions to Canadian Tax problems predominantly related to the Canada Revenue Agency (CRA), but not limited to the CRA.

With over 20-years experience in Canadian Tax (throw in some IRS tax, FATCA, Revenu Quebec, Cross-border matters and WSIB) combined with over 10-years working in the CRA in their collections division, you have the experience and expertise that no-one else can boast to have.

Our model is simple! Give you the truth based on the facts.

You get a free consultation and if it is determined that you can handle it best, or if your questions are quickly answered, then you are on your way.

If there are more complex matters which may eventually require greater expertise, then you have the option to handle you tax matters up to that point and then hand it over, or you may wish to hand it over right away…

It’s your taxes and you need to know what is being done and how to properly handle them going forward.

There are no magical cures for tax problems which took years and years to grow, so if anyone promises you a magic bullet, proceed with caution.

inTAXicating also believes that everyone who earns money needs to pay their taxes, however, they should pay what they owe, and in circumstances where there is no ability to pay, the government should understand that and give you a break.

No questions are bad questions.

I do not believe in the “natural person” being exempt from taxes because the CRA does not believe it, but I have spoken to many, many “de-taxers” and enjoy the conversations and helping them through the CRA’s prosecutions.

We specialize in all matters relating to CRA collections, specifically Directors Liability, Taxpayers Relief, s160 assessments, liens, and garnishments, RTP’s.

We provide audit representation, accounting (through a CA), as well as presenting the options to solve all tax matters including the ugliest and most complex tax matters. The messier the better!

In short, we want to help.

15 minute Consultation / responding to questions via email – free
Meeting – $250 plus HST (one hour meeting – detailed summary and recommended plan of action included)
Engagement – either hourly @ $250/hour or a fixed fee depending on the complexity and amount of work involved.
Accounting – best rates possible also related to the amount of work involved.

We try to stick to this model as best as humanly possible because it’s your money and you work hard for it, so you should not have to throw it away.

info@intaxicating.ca

When News Really Is Not News: Revenue Canada “Forbids” Unitarians From Working For Justice.

I came across a headline from CBC.ca which screamed “Revenue Canada forbids Unitarians from working for justice – Tax auditors continue Harper-launched probe of religious charity under new Liberal government” and I could not hesitate to stop and see what this was all about.

The link to the original article is here, and comments are already closed for this topic, a day after it hit the public broadcaster’s website with a whopping 732 comments.

To summarize the article for those who do not want to follow the link, the CRA (not Revenue Canada) advised the Canadian Unitarian Council that it’s council bylaws are too vague.  They did not “forbid” them for doing anything but being compliant with Canadian Charity regulations.

The CRA wrote, “Vague purposes are ambiguous and can be interpreted in many different ways,” in a compliance letter, which includes other demands more than a year after the political activity audit of this charity was launched.

The Canadian Unitarian Council bylaws were accepted by Industry Canada when the Toronto-based charity submitted them for approval (applied for charitable status) in 2013, however the Canada Revenue Agency (CRA) found the wording to be contradictory to the Charitable definition set out in the Income Tax Act, and have asked the charity to remove any reference to “justice” or “social justice.”

Where I find this post to be completely irresponsible is where the author begins to compare audits of charities to being a witch hunt which started under Stephen Harper’s Conservative government and is continuing under Justin Trudeau’s Liberal government.

“Many charities targeted by CRA’s political activity audit program, begun in 2012 under the Stephen Harper government, had expected relief from the Liberals, who campaigned on a promise to set charities “free from political harassment.”

It is the responsibility of the Minister of National Revenue through the Canada Revenue Agency to ensure that each and every charity is registered correctly and that they are following guidelines set out in the Income Tax Act and that those rules, regulations and by-laws which were submitted by the charity is being followed.

While it might be a huge pain in the ass for established charities, the CRA audit process provides an opportunity for charities to ensure they are compliant with rules and regulations and are eligible to issue donation receipts.

With all the chaos the CRA has had to deal with regarding the GLGI charity scam and other ineligible donation programs, it is VERY important for each and every taxpayer that the CRA does their due diligence and confirms the charity is following the letter of the law because if they are not, the problems fall to the people who donate!

Wisely, the Minister of National Revenue said the 24 political activity audits underway would continue without interference from the Liberal government and the Notice of Revocation of Charitable Status issued to 5 other charities would not be rescinded by her government.

The Liberals did, however, cancel political activity audits on 6 other charities.

The fact that the Canadian Unitarian Council was a vocal critic of the Harper government is meaningless, as is the fact that many of the 60 charities audited in the $13.4-million political activities audit program were too.

The only thing that matters here is that Taxpayers like you and I will be able to donate to a charity, receive a donation receipt and be sure that the donation receipt is valid and will be accepted by the CRA.  Even if that means that charities which were started with all the best intentions in the world have to work a little bit harder to ensure they are fully compliant with the CRA’s Charities requirements, which can be found right here.

Personally, I’m happy to hear that of 38 completed audits so far, only one found no problems, six have been given notice the agency intends to revoke their charitable status, of which 5 will be appealing.

Considering the amount of discussion and opportunity to meet the CRA’s requirements during the audit process, it is likely that these charities which are appealing either do not meet the CRA’s charity requirements at all, or are refusing to change their bylaws and thus will have their status revoke for good.

At the end of the day, it’s not a war against charities, but it’s the CRA performing due diligence to ensure the taxpayer’s donated money is heading for a cause and not to pad the pockets of the charities Board of Directors.

Philippe DioGuardi Guilty of Professional Misconduct

On November 21st, 2015, the Law Society of Upper Canada found Philippe DioGuardi, of DioGuardi Tax Law guilty of professional misconduct.  As a result, Dioguardi has been given a six-week suspension, a $5,000 fine and an order to pay $75,000 in legal costs.

The law society’s application to the tribunal included allegations that DioGuardi took money from six clients before performing “any or very little legal service,” and in some cases “failed to perform legal services to the standard of a competent lawyer.”

DioGuardi also failed to file income tax returns for a client in a timely manner, the law society alleged in its application.

As part of the agreed-upon penalty, DioGuardi must submit to a review of his practice by the law society.
In its submissions, the law society charged that DioGuardi “failed to act with integrity” by having eight clients sign retainer agreements that benefited his law firm, DioGuardi Tax Law, to the “potential detriment” of those clients when he would deposit client retainer money into the firm’s general account, as opposed to a trust account, which gave DioGuardi ownership over client money prior to any work actually being done.

A law society bylaw states that client funds must be deposited in a trust account and can only be drawn once work is completed.

Earlier this year, DioGuardi was investigated by the Toronto Star relating to his personal and business practice stemming from a messy divorce and to address allegations that he overdrew his firm’s account by $2 million, and at one point owed the CRA more than $140,000 in arrears.

 

Canada Revenue Agency (CRA) Auditor Convicted of Corruption

CRA LogoI came across a news article this morning that a Canada Revenue Agency (CRA) auditor from Montreal was convicted on Friday June 12th on charges of corruption for attempting to extort $90,000 from a restaurant owner in lieu of a $600,000 audit assessment.

Upon seeing the article, I went to see if I knew any of the people involved, which I did not, and it brought back my memory of the only time I was offered a bribe while working at the CRA, which I obviously declined.

I was the Resource and Complex Case Officer in a Collections unit here in Toronto and one of my accounts involved a gentleman who had a habit of opening and closing companies over a 27-year period.

He would never file, the auditors would assess his balance, he would bankrupt the company and the next day he would open a new one. He even used the same bank, but would open and close accounts over-and-over again.

It was quite funny given that he denied everything, even his $1 / year income but with a $5-million dollar house all paid off, it took me one phone call to put everything together.

He was a nice guy… Honestly. His house was built by him and his kids, on land his father bought 45-years ago, and the assessments the CRA were charging him with – prompting him to bankrupt the companies – was not even related to the business he was in.

He didn’t know why they were assessing him. He was afraid the CRA was going to put him in jail.

The CRA thought he was a criminal and kept on top of him.

One giant misunderstanding, which was quickly resolved after I taught him how to file HST returns.

But when I first met him and presented him with a list of companies that he had opened and closed year-after-year, he said this to me;

“I’m connected to the mob.”

I said to him, “Okay. That’s not my business. What is my business is finding out why you keep doing this and what the CRA can do to help you.”

He said, “If you can make this balance go away, I’ll give you Toronto Maple Leaf tickets.”

After I stopped laughing, I said to him, “Are you kidding me? I’m a huge hockey fan, and I love the Leafs, but if I were to even consider a bribe that would result in me losing my job, going to jail, and not being able to see my children, it would have to be for a hell of a lot more than Leafs tickets, and to be honest, if you have THAT much cash, you’re better off paying your debts and never falling behind on filing or paying again.”

He replied; “I was just kidding.”

I said, “Of course you were.”

I mentioned it to my Manager who, after reviewing the file, suggested I run this by the Special Investigations unit. I spoke to SI and they knew of this gentleman and that he has been suggesting his ties over the years in hopes of having the CRA back off, and only when I explained the reasoning behind the debt did the SI manager mention that he was told this many years ago but didn’t believe it to be true.

I wonder what happened to that guy…

I hope he stayed compliant!

Back to this case.

This case relates to an auditor named Francesco Fazio who, in 2005, was auditing a restaurant named “La Belle Place.” and after completing the audit, told owner Stamatis Argiroudis that he would owe $600,000 in taxes based on Fazio’s estimate of unreported revenue, according to a Montreal Gazette report.

According to testimony from the trial, Fazio told the owner that a more favourable estimate could be made for $90,000.

The owner refused to pay the money and probably words were spoken and the file was transferred to another CRA auditor. The auditor said the owner mentioned connections to organized crime, however the judge presiding over the case did not believe this to be true and ruled against the auditor.

In this day and again of recording devices in our phones and the CRA snitch line, it’s important to be careful what you say, and to whom you say it. Same goes for using social media. Be careful what you say about people and businesses when it’s not true.

I hope the CRA conducts an investigation into all the companies that this audit has audited to see if there is a recurring pattern or if this was a once-off situation.