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 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.

Canada
Canada (Photo credit: palindrome6996)

A very compelling article about the impact of FATCA. Worth the read, especially if you are a US person living in Canada.

U.S. Persons Abroad - Members of a Unique Tax, Form and Penalty Club

Almost all people (“Homelander Elite Corp” members excepted)  agree that FATCA is bad.

To be specfiic:

Everybody understands that FATCA is damaging to U.S. persons abroad.

Some understand that FATCA will result in GATCA which will damage the economy of the Homeland.

Few understand how FATCA is damaging the economies of other sovereign nations.

I came across this interesting post at the Isaac Brock Society:

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