A Lesson in POWER: How to ALWAYS Level the Playing Field with the CRA.

Power is a funny thing.

Pretty much everyone wants it at some point in their life.

Most of the people who have it do not know how to use it properly.

To be honest, few will ever get it.

The most important thing to know about power is that it is most successful when used in two ways; either by declaring yourself King and having your cronies keep everyone else at bay by whatever means possible, or secondly by taking the time to get key players on your side and using your network to help you maintain power but all along helping those around you learn and grow, and they help everyone else under them do the same.

Which model do you think is most often associated with government tax collections agencies?

Having spent a lot of time working at the Canada Revenue Agency (CRA) in the collections and enforcement division and being responsible for training collections, enforcement and audit staff there I can honestly say not as many staff there who feel you have to do what they say no matter the consequences as you would think.

It is true that there are employees of the CRA who feel that being in a position of power allows them to do things, say things and act in a manner which is improper or unjustified.  There are also staff there who take their positions of power to a whole new level and they let their egos control their decision-making process which means they wield power in order to realize an outcome in their best interest, not yours.

I have seen how power corrupts and the result is never easy to correct.

The CRA has a lot of power.

Throughout my decade of employment at the Canada Revenue Agency I was surprised with how much power the Agency has and how many taxpayers feared this power.  I could hear collection officers tell taxpayers that they could clean out their bank accounts like “this!” (Insert snapping of fingers sound here), which is true, but also not true.  I learned to be subtle in my use of my apparent super-powers and the way I used my power was to visit my clients and by always making sure that when sitting with a taxpayer / representative that my chair was at its highest so that I would be looking down at them.  It was all I needed when dealing with the career tax evaders because it worked, but it was a tactic not necessary when dealing with 99% of the people I met with.

However, we already know that the CRA has a lot of power and in most cases before they use it, they are going to let you know first by phone, letter or a visit to your home or place of employment.  Once the CRA has decided they need to use their powers they are bound by the guidelines set out in the Income Tax Act and Excise Tax Act and by policies and procedures set out in their tax office.  The extent to which they use their powers is either their decision or it is influenced by their team leader or manager.

Once the CRA starts using their powers, your ability to control the outcome diminishes greatly. What you can control, is how much power you will ALLOW the CRA to use against you.

This is done by being proactive – reading notices, asking questions and keeping all your paperwork in one spot where you can access it once it is asked for.  But if you are past that point, or if it is just not possible, then you can take power back by enlisting the help of people who know the CRA policies, procedures and most importantly, their techniques and tactics.

If the CRA knew they were dealing with someone who knew more about their job, more about their techniques and more about how quickly they need to take an action which they claim is urgent, then the playing field is changed forever.

Having someone there to look after your best interests, who will tell you what the best plan of action for you, and you only, then taking that plan to the CRA and telling them the same is the best way to always level the playing field.  Negotiating is always easier when you know more than your opponent.

So please, if you have a tax problem, old or new, and you have been spinning your wheels with the CRA, the IRS, the MRQ, WSIB or the CRTC, don’t let it continue any longer.  Come visit inTAXicating.ca, or send us an email at info@intaxicating.ca and take advantage of our free consultation to leave how to put these issues behind you once and for all.

Have you ever been put in a position where you accepted something which was not in your best interests because the other side had all the power?

Happy to read your comments below.

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Happy 2014! Here are 14 things you can do right now to reduce your tax burden, or increase tax credits, on your 2013 taxes.

Happy New Year!  May 2014 bring you wealth, happiness, prosperity and great health.  May it also bring you debt-free (should you need to be) and also allow you to be one step ahead of the taxing authorities.

With the changing of the calendar, many are already working on their new years’ resolutions, but you should also review the list below to see if there are any actions you can do now to reduce your 2013 taxes owing or to increase the amount of refund you will get this year, or in future years.  It’s never the wrong time to thing about tax savings – we do it all the time here at Intaxicating, and want to pass along some tips for you.

Here are 14 easy strategies you can still take advantage of which impact your 2013 taxation year;

 

1.  Make your installment payments as required, or if you have fallen behind, catch up with one lump sum payment right away.

The Canada Revenue Agency (CRA) charges interest on missed installment payments, but if you catch up in one fell swoop, then they begin to reduce the amount of interest they charge you.  Ssshhh.  It’s a secret.

 

2.  Make sure you file on time and pay in full while doing so.

So how does this impact the 2013 taxation year, you might be asking and why is it so high up the list?  It is because many Canadians are shocked with the amount of money they owe at year-end and it’s the worst time of the year to discuss ways to reduce taxes with your accountant or tax preparer because they are so unbelievably overwhelmed they cannot spare 2 minutes to talk to you, let alone review your return for possible deductions you failed to mention to them. You are not the accountant!  Nor the tax professional.  So take time now to speak to someone who knows about what you do for a living and see if there are areas where you may be entitled to a deduction or credit and then go get that supporting documentation.  Also use the time to run your year-end situation through a free tax program to see how much you owe and what it will take to reduce that, or make it go away completely.

If, however, you are stuck owing a balance to the CRA or MRQ, make sure to set aside the funds to pay it in full with the filing of your tax return.  Heck, you could even send in the money now if you have it, but do not wait until even a day later than the deadline or interest starts accumulating.  The CRA charges 10% interest compounding daily, so it can add up rather quickly.

 

3.  Contribute to your Registered Retirement Savings Plan (RRSP).  

The deadline to contribute to your RRSP for 2013 is March 3rd, 2014.  If you need to know how much you are eligible to contribute to your RRSP. check your 2012 CRA Notice of Assessment.  Or, check online using the CRA’s “My Account” service.  Your contribution limit for 2013 is going to be 18% of your 2012 earned income (to a maximum of $23,820) less your 2012 pension adjustment, if any, plus any RRSP room carried forward from prior years.

 

4.  Contribute to a Registered Education Savings Plan (RESP).  

The Canada Education Savings Grant (CESG) program was initiated by the federal government to assist families saving for their children’s post-secondary education.  As an added bonus, the government tops up your annual contribution by 20%, up to a maximum of $500 ($2,500 contributions x 20%) per beneficiary per calendar year, to a lifetime maximum of $7,200. 

 

5. If you turned 71-years-old, you must collapse your RRSP.

If you turned 71-years-old by December 31, 2013, you must collapse your RRSP by the end of the year. At that time, you have 3 choices to make; either pay tax on the fair market value of the plan’s assets, transfer your RRSP into a Registered Retirement Fund Income Fund (RRIF), or purchase an annuity with the proceeds.  No tax is paid at the time of the purchase of the annuity or at the time of conversion into a RRIF.  You may still be able to contribute to your spouse’s RRSP under certain conditions.

 

6.  Make your Home Buyers’ Plan repayment before it is included in your income for the year.

The Home Buyers’ Plan (HBP) is a program that allows you to withdraw funds from your registered retirement savings plan (RRSP) to buy or build a qualifying home for yourself or for a related person with a disability. You can withdraw up to $25,000 in a calendar year.   

Generally, you have to repay all withdrawals to your RRSPs within a period of no more than 15 years. You will have to repay an amount to your RRSPs each year until your HBP balance is zero. If you do not repay the amount to your RRSP, for 2012, it will have to be included in your income for that year.  The deadline is

March 3rd, 2014.

 

7.  Pay the interest on low-interest loans related to income-splitting.

If you have entered into an income-splitting arrangement with family members and have loaned funds to either a spouse or a child at the interest rate set (quarterly) by the CRA, make sure that the interest on these loans are paid before January 30, 2014, or the loans will be subject to the attribution rules which taxes the income earned by your spouse or child in your hands.

 

8.  Pay the interest on an employer-loan to avoid it becoming a taxable benefit.

If in 2012, you received a low-interest loan from your employer you will want to ensure that interest is paid on that loan before January 30, 2014 in order to avoid a deemed taxable employment benefit. This benefit will be calculated at the CRA’s prescribed rate for the period that the loan was outstanding (which increased from 1% to 2%, effective October 1, 2013) less any interest actually paid.  This is not to be confused with a loan taken out as a result of shares owned.

 

9.  Reduce your business income by paying your family members who work for you.

As a business owner, it is beneficial to pay your family members a wage consistent with a wage you would pay to a complete stranger in order to reducing the amount of income in your business.  Also ensure that you are remitting to the CRA the CPP, EI and tax amounts on these payments.  You will need to issue them a T4, and file a T4 summary with the CRA by February 28th, 2014.

 

10.  File any T4’s and the T4 summary before the CRA deadline of February 28th, 2014 in order to avoid any penalties and interest.

If you are short on remitting for any employees, take advantage of the January 15th remittance – the last one for 2013 – and also consider the Payment on Filing (POF) option to top up amounts with the filing of the T4 summary.  Keep in mind, if you use the POF option to catch up on a considerable amount of funds, the CRA will still charge you maximum penalties.  

 

11.  Pay back any personal operating costs on employer-provided cars.  

If your employer provides you with a company car, you already know that it is a taxable benefit and it will be included on your T4.  Did you know that the actual benefit is made up of two parts; The first part is a standby charge based on a percentage of the original cost or the monthly lease payments for the car, and the second part applies if your employer pays the automobile’s operating expenses.  In 2013, this benefit is equal to 27¢ per personal kilometre driven.  The standby charge and the operating benefit are reduced by the amounts you pay to your employer.  For a standby charge reduction, your payment must have been made during 2013.  For an operating benefit reduction, your payment must be made by February 14, 2014.

 

12.  Has the tax burden from previous years got you considering bankruptcy?  

You are not alone!  In Canada 55% of bankruptcies are CRA related.  Before you speak with a trustee, speak with your trusted tax professionals at Intaxicating Tax Services, who can tell you whether or not the debt is fully collectible, and if there are other options available to you which will not ruin your credit for 7 years.  Even if the CRA is breathing down your neck, they are not allowed to tell you to file for bankruptcy and they like to think they understand when someone is insolvent, but we have the expertise, and the network to help you out of debt or, if you decide to proceed with a bankruptcy, or proposal, get you the best deal possible. 

 

13.  Google your tax problem!

You might have heard that it can be dangerous to Google  that you have a tax problem, however nothing can be further from the truth.  The CRA has all their tax information online and there are a plethora of tax-related resources available to help you determine if you should go it alone or if additional help is needed.  Make sure when you are doing your research that the information you are reading matches with the CRA website, does not sound too good to be true or is written in such a way to scare you into thinking you need to pay for a service you may not.  Most reputable firms will offer a free consultation, or a nominal fee for an hour meeting followed up with a written report to help you decide what to do.  Don’t rush into something until you have all the facts.

 

14.  Don’t be afraid to ask for help!

Speak with your accountant / tax professional about any deductions that you may be entitled to such as the public transit tax credit or for working at home.  If your accountant has not already asked you about what you do in detail then it’s up to you to determine if you need to brush up on the tax act yourself, or find a new tax team to help you pay the least amount of tax possible, like the tax professionals at Intaxicating Tax Services.  If, on the other hand, you are having issues with collections, then we are the only place to go based on our hands-on experience on both sides of the negotiating table.

 

Happy 2014.

 

We are:

InTAXicating Tax Services

@intaxicating

info@intaxicating.ca

416.833.1581.

http://www.facebook.com/intaxicating

The Biggest Taxation No-No’s. EVER!

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

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

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

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

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

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

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

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

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

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

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

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

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

Tax debts begin with audit or compliance issues.

Then they go to collections.

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

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

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

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

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

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

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

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

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

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

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

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

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

So what is the problem?

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

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

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

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

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

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

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

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

Problem solved.

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

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

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

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

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

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

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

Our email is info@intaxicating.ca

 

CRA Tightening the ship and tightening their grip…

Income tax
Income tax (Photo credit: Alan Cleaver)

I’m sure you have heard that the Canada Revenue Agency (CRA)is tightening the ship and cracking down on tax evasion, tax shelters and finding new ways to collect more tax dollars.  Well you can thank the IRS for that.  With the IRS predicting that there are billions and billions of dollars of offshore tax revenue that they expect to bring in through FATCA it’s no wonder revenue agencies throughout the world are looking at better ways to collect tax revenues from their citizens here and abroad.

Riding the wave of FATCA, the CRA has been making public information on ways they can collect tax revenues and highlight some techniques they have been using as far back as when I worked in the CRA but may not have been so widely known to the general public.  The point is that if you know all the powers the CRA has, and know they are cracking down, then you can conclude pretty quickly that you will get caught doing whatever you may be doing that is illegal; not remitting or reporting GST/HST, accepting cash for work and not reporting it, paying an employee under the table, not declaring all your income or just not filing and hoping to stay under the radar.

The CRA’s Snitch line / Informant Leads line has been a fantastic resource for the CRA and has brought in more leads than they ever could have anticipated when creating this line.

So what is the CRA doing that you might not know about?

Data Mining

The CRA can, and have been data mining publicly available property tax information to confirm that sales or transfers of real property have been properly reported by taxpayers and they are using this information to identify taxpayers who are incorrectly reporting property sales at the preferential capital gains tax rate, or who have been flipping properties for quick gain and should be reporting them as sale of inventory, or they have been aggressively claiming properties as their principal residences and avoiding paying taxes altogether.

Tax slip matching

Advances in technology now allow the CRA to quickly determine whether a taxpayer has reported all income listed on all tax slips. Every entity, whether it as a corporation, trust, financial institution or employer is required to issue a tax information slip to all its income recipients. Typically, the area where the CRA reassesses a tax return is on unreported employment income and interest and dividends. The CRA also focuses on sales of marketable securities reported to them on the T5008 information slip. If you’ve mis-reported income multiple times, you are subject to penalties which in some cases are as high as 20% of the omitted amount. For low income earners, this can add up to more than the tax itself.

The Construction Industry

The CRA has always been concerned about construction workers not reporting all of their income which is why they piloted and maintain “Construction Teams” in the Tax Services Offices.  The new information reporting requirement on form T5018, provides the CRA the ability to ensure the proper amount of tax is being paid by construction workers and frequent audits ensure payments to workers and amounts they reported fall in line as well.

Tax shelters / Off-shore Accounts

What was once considered a safe haven where wealthy investors could put monies out of reach of their governments has now become a bone of contention as investors want to pay as little tax as possible, governments want as much tax as possible – especially from these high net-worth people and the general public want the wealthy to pay more taxes!  FATCA got the ball rolling and now the CRA has followed suit, seeking information of the investors before then taxing them back on their offshore accounts.

Tax shelters, while shielding investors from paying tax on current income, likely will have to pay taxes at some point in time down the road as the CRA tightens the regulations on these investment tools to ensure they are not tax evading schemes.

Illegal activity / Informant Leads (Snitch) Line

The CRA has its ears on the ground more than ever and the Canadian Border Services Agency (who used to be part of the Canada Customs and Revenue Agency) are locating and turning up illegal activity and the CRA is following up that criminal activity with assessments and re-assessments.  Combine that with the Informant Leads line and you can quickly conclude that to the CRA crime does not pay, but criminals should pay taxes too.

Charitable donations

The CRA’s reach extends to the charitable sector as well.  Both donors and registered charities are heavily scrutinized for potential fraud especially around those donating non-cash gifts.  The CRA is looking to ensure that the amount reported on the donation receipt (and the corresponding credit claimed by the donor) accurately corresponds to the value of the donated item, and that the value is as close to fair market value as possible.

The CRA has been using these techniques for years to ensure taxpayers are paying their fair share on all sources of income and are doing so without increasing the number of employees dramatically which means a few things;  First, it may be worthwhile to review your previous filings and – if errors are identified as a result of that review – take advantage of the voluntary disclosure program.  Second, in the voluntary tax system we have in Canada, the onus is on you, the taxpayer to prove to the CRA that you are operating in line with CRA regulations which means keeping great records, having professional help and keeping receipts.  Thirdly, if you are off-side with CRA regulations and want to know what may happen to you if you get caught, you should give us a call.

The Truth and Myths Around the CRA’s Taxpayer Relief Program

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.Myth vs Reality

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;

Extraordinary circumstances

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.

Other circumstances

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.

Myths:

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 instalments 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?

Answer:  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.