How We Help: GST/HST, Deemed Trust, s.160 Assessment and T2’s

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.

inTAXicating by Goldhar!

 

 

Your Canada Revenue Agency (CRA) Tax Collections Questions Answered

Here are the answers to the most frequently asked CRA Tax collections questions from the past weekend:IMG_7817

  1. Can you bribe a CRA officer in Canada?

Answer: NO.

First off, bribing a CRA officer is a criminal offense and you could quickly wind up with the RCMP at your door, or under investigation, but more realistically, the staff at the CRA tend to be lifelong civil servants and one of the great benefits of working in the civil service is the great pension.  Few civil servants are willing to even entertain the thought of giving up their pensions, let alone going to jail for someone when they have hundreds of other people to collect from.

2.   Is there GST/HST on a lien?

Answer: Let’s presume that the question is asking if there is additional GST / HST on a lien, and the lien has been registered by the Canada Revenue Agency (CRA).  In that scenario, the answer is no.

The CRA would register a lien for unpaid or unfiled (and assessed) GST / HST, and the amount used for the lien is the amount owing on the day it has been registered in Federal Court.  This fact is important because from that day forth, interest continues to accrue and accumulate on the tax account with the CRA, but the lien only reflects the amount owing at a point in time.

Often, a lien will get paid out and then the CRA’s computer system kicks out an update Notice of Assessment with an additional balance owing  and taxpayers are puzzled having just paid off a lien.

They did pay the lien.

Now they pay the rest of the balance owing.

3.   Where can I get the truth about Voluntary Disclosure?

Answer: From the CRA website, of course.  The link to the VDP section of their site is here;  http://www.cra-arc.gc.ca/voluntarydisclosures/

4.   Can I claim mileage drive to and from work at the CRA?

Answer: I hope you enjoy your career at the CRA and are not an auditor, because you should know this answer!  You cannot claim mileage driving to and from work.

From the CRA website; http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/229/slry/mtrvhcl-eng.html

“If you use a motor vehicle for both employment and personal use, you can deduct only the percentage of expenses related to earning income. To support the amount you can deduct, keep a record of both the total kilometres you drove and the kilometres you drove to earn employment income. We consider driving back and forth between home and work as personal use.”

PEI Raise HST to 15% October 1, 2016.

Prince Edward Island will be raising their Harmonized Sales Tax (HST) to 15% (from 14%) beginning October 1, 2016.

This decision was made on April 19, 2016, when the PEI Government announced its intention to increase the Provincial rate of the HST (PST) to 10% effective October 1, 2016, resulting in an HST rate of 15% when added to the 5% GST.

PEI set out transitional rules to determine which rate – the existing 14% HST, or the new 15% HST – should apply in respect of transactions that straddle October 1st and under these rules suppliers would generally be required to charge the 15% HST on any consideration that becomes due without having been paid, or is paid without having become due, on or after October 1, 2016, for taxable supplies of property or services.

Under the Excise Tax Act (ETA), the consideration, or a part thereof, for a taxable supply generally becomes due on the earliest of:

  • The day the supplier first issues an invoice in respect of the supply for that consideration or part thereof;
  • The date of that invoice;
  • The day the supplier would have, but for an undue delay, issued an invoice in respect of the supply for that consideration or part thereof; and
  • The day the recipient of the supply is required to pay that consideration or part thereof to the supplier pursuant to a written agreement.

 

Regarding real property transactions, supplies of services are to charge the 15% HST rate to any consideration that becomes due without having been paid, or is paid without having become due, on or after October 1, 2016.

Conversely, the 14% HST rate applies to any consideration that becomes due or is paid before October 1, 2016.

 

The Elevator Pitch! How Important Is It?

The elevator pitch, otherwise known as your ability to tell someone what you do for a living in 15-20 seconds without leaving out any critical details.

Wikipedia calls it this; “An elevator pitchelevator speech, or elevator statement is a short summary used to quickly and simply define a person, profession, product, service, organization or event and its value proposition.”

The name “elevator pitch” reflects the idea that it should be possible to deliver the summary in the time span of an elevator ride of around 30 seconds.

The term originates from a scenario of an accidental meeting with someone important in the elevator where after the brief pitch, the other party is interested in learning more. thus continuing the conversation after the elevator ride or through en exchange of a business card or smart phone details.

As a tax consultant, I thought I had the perfect elevator pitch that went something like this; “I help people who have problems with the Canada Revenue Agency (CRA).  I worked in the CRA for over 10-years – pretty much out of university – and worked my way up through the collections division until leaving for the private sector.”

I found it to be too long, and open for interruption so much that I would add details, such as that I completed 3-years of my accounting (CGA) designation and a 3-year MBA before leaving, or that I spent a significant part of my time at the CRA training the staff, handling the most complex accounts in the office and helping improve processes.

Then it became an elevator pitch for a 65-story building ride… To the top and all the way back down to the bottom.

Then I found an article in Forbes magazine which provided 6 alternatives to the elevator pitch so I tried them out to see if they worked better for me.  The list is below:

1. The One-word pitch – for me, it is “TAX”.  Then I watch their eyes gloss over.

2. The Question pitch – “Have you ever had (or have clients who had) problems with the Canada Revenue Agency (or Revenu Quebec, or the IRS, or WSIB, or the CRTC?)

3. The Rhyming pitch – Could not even try this.

4. The Subject line pitch – like sending an email to someone – mine would read something like “Former CRA collections officer helping people with CRA problems.”

5. The Story form pitch – I have thousands of stories… Literally.  I usually break into one of these after my introduction.

6. The Twitter or 140 character or less pitch #WhatIAmAllAbout.   I like this because it’s like using Twitter except that you really cannot tell someone that you “hashtag” Help People.  But it does give you the opportunity to state your case in a brief number of words.

So practice your pitch – no matter which method you choose – and practice them out on people to see if it gets across the message you want it to.  If not, maybe you would benefit from a different pitch or by adding or removing information to your existing pitch.

As for me… “I’m a former CRA officer who knows the CRA collections process, policy and procedures better than they do.  I help people with a variety of tax issues including but not limited to negotiation, payment arrangements, liens, RTP’s assessments, and getting them current and out of debt.  If there is a CRA issue, I have already seen it, and I know how to fix the problem.”

#x-taxer

Others make promises.  I fix problems.

If the conversation continues I explain my services are for individuals, businesses, and professional organizations who cannot proceed further with a client due to their tax issues – ie/ getting a bank loan, renewing a mortgage, confirmation of actual amounts owing before filing for bankruptcy, wage garnishments on employees, or cleaning up past tax issues for separation agreements or divorce.

#inTAXicating

Free consultation.

info@intaxicating.ca

416.833.1581

 

 

 

Government Waste Awards give Lifetime Achievement to former Toronto Mayor David Miller

The 13th Annual “Teddy” Government Waste Awards Winners were announced by the Canadian Taxpayers Federation (CTF) last week.

The CTF is a citizen advocacy group dedicated to less waste, lower taxes and responsible government spending of our hard earned dollars.

These awards confirm what I had been saying all along, that a left-wing mayor in the City of Toronto was going to cause an increase in taxes and result in less money in the pockets of Torontonions, as David Miller was given the lifetime achievement award.

Please, read on.

The “Teddy” award is named after Ted Weatherill, a former federal bureaucrat who was fired for outrageous expenses in 1999 (I’ve included his expenses below). Each year the CTF holds the ceremony to recognize a government, public office holder, civil servant, department or agency that most exemplifies government waste.

The winners:

Federal Teddy Winner:
G8/G20 costs: $1.24 billion spent to host leaders from the other G8/G20 nations to ironically discuss how to trim government over-spending.

Provincial Teddy Winner:
Ontario tax collectors paid severance for keeping jobs: Approximately $56-million in severance for changing their business cards from ‘Ontario PST collector’ to ‘Federal HST’ collector.”
These guys moved across the street from 5150 Yonge Street to 5001 Yonge street and were topped up to make up for the fact that the Feds pay less than the province.

Municipal Teddy Winner:
Edmonton City Council for wasting $5,000.00 on a haiku contest. Citizens were asked to write poems (or haikus) about riding the bus, despite already having paid $5,000 to have one written.

Lifetime Achievement Teddy:
David Miller

“And the Lifetime Achievement Teddy goes to…former Toronto Mayor, David Miller, for a career of reckless taxing-and-spending. As Mayor, Miller grew the city’s operating budget by 44 per cent, $2.8 billion, increased the city’s debt by more than $1 billion and increased property taxes every year well beyond the rate of inflation. He fought for and got new taxing powers which he used to impose a host of new taxes, including a: plastic bag tax, garbage tax, car tax, billboard tax, and land transfer tax.”

Concluding the ceremony CTF federal director, Kevin Gaudet remarked, “over the years David Miller has provided so much material for the Teddies we will see if future municipal nominations will suffer with his departure.”

Other nominees included:
Federal – Space Agency/Agriculture Canada: $400,000 for failed “Canadian Content” astronaut food program.

Federal – Border Services Agency Employee: Bureaucrat spends five hours/day at work surfing porn and is not fired.

Federal – National Defence: $515,000 for not conducting security checks on NORAD facility builders.

Federal – Public Works: $550 million for maintenance including $1,000 for removing one light switch.

Federal – Senator Lavigne: $30,000 for expenses – while suspended from the Senate.

Provincial – ON E-Health: $224M for consultant abuse including charges to consult on consulting charges.

Provincial – ON Parks: $400K for Niagara Parks Exec expenses including roller coasters.

Provincial – NS Premier Dexter: $10,600 to expense full membership fees to the bar association, then reducing status to “not practicing” when forced to pay himself.

Provincial – MB Health: $38,000 to build “rooftop oasis” for health bureaucrats while patients down the road fundraise for theirs.

Municipal – Summerside, PEI: $1.3 million for fraudulent Michael Jackson tribute concert.

Municipal – Regina, SK: $5,000 for bizarre sponsorships including $450 for a ‘pickleball tournament.’

Municipal -Richmond, BC: $59 million for city purchase of land for five-times real value to be “as fair as possible.”

Municipal – Toronto, ON: Public transit boss caught expensing $2,400 for taxis.

http://taxpayer.com/node/13985

Now, back to the name of these awards… The “Teddys”, named after Ted Weatherill who was the Chair of the Canada Labour Relations Board since 1989. Between 1995 and 1996, Mr. Weatherill charged at least $21000 to taxpayers for business travel he incurred as President of the National Academy of Arbitrators, an Alabama-based private organization.

“Mr. Weatherill concedes that he could have sent the expenses to the National Academy of Arbitrators…but Mr. Weatherill believed his participation in the NAA’s conferences that year to be a wise investment for the Canada Labour Relations Board. So, he chose to bill his expenses to the Canadian government instead.”
The Ottawa Citizen, 7 April 1997

There’s more than just travel, though. The following is a “taste” of the meals Mr. Weatherill has billed to the Canadian taxpayer over the past eight years:

Breakfast: Relais Christine, Paris $25.00
Meal (for 2): RPG Arpege, Paris $733.43
Dinner: Le Cercle Universitaire d’Ottawa $1 084.40
Room Service (one night): Chateau Frontenac, Québec City $95.27
Meal: Royal Windsor Hotel, Brussels $531.50
Mr. Weatherill billed the federal government on average $18,500 a year in meal costs alone, for a grand total of $148,000 over the first eight years of his ten year term. He has billed the federal government more that $200 for a meal on 107 different occasions since he was hired.

Many of Mr. Weatherill’s lunches have included alcoholic beverages. Treasury Board guidelines state that “reasonable expenses means the specific, itemized expenses incurred, based on receipts, excluding alcohol.”

New Electronic Filing Requirements for GST Coming…

With the implementation of the Harmonized Sales Tax (HST), effective July 1, 2010, some registrants will be required to file their GST/HST returns electronically.

This will differ from the current paper filing system that most registrants use and will affect registrants currently filing their returns quarterly or monthly.

For reporting periods ending after June 30, 2010, GST/HST registrants will be required to file their returns electronically if they:

  • have annual taxable supplies (on an associated group basis) exceeding $1.5 million (charities excepted);
  • are referred to as “large businesses” and are required to recapture input tax credits (ITCs) for the provincial portion of the HST on certain expense categories; or
  • are builders that must report:

– transitional tax adjustments;

– transitional new housing rebates (provincial portion of HST);

– sales of grandparented housing (i.e., ownership and possession transferred to purchaser after June 30, 2010, under written agreements of purchase and sale entered into before June 19, 2009) if the purchaser is not entitled to claim GST/HST new housing or new residential rental property rebates; or

– housing sales that are subject to HST, if the builder purchased housing on a grandparented basis.
The recapture of ITCs and the transitional taxes applicable to builders will be reported in separate information fields on a schedule that accompanies the GST/HST return. For registrants affected by the ITC restrictions, the restricted or recaptured ITCs will be calculated as:

Failure to file GST/HST returns electronically may result in penalties being imposed by the Canada Revenue Agency.

The HST and you!

If approved, effective July 1st, 2010, the Province of Ontario will combine the 8% Ontario sales tax and the 5% GST into a single 13% value-added sales tax (HST) that would be federally administered by the Canada Revenue Agency (CRA).  

 As part of the proposed sales tax reform, cash payments would be provided to Ontario tax filers, in each of June and December 2010, and June 2011.

ADDITIONAL POINT-OF-SALE REBATES (EXEMPTIONS)

In addition to the point-of-sale rebates of the provincial component of the HST proposed in the 2009 Budget, the government intends to provide further targeted sales tax relief for consumers. Additional point-of-sale rebates from the eight per cent provincial component of the HST are proposed for the following:

  • Print newspapers that contain news, editorials, feature stories or other information of interest to the general public, and that are published at regular intervals, typically on a daily, weekly or monthly basis, but not flyers, inserts, magazines, periodicals and shoppers.
  • Qualifying prepared food and beverages that are ready for immediate consumption and are sold for a total price (for all qualifying items purchased, excluding HST), of not more than $4.00. Qualifying items would include:
    • food or beverages heated for consumption;
    • salads;
    • sandwiches and similar products;
    • platters of cheese, cold cuts, fruit or vegetables and other arrangements of prepared food;
    • cakes, muffins, pies, pastries, tarts, cookies, doughnuts, brownies, croissants with sweetened filling or coating, or similar products where they are not prepackaged for sale to consumers and are sold as single servings in quantities of less than six;
    • ice cream, ice milk, sherbet, frozen yoghurt or frozen pudding, non-dairy substitutes for any of the foregoing, or any product that contains any of the foregoing, when hand-scooped or machine dispensed and sold in single servings;
    • other food items that are excluded from zero-rated GST/HST treatment as basic groceries solely by virtue of the types of sales made at the establishment where they are sold, such as the sale of a bagel or a plain croissant in a restaurant;
    • non-carbonated beverages, when dispensed at the place they are sold; or
    • when sold with a qualifying food item listed above: other beverages except if the cans, bottles or other primary containers in which they are sold contain a quantity exceeding a single serving; cakes, muffins, pies, pastries, tarts, cookies, doughnuts, brownies, croissants with sweetened filling or coating, or similar products where they are pre-packaged for sale to consumers in quantities of less than six items each of which is a single serving; ice cream, ice milk, sherbet, frozen yoghurt or frozen pudding, non-dairy substitutes for any of the foregoing, or any product that contains any of the foregoing, when packaged and sold in single servings; or other snack foods, such as chips, salted nuts, popcorn, candies, fruit bars, granola bars, etc.
  • Wine, spirits, beer, malt liquor or other alcoholic beverages would not be a qualifying beverage for the purpose of the point-of-sale rebate of the Ontario component of the HST.

DETAILS ON POINT-OF-SALE REBATES (EXEMPTIONS)

The 2009 Budget proposed to provide targeted relief for consumers on the provincial component of the HST on many items important to Ontario families by providing point-of-sale rebates for books, children’s clothing, children’s footwear, children’s car seats and car booster seats, diapers and feminine hygiene products.

The following information provides additional details for consumers and retailers:

  • Books, including:
    • a printed book or an update of a printed book,
    • an audio book (i.e., all or substantially all of which is a spoken reading of a printed book),
    • a bound or unbound printed version of a scripture of any religion,
    • a printed book and a read-only medium (e.g., CD-ROM) whose content is related and integrated with the book’s content and when sold together as a single package,
    • a printed book and a read-only medium and/or a right to access a website when sold together as a single package, and if specifically designed for students enrolled in a qualifying course, such as educational courses of elementary or secondary schools.
  • Children’s clothing designed for babies,, girls and boys up to and including girls’ Canada Standard Size 16 and boys’ Canada Standard Size 20, or clothing designated for girls and boys in sizes small, medium or large if the clothing does not have a designated Canada Standard Size. Children’s clothing eligible for the exemption would not include costumes or clothing like sports protective equipment. These are the rules that exist for current PST exemption, and are similar to other provinces with these exemptions.
  • Children’s footwear designed for babies and girls and boys up to and including girls’ size 6 and boys’ size 6, including footwear without a numerical size that is designated for girls or boys in size small, medium or large. Children’s footwear eligible for the exemption would not include skates, rollerblades, ski-boots, footwear that has cleats, or similar footwear. These are similar to conditions that exist in other provinces that have a similar exemption.
  • Children’s car seats and car booster seats that are restraint systems or booster cushions that conform with Transport Canada’s safety requirements for Standards 213, 213.1, 213.2 and 213.5, as described under the federal Motor Vehicle Safety Act.
  • Diapers, including cloth and disposable diapers designed for babies and children, and diaper inserts and liners, rubber pants and training pants. Incontinence products would be zero-rated under HST, in accordance with current GST rules.
  • Feminine hygiene products, including sanitary napkins, tampons, sanitary belts or other products marked exclusively for purposes similar to the purposes for which sanitary napkins, tampons and sanitary belts are marketed.

ELIMINATING HIDDEN TAX

Replacing the provincial sales tax would help eliminate the hidden sales tax that many products carry. Currently the PST is charged on various business costs throughout the production of an item. This hidden tax is ultimately added into the cost the consumer pays at the cash register.

Under the proposed HST, most taxes paid on business inputs would be refunded to the business — savings that can be passed on to consumers in the form of lower prices.

How it is intended to impact businesses in Ontario:

Benefits for Business

Increased Competitiveness = Greater Investment, More Jobs

  • The HST and cuts to business taxes will cut Ontario’s marginal effective tax rate on new investment in half.
  • Ontario will join more than 140 countries and four other provinces that already have a value-added sales tax like the HST – because it is modern, efficient and necessary to compete in today’s changing world.
  • Report: Changes Mean More Jobs For Ontario

Cuts to Business Taxes

Ontario will be providing $4.5 billion in tax relief over three years, including Corporate Income Tax (CIT) cuts starting July 1, 2010:

  • The CIT rate will be lowered from 14% to 12% then further reduced to 10% over the next three years
  • The CIT rate for manufacturing and processing will be lowered from 12% to 10%
  • The small business CIT rate will be cut from 5.5% to 4.5%
  • The small business deduction surtax will be eliminated
  • Fewer small and medium-sized businesses will have to pay the Corporate Minimum Tax, and the rate will be cut from 4% to 2.7% in 2010.

This is in addition to the existing plan to eliminate the capital tax . Capital tax was already eliminated for firms primarily engaged in manufacturing and resource activities in 2007.  For all other businesses, the capital tax rate will be cut by 33% on January 1, 2010 and then completely eliminated on July 1, 2010.

Reduced Business Costs

  • Most businesses will receive input tax credits (ITC’s) for sales tax they pay on many of their business purchases and capital investments, providing significant savings.
  • The HST is eliminating cascading layers of PST–embedded tax hidden in the purchase price, making inputs cheaper.
  • Businesses also save from the reduction of embedded tax in supplier prices.

Lower Compliance Costs

  • Businesses will save over $500 million a year in administrative and compliance costs alone.
  • Administration of a single tax instead of two means one set of forms, one payment and one point of contact for audits, appeals and taxpayer services.