Claiming Gas or Mileage? How to avoid having this expense denied by the Canada Revenue Agency.

Many taxpayers here in Canada are advised to “keep their receipts” when they claim mileage and / or gas on their tax returns.  The thought here is that the Canada Revenue Agency (CRA) might audit your tax return and will deny your claim if you cannot show proof, but what are you allowed to deduct?  Does it matter if you are self-employed or if you are a salaried employee?  Did you know that just keeping your receipts is not enough and there might be deductions you are entitled to that you are not claiming?

It all matters.

If you are claiming vehicle expenses and you are a salaried T4 employee working for someone else, then you need to know this;

Or, if you are self employed, you need to know this;

So if you rely on your accountant to take care of this for you, or if you wish to use the services of Intaxicating Tax Services, at the very least, you need to be aware of this important fact;

The CRA regularly rejects gas receipts from taxpayers who pay for their gas with debit cards.  Why?  Because they are not sure if you are getting cash back on the transaction – that does not show on the debit slip.

Example: I go to fill up my car 3 times a week, and each time I put in $20.00 worth of gasoline, but get cash back of $80.00 each time.  My debit slip reads $100.00, and I claim $300.00 worth of gasoline expenses for that week on my tax return when in actual fact I was only entitled to receive a deduction in the amount of $60.00.

In addition, if you are required to travel a lot for work, make sure that you have a calendar at home and at the office (on the office computers) which show the location of the meeting, the name of the organization and / or people that you are meeting, as well as the purpose of the meeting (ie/ sales, cold call, delivery).  Make sure that you track the mileage as well.  This way when the CRA questions the high claims, you can show them with 100% certainty that your travel claims are for work purposes.

It also helps to keep all the gas transactions on the same credit card for organizational purposes.

It takes a little effort and organization but it’s worth it.

Intaxicating Tax Services can be found @ http://www.intaxicating.ca and make sure to drop by our helpful blog here.

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.

What keeps me busy during the day…

I like taxation, and I have worked in the industry for over 17 years, and no, I am not a CA / CMA / CGA… Yet.  I did not wake up one day deciding this was my passion, but after almost 11 years at the Canada Revenue Agency (CRA), I certainly have learned a thing or two about Canadian taxation, and in the private sector afterwards I learned a thing or two about US tax, the MRQ and I had the opportunity to manage staff on a permanent basis and test out those MBA skills I worked so hard to learn.

Now I get to help people solve their tax problems and that is what makes me happy.

Here is a little biography about myself and my work-experience;

I graduated from University here in Toronto with a specialized honours degree in Public Policy and Administration.  The economy was in a downturn so I began to sell promotional items which I would customize for clients, such as; Pens, mugs, sports uniforms, etc. and I did that for just over a year-and-a-half until I applied to the CRA at the suggestion of a friend.  Seven months, later and I was settling in for my first day of training.  I will never forget the horror of walking through the office and seeing one fellow sleeping at his desk and another doing the crossword…  Little did I know what would come next.  The CRA, or maybe all governments, are unique in many ways.  They have goals, they have mandates and they have unions.  The fact that someone was resting had no bearing on the amount of work they accomplished, or how much they knew.  I certainly learned that you cannot judge a book by it’s cover.

11 months in to a job working in Collections, I was part of the most recent hiring group which was let go due to budget issues, however we were entitled to write entry exams allowing us to be re-ranked for potential re-hire.  I wrote all the exams, completed the interview and was ranked 1st, meaning if the CRA decided to hire anyone from that list, they would have to offer me a position first, and sure enough they did.

The next 10 years was a giant blur of exams, coffee breaks, crosswords and discussion about the amount of work which needed to get done vs. the amount of work allowable under the union guidelines.  For the most part this was never an issue.  During my time there I moved from an entry-level collector to a field officer and then to a resource officer and I touched a lot of areas during my time there including; compliance, GST/HST, Taxpayer relief (then fairness), Director’s Liability, Audit, Training and Learning, and so much more.  I also completed 3 years of accounting towards a CGA/CMA and my MBA degree.  I took 2 parental leaves and I worked with management to set up a collections conference and a mentoring program which I ran for 2 years.  I also performed a ton of training for all of the new hires and the rest of the staff.  I found I had an ability to take legislation and break it down into English and explain it to everyone, which helped with training and resolving complex issues.

I found treating staff as resources got the most of them and I was afforded many opportunities to manage teams within my areas.  I also found that by picking up the phone and speaking to the so-called debtors, that I could get across to people who owed the CRA money and explain what steps the CRA would be taking and use that to discuss what was in their best interests and what was in the best interests of the CRA.  As a result, I closed a lot of files without having to take any legal or enforcement actions other than talking to them.   “How would you like to resolve this?” was / and still is, a very acceptable opening line.  No accusations, and no blaming.  When I needed to flex my muscles to get something done, I certainly did just that and when push came to shove if I needed something done that was being delayed I found ways to get it done faster, or I learned it myself and taught others how to do it.

I was awarded the CRA Employee of the Year one year for my work in the office and my extracurricular work (volunteering and course-work) and as you could expect, I was quickly realizing that I was wearing out my welcome there.  I needed a change.

So just before 11 years at the CRA, I threw my resume online and I was hired by the world’s largest transfer agent to run their investor tax reporting department which I happily did for 4 years.  In this role, I learned about investor slips, T4’s, T5’s, T3’s, T5008’s, and the US forms, W8’s, W9’s, 1099B’s, and got my feet wet with Cost Basis and FATCA.  I also had a brief dive into Qualified Intermediaries, but thankfully that nightmare was moved off to compliance and legal.

While working there, I was plucked away for an opportunity as an AVP at a bank which afforded me an opportunity to dive deep into FATCA and the mutual fund side of tax reporting; Contribution receipts, T3’s, and the like.

When that opportunity ended, I was asked to work as a consultant, leading FATCA for the bank, but from somewhere down near Dallas, Texas but I decided to remain here in Toronto and I’m glad that I did.

In case you were not aware, there was a recent study published – which for the life of me I cannot find right now – which revealed that 55% of all bankruptcies in Canada were due to the Canada Revenue Agency (amounts owing / collection / enforcement actions).  That tells me that there a LOT of Canadians with tax problems and many who have tax problems but don’t know they have tax problems because they never open the brown CRA envelopes.

Now, on to my current role:

As the Managing Director of a professional tax firm committed to helping Canadians who have tax problems resolve their matters with the CRA, I have the opportunity to do what I like doing the most – helping others.  In doing this, I also help the CRA resolve some of their most complex accounts and I help people get their debt in order and their tax accounts current and up-to-date.  The management team are incredibly knowledgable about the industry and my colleagues, peers and staff are second to none.  It’s a good fit all around.

Since I have taken over this role, I have met with, and spoken to, many Canadians across the country about their tax problems and together we have worked to help them become debt-free and resolve their CRA problems so they can go back to being able to sleep at night.  I am happy to help you or someone you know.

It’s amazing what all that CRA knowledge in so many different areas can do to move a file forward.