December 31, 2009 by Dan White.

The most common tax traps

Keeping bookkeeping audit ready while straightforward it feels quite burdensome to produce all the required documentation. Just remember that an audit is a process of elimination of business deductions by auditors. There are numerous items and conditions that an auditor will commonly look for in order to catch you. Here are the top Tax Traps that are most likely to trip you up, and what you need to do to avoid them:

Having your GST returns not add up to other records.
If your GST return does not match to your tax return, you are dead in the water.

Guessing at numbers.
Guessing is sure fire trap, especially if the numbers look phony.

Expenses out of whack with conventional norms.
If for instance your entertainment expenses are high, that is a sure audit trigger.
The tax return numbers story does not make sense to the business codes.
Improper recording of consumption expenses.

This is an easy and substantial tax grab for an auditor. Usage tax applies to the routine purchase of such items as consumables and office supply, as well as to the purchase of large fixed assets. Thus there is the potential for CRA to assess a very large fee. Unfortunately, most people don’t know this until it’s too late. For example; when the auditor has come in, looked at a certain period of time, and then assessed back taxes and penalties retroactively. The only way to fight this is to maintain proper business rational statements to solidify business use tax rational. This is an area where most businesses stumble and fall and provides a lucrative source of revenue for the Canada Revenue Agency.

Exemption and resale certificates.

If you don’t possess proper exemption certificates, you can find yourself needing to pay tax on items that you should not have to pay.

If the resale certificates are not on file, the auditor will typically determine an error rate and project backwards to assess tax and penalties. If it’s proven that a resale certificate has been used improperly, the penalties can be substantial.
To avoid these situations, companies need an automated process to enforce exemption and resale certificate compliance for each tax jurisdiction in which they do business.

Unreported sales.

Mistakes happen and certain sales can go unreported. Sometimes even entire divisions get left out in error. The remedy is to rely on systems, not people.
Charging wrong tax rates.

Staying on top of these changes and instituting new rates at the right time is extremely difficult. The only good answer is to have real-time rates applied automatically from the day they are effective.
History of audits and assessments.

Bureaucracies have long memories. Once flagged, and if you were an easy target who did not hire a representative and you just coughed up dough, you will be under the microscope for life and can expect repeated audits.
Most auditors will make note of an error, and you may not realize that you need to make the time, and commitment to address your bookkeeping going forward. If you don’t make the appropriate changes, then on a return audit, auditors can easily find the same repetitive infraction and assess penalties on it.
The best defense here is to have iron-clad processes and procedures and good business statement rationals. Adequate documentation makes an audit go much more smoothly, while poor record keeping will prolong an audit and ultimately bankrupt you.

Lacking documentation, an auditor will make a lot of assumptions where the onus is on you to prove the auditor wrong.
The best answer is always to accept that bookkeeping is as much a cost of doing business as gas is a cost of being able to drive an automobile.
Unique rules and regulations.

The Tax Act has many twists and turns to its sales and use taxes. Auditors are highly tuned into these, particularly when the rules are new, and are quick to spot non-compliance. Tax authorities often have special taxes that apply to specific goods. There are many food/beverage, gambling, cigarette/tobacco, soft drink, timber, and fuel taxes that can be uncovered during an audit. Tax authorities will also audit specifically for these types of taxes from time to time, which can open you up to a full-blown tax audit.

Sales tax accruals.

Many companies don’t properly remit the sales taxes that they have collected. An auditor will look at federal tax returns, the general ledgers, invoice register, actual invoices, sales journals and summaries of sales by province to identify errors and omissions, and will then use the their number that provides the best assessment revenue for them. The best advice here, is to do the same thing yourself. You must keep audit ready bookkeeping.

Assets.
The buying of selling of large assets will catch attention… E.G. was there capital gains calculated, and was it reasonable to the situation.
A business acquisition can often mess up your accounting when it comes to sales and use tax compliance. You need a solid audit trail.
There is always the issue of previous tax liability: when you acquire a company.
Internet sales.
As a result of CRA requiring eBay to release data to the taxman, demonstrates that you better treat your Internet the same as the rest of your business when it comes to bookkeeping.
Inventory shrinkage.
If inventory shrinks out of reason, it will draw attention.
Business Activity Questionnaires.
Any form you fill out and give to a government auditor is a risk of an audit. Before sending in forms to the government get good advice as to best package information.
Summary:
The recommendations for avoiding these tax traps are just a matter of using common sense.
You either need a highly skilled bookkeeper (not just someone who can do data entry) or you need to hire a professional bookkeeping service.
As a business owner, you need to do your part in the record keeping. You need to record business rationales for your bookkeeper.
You and your bookkeeper need a good working relationship with your tax preparer. Always remember that old saying of “garbage in is garbage out.” No tax preparer can do a proper tax return without first having proper bookkeeping.
Yes good bookkeeping cost money, yet despite the economic reality, businesses cannot afford to simply roll over and let the auditors eat them alive. It is possible to protect your business from non-compliance and audits without breaking the bank.
THE BEST DEFENSE IS ALWAYS A GOOD OFFENSE and your best offense is truly audit ready bookkeeping.

If you are being audited, be sure to understand that you need to have someone prepare your books and records in a way to protect your best interests.

To learn more, go to www.taxauditsolutions.ca

Give us a phone call at 905-668-4816 or email info@tax-audit-solutions.com

Posted in Audits, Tax Topics | Print | No Comments »

December 31, 2009 by Dan White.

What you need to know about Tax Audits for the New Year 2010.

Times are tough; money is hard to come by. Small business knows this fact very well. So too does the tax departments of the world. CRA being in a cash crunch has targeted small businesses with a never precedent aggression. They want to do audits NOW! They don’t want the audit delayed. Delaying an audit only delays their cash flow.

CRA has a new level of aggression. Auditors pushed by team leaders are forgetting about the taxpayer’s bill of rights, the charter of rights and often the laws of Canada.

There used to be good concern for not getting audited, because the accounting industry is stuck in the Accounting Stone Age. Using generally accepted accounting principles, which often translates to a process of accounting for accounting sake and not for practical and logical reasons.

Accounting is done to track every financial transaction and how it relates to business. It is done so tax returns can be done and most importantly to be ready for a audit. Interestingly enough the most important reason is pretty much ignored. When an audit happens there is a panicked scurrying around, following the pages of audit requirements given by the auditors.

Auditors requests are pretty much standard across the board. So why is it that the statement is true but accountants and bookkeepers don’t just follow CRA audit requirements as a standard practice? The answer lies in tradition, a dumb tradition that has outlived its usefulness.

In an audit, the auditor will typically look for the following data.

Copies of previously filed sales/use tax returns with any related reports or work papers used to fill them out.
Detailed general ledgers and a chart of accounts.
Sales invoices.
Resale certificates and exemption letters collected.
Federal and Provincial Income Tax returns for the years under audit.
All purchase invoices.
Cash disbursement journals or check registers.
Asset depreciation schedule or fixed asset schedule.
Bank statements and cancelled checks
Cash register tapes.
Copies of Contracts.
Copies of lease agreements.
Articles of incorporation.
A business description.
A description of who does what.
All bank statements, both personal and business.

All the above CRA Audit documentation requires an audit trail.

In order to keep audit ready books, we had to develop our own software and procedures. Now begins the difficult task of reprogramming bookkeepers and auditors to understand that if books are kept audit ready, it then solves all the other requirements of good bookkeeping.

We enter the year 2010 knowing the following there will be more audits and we can expect the following:

1. CRA is ferociously aggressive in their desperate drive for tax dollars.
2. They are using Bedford’s laws… a mathematical analysis of probabilities of tax cheating based on the numbers in a tax return.
3. They have new data mining software that matches information from various sources back to tax returns that have been filed.
4. CRA continues to hire more auditors so that they can collect more money from a smaller source amount.
5. The transition to HST is triggering a 4 year window for Ontario and BC to backlog Retail Sales Tax audits.
6. Tax Audits are now being automatically generated by computers.
7. The bookkeeping by small business has been dismally bad, so they are going to fry this year.
8. The recession has made things a double bladed axe. Cash Flow Problems and CRA Cash Flow problems. This year will be a brutal tax audit season.
9. For your business you need to understand that CRA view you and your business as a cash flow revenue stream.
10. It is going to be a dirty year and small business needs to clean up their act.
11. Any business that files a tax return based on non-audit ready books is going to fry in an audit. I recommend having your bookkeeping redone to audit ready status. Pay me a little now or pay me a lot later. Those are the only two choices left on the tax man’s chopping block. The axe will fall on those who ignore this wisdom.
12. With lead sharing between government agencies, and the requirements to register for numerous government bureaucracies many more new audits will be triggered.
13. For every corporation formed, there is a new audit target established. Being incorporated is a very questionable activity for small business that does not have a big net income. Incorporation’s appear bigger, and the bigger they are the harder they flop.
14. Birds of a feather mining… if your clients or suppliers are getting audited this puts you on the radar for a relational audit.
15. Higher gross sales make you a bigger target, regardless of your net income.
16. Auditors and CRA investigators are trained to have their antennas up… just dealing with an off duty auditor could trigger an audit.
17. If a revenue department falls short of their revenue quota there will be a scramble to audit a lot of businesses to shore up the team performance records.
18. CRA auditors are now doing drop in visits to businesses, under the guise of being helpful, they are really looking for cues to justify an audit. I know of one picture framer who ended up going bankrupt following a drop in audit. He talked too much and caused himself a terminal problem. Friends drop in, so do enemies.
19. Bureaucracies have the memory of an elephant. Once flagged, you are under the microscope for life and can expect repeated audits. If you don’t have audit ready bookkeeping when you are audited, you have a Tax disease for life. And you have to fight like hell to keep your dollars so you are not seen as a willing victim.

This is the year to enter it ready for an audit. Also a year to await the three year statute barred window for sloppy past years tax returns. Each year you can breathe a sigh of relief as the three year danger zone decreases by a third.

The days of being able to be a sloppy bookkeeper are over. If you don’t have the time to do good books and can’t afford to hire a professional bookkeeper, your days in business are numbered. It is just as simple as that.

 To learn more about audit ready bookkeeping, contact www.taxauditsolutions.ca or email info@tax-audit-solutions.com

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December 30, 2009 by Dan White.

 The ever growing invasion into the rights of Canadians

I don’t have an issue with making sure that Canadians pay their fines. However I have a huge issue with Canada Revenue Agency (CRA) being a bill collector for bills that have nothing to do with them.

I don’t even mind that they will collect invoices on behalf of a taxpayer who can not pay his taxes without collecting outstanding invoices. CRA loves being a bill collector, but collecting traffic fines and CRA not getting the money is a different matter. I suspect that it violates our rights. Not that acting outside the law bothers all CRA workers. We have clients with outrageous tax problems created by CRA.

I guess when our governments get short of money they will leave no stone unturned in their desparate drive to grow government to an ever bigger monstrosity. I say… downsize the government.

For more into on taxes, go to our site www.taxauditsolutions.ca
Dan White
dw@911taxes.com

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News Canada

Provinces, cities track down unpaid tickets

By Peter Rakobowchuk, THE CANADIAN PRESS

Last Updated: 29th December 2009, 1:51pm

MONTREAL — Canadian motorists who think they can ignore old speeding or parking tickets shouldn’t get too comfortable.

Tickets from years past can come back to haunt scofflaw drivers in the form of much higher fines.

“We have some people we have been going after who have in excess of 50 outstanding tickets,” says Steve Jackson, executive-director of the claims and recoveries program of the Alberta Justice Department.

Jackson says his department tracks down unpaid fines that are more than one year old and registers the offender with the Canada Revenue Agency.

“We’re allowed to intercept their income tax refunds and the GST rebates.”

Jackson says he’s gone after offenders across Canada and the United States and advised them their income tax return will be redirected until their outstanding debt is settled.

“You could have people who are living in the U.S. temporarily who are still deemed to be Canadian and are filing Canadian income taxes,” he said.

Jackson noted that one motorist had 57 outstanding tickets over a five-year period which included speeding, driving an unregistered vehicle and driving with a suspended licence.

The man was eventually incarcerated when authorities caught up with him.

Jackson recalled another case last year when a father came in to pay his daughter’s fines, which totalled more than $5,000.

Pietro Macera, a bailiff who collects unpaid fines for the City of Montreal, says a five-year statute of limitations on outstanding fines can be renewed.

“Whether it’s a civil matter, a ticket matter, a criminal matter, it’s gonna catch up to you,” he said in an interview.

Macera, 50, says any unpaid fines will stay in a town or city’s computer system.

“So you’re driving and you get grabbed by the police for speeding, or a red light, or a burned-out light — well that day is not your lucky day, especially if you’ve ignored that $100 speeding ticket.”

Macera says the ticket can end up costing $500 with court costs and other fees that have been tacked on along the way.

In some courts in Nova Scotia, motorists who require extensions to pay a fine will appear before a justice of the peace to discuss payment options.

But if a fine is past due and without payment for six months, it will be referred automatically to Service Nova Scotia and Municipal Relations for collection action.

There are no extensions on fines that have been referred for collection and a motorist can’t renew his licence or registration until the outstanding fine is paid up.

In Ontario, overdue fines may not be such a big problem — in fact, some motorists have even ended up paying twice.

Rolly Riopel, runs POINTTS, a Barrie, Ont., firm that provides legal representation for people who want to fight their traffic violations.

He says “hundreds, maybe thousands” of Ontarians may have paid overdue traffic fines to both the province and their local municipality.

The Ontario government transferred enforcement of provincial offences to municipalities between 1999 and 2002 and many hired collection agencies to go after outstanding fines.

Over a five-year period, at least 50 motorists have come into Riopel’s office to complain they had already paid the province but were still being chased down by local municipalities.

“The only thing I could say is either you have a receipt or you don’t,” he said in an interview.

“If you’ve got a receipt, no problem, (but) if you haven’t got a receipt, you have to pay it again.”

Riopel, 62, says most of his regular clients are first-time offenders, who are worried about losing their licence, points and insurance premiums.

“They want to try to keep their record as clean as possible,” he said.

But the former Ontario Provincial Police officer says he’s noticed fewer people have been coming to him for help in recent years.

“Either people are paying their fines or they’ve caught up to everybody who was outstanding,” he said.

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December 25, 2009 by Dan White.

You have to love the politics ot tax problems. HST is now the tax we love to hate.
For me, it is the tax I love.

Why does Dan like HST.
1. Only one tax collector to deal with.
2. One entire Tax Act to not deal with.
3. Much easier to understand.
4. Much easier to track.
5. As a business we get our HST back in the form of tax credits. This is a big improvement over PST.
6. Our new audit ready bookkeeping keeps perfect track of the GST/PST trantition to HST…. I love easy.
7. It puts more money into circulation for the consumer to get their hands on.

Yes it is normal to resist change, but when it comes to resisting HST. It goes like this….there is no point in peeing into the wind. All you get is a wet face. You need to pee and the wind needs to blow. It is an ill wind that blows no good. So if you weigh the good and the bad, you will see that the HST is more better than it is badder.

So if you want any help with your tax problem transition to HST, give us a call at 1-905-668-4816 for your tax solutions or visit our site and read the article on audit ready bookkeeping. www.taxauditsolutions.ca

HST   is …
Happy Sales Tax to you!

Dan White

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Harmonized Sales Tax becomes law in Ontario
Posted Dec 24, 2009 By Rosalyn Stevens

Liberal MPP Yasir Naqvi has been travelling the province talking up the benefits of the HST, in his role as the parliamentary secretary to the Revenue Minister.
Desmond Devoy, Ottawa East EMC
Liberal MPP Yasir Naqvi has been travelling the province talking up the benefits of the HST, in his role as the parliamentary secretary to the Revenue Minister.

EMC News - On July 1, 2010, Ontario residents will wake up to a reformed tax system designed to boost the economy and create jobs, while offering tax cuts to the province’s most vulnerable, according to Ottawa Centre MPP Yasir Naqvi. The controversial Harmonized Sales Tax (HST) bill passed into law on Dec. 9 at the provincial legislature, despite strong opposition by the Progressive Conservative (PC) opposition.

Mr. Naqvi, the Parliamentary Assistant to the Minister of Revenue, said the reorganized taxblending the 8% provincial sales tax and 5% federal goods and service tax into a single 13% levywould give the manufacturing sector a much needed boost by eliminating the multiple taxation levels currently in place. As well, he said, income tax cuts and permanent sales tax credits would assist low-income residents and families in a sort of “stimulus funding for individuals.”

However, Nepean-Carleton MPP Lisa McLeod, the opposition revenue critic, said the new tax will do nothing but hurt the provinces most vulnerable with an additional 8% tax on many items previously exempt.

“They essentially ignored 75% of the population who was telling (the government) they don’t want this new tax, not now,” she said.

The opposition fought hard against the tax change, which Mr. Naqvi said has been successful in other Canadian provinces. Opposition tactics drew national attention as MPP’s protested the act, including one move which saw two MPP’s refuse to leave the legislature after being ejected by the speaker. Ms. McLeod said the party also filed over 5,000 amendments to the law, looking to slow down progress through legislative procedure.

Despite the opposition, which included thousands of signatures on petitions from the PC party, Mr. Naqvi said the new law would benefit everyone in Ontario by bringing the province’s tax system inline with those of “modern” economies.

“We have, obviously, concrete, empirical evidence from Quebec and Atlantic Canada where they did the same thing,” he said.

While many itemssuch as home heating, and gasolinewill see an additional 8% levy, Mr. Naqvi said the majority of items will not increase in price. Currently, he said 83% or consumer spending in Ontario includes the full 13% tax.

To offset the increases, Mr. Naqvi said new, permanent tax cuts and credits would be introduced on January 1. That means that residents receiving the federal GST credit will also receive a provincial credit, with the first cheques scheduled to be in the mail in August. Come tax time, residents will see cuts to the lowest tax bracket, offering support for low income families, and seniors on fixed income, as well as other individuals making less than $37,000 a year. To ease the “sticker shock” expected during the first year, the province would also make one-time payments of up to $1000 for families, and $300 for individuals.

“That is why we continue to argue it is not raising taxes,” Mr. Naqvi said. “It’s revenue neutral.”

Ms. McLeod said the opposition PC party would continue to fight against the tax law, though she said the province is currently locked into the plan for five years, with a penalty of $4.3 billion to be paid to the federal government should they reverse the decision.

She said the tax cuts aren’t enough to save Ontario residents from the financial burden of an increased cost on many common products.

“It’s disingenuous for the McGuinty government to tell Ontarians that is a good deal, because it simply isn’t,” she said.

The federal government is expected to pass a bill that would enable the province to apply the new tax, and would include a transfer payment of $4.3 million to cover the cost of tax cuts and credits. However, Ms. McLeod said she doesn’t feel the government is supporting the tax change, rather supporting the province’s right to manage its taxation system.

“The federal government isn’t supporting Mr. McGuinty’s plan to hand out $4.5 million in bribe cheques before the next election,” she said.

Though the law has passed, she said there is an opportunity for change in the 2010 budget, noting that her party will continue to pressure the government for changes at that point. She said the Liberal government has had a difficult session in the legislature, and added that the controversy of the HST would add to the party’s difficulties when the house sits again in the New Year.

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December 23, 2009 by Dan White.

 While CRA Loves to embarrass people

There is also a big lesson here. Tax evasion is expensive. In order to avoid having the huge tax penalties and have CRA post the case as a “Press Release” you need to protect yourself.

We don’t know the real story behind the scenes here, but I would love to know, I will eventually study the tax court case to see what transpired. However without going into the case, I know I will find bad bookkeeping.

We are focusing on bringing audit ready bookkeeping to the market, that will keep taxpayers out of tax trouble. To read more about audit ready bookkeeping, go to www.taxauditsolutions.ca

Don’t get in tax trouble, there are tax problem solutions out there and you need to use them to keep you out of Tax Man Torment.

Here is the press release from CRA… nice of them to spoil someone’s Christmas… Merry Christmas CRA!

PS>.. and note that at the bottom of the article they promote doing a voluntary disclosure. (A.K.A as Tax Amnesty) … hm mm…. so odd that in a scary press release, they want to scare Canadians into opening themselves up to a ten year audit.

 Dan White

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Markham Realtor Fined $68,000 for Tax Evasion

NEWMARKET, ONTARIO–(Marketwire - Dec. 23, 2009) - On December 11, 2009, Claudette Walker of Markham, pleaded guilty in the Ontario Court of Justice in Newmarket to a total of four counts of tax evasion. She was fined a total of $68,000. In addition to the fines imposed by the courts, individuals or corporations, convicted of failing to file tax returns, are still obligated to file the tax returns and pay the full amount of taxes owing, plus interest, as well as any civil penalties that may be assessed by the Canada Revenue Agency (CRA).

A CRA investigation revealed that Walker, a self-employed real estate agent, failed to report income of $215,412 on her 2002 to 2004 income tax returns.. Furthermore, by not filing income tax returns for 2005 and 2006, she did not report taxable income of $121,609 in 2005 and $78, 966 in 2006. In total, Walker pleaded guilty to evading federal income taxes of $70,000 and was fined $35,000.

Walker also pleaded guilty to not remitting a total of $35,135 in GST from January 2002 to December 2006 and was fined $33,000.

Individuals who have not filed returns for previous years, or who have not reported all of their income, can still voluntarily correct their tax affairs. They will not be penalized or prosecuted if they make a full disclosure before the Agency starts any action or investigation against them. These individuals may only have to pay the taxes owing, plus interest. More information on the Voluntary Disclosures Program (VDP) can be found on the CRA’s website at www.cra.gc.ca/voluntarydisclosures

The information in this news release was obtained from the court records.

Further information on convictions can also be found in the Media Room on the CRA website at www.cra.gc.ca/convictions

For more information, please contact

Kim Hynes
Manager, Communications
705 671-0594

Posted in Tax Topics | Print | No Comments »

December 17, 2009 by Dan White.

Now this is pretty funny.  The finance minister slaps a 100% tax on over contributions for  TAX FREE savings accounts. I could see a 5% penalty… that would be reasonable… but when the money that goes into a TFSA is after tax dollars, slapping such a penalty is nothing short of an abusive tax grab.

I like TFSA’s, they are much better than an RRSP, but I don’t like the fact that the government can change the rules as they go along.

The Finance Department has instructed the Canada Revenue Agency to charge a levy of 100 per cent on any overcontributions in a Tax-Free Savings Account. OK… so now let’s just make this a complicated audit problem for Canadians.

In spite of the fact that everyone knows that the tax laws are too complicated, Government seems to love complexity and keeps piling it on is.

Oh… well… it is good for my business of sorting out tax messes.

For more information go to www.tax-audit-solutions.com

Dan White

Here is the Globe and mail article by Kevin Carmichael

__________

Flaherty targets tax-free account abusers

Tuesday, October 20, 2009
People who exceed limit on TFSAs will lose 100 per cent of their overcontribution, as Finance Minister closes loophole

KEVIN CARMICHAEL

OTTAWA — Finance Minister Jim Flaherty is cracking down on abuse of Tax Free Savings Accounts, closing loopholes in the popular investment program that is one of his centrepieces.

Citing a need to “challenge aggressive tax planning,” the Finance Department is moving to stop transactions involving TFSAs that violate the spirit of the program, which is intended to coax Canadians to build up their personal savings.

The program, a key element of the government’s 2008 budget, allows savers to invest a certain amount each year without paying taxes on the gains. The changes, which went into effect yesterday, seek to stamp out schemes that saw investors make deliberate overcontributions or unapproved investments because the tax-free gains exceeded the penalties.

While the minister’s move will affect only a small number of TFSA holders, it is aimed at curbing potential abuses in the accounts before they are more widely adopted and contain larger amounts.

Finance does not yet have a tally of how many tax-free accounts have been opened since the program came into being on Jan. 1, but a survey by HSBC Bank Canada earlier this year found that two-thirds of Canadians planned to open one.

One move Finance is seeking to end involved savers putting money into their tax-free accounts in excess of the annual $5,000 limit.

The previous penalty for going over the limit was 1 per cent a month.

Finance said that “some TFSA holders are attempting to generate a rate of return” by going over the limit for “a short period of time,” in the belief they can earn more than enough to outweigh the cost of the penalty.

To close the loophole, Finance instructed the Canada Revenue Agency to charge a levy of 100 per cent on overcontributions.

TFSAs, which Mr. Flaherty calls the most important innovation in Canadian tax policy since the introduction of Registered Retirement Savings Plans, have proved popular with both taxpayers and financial institutions.

In May, Peter Aceto, chief executive officer of ING Direct Canada, went to Ottawa to present Mr. Flaherty and National Revenue Minister Jean-Pierre Blackburn with a poster signed by more than 2,000 clients “thanking” the government for introducing the program.

Essentially, taxpayers who are 18 years and older may make contributions of $5,000 annually to a TFSA and may withdraw the money tax-free at any time, for any purpose. As with an RRSP, savers can make contributions above the limit when they have contributed less than $5,000 in previous years.

Unlike RRSPs, they can replenish money they withdraw from their TFSA account.

David Barnabe, a spokesman for the Finance Department, said the government learned of the alleged abuse from concerned individuals, and that inappropriate transactions had occurred in a “very small minority” of accounts.

The government also discovered some investors were seeking to cash in on gains in the value of their investments by transferring money from their RRSPs and other registered savings plans, which discourage early withdrawals with heavy taxes, to their TFSAs.

From now on, TFSA amounts that are “reasonably attributable” to these kinds of transfers, will face a tax of 100 per cent.

The third loophole Mr. Flaherty is closing relates to unqualified investments, such as property or companies in which the account holder has a significant stake.

It appears some investors were making these investments despite the existing penalties because the gains remained in the accounts even after the offending purchase was removed.
Wednesday, October 21, 2009
CORRECTION

The Finance Department has instructed the Canada Revenue Agency to charge a levy of 100 per cent on any income or gains from overcontributions in a Tax-Free Savings Account. Incorrect information was published yesterday.

Posted in Tax Topics | Print | No Comments »

December 17, 2009 by Dan White.

It is clear the government want money, and they are going to cause tax problems for a lot of people looking for tax solutions.

If you are a passive investor, you are going to pay more Tax, if you are an active investor, you will pay less tax. It is your choice.

Call or email me to see how you should position yourself.

Dan White

www.tax-audit-solutions.com

Dan White

__   dw@911taxes.com   ________

Here is a good article by Lynda Hunt.

Department of Finance Responds to GST and Financial Services Court Decision

Posted by: Lynda Hunt in Untagged  on Dec 16, 2009

On December 14, 2009 the Minister of Finance issued a News Release and Backgrounder setting out the Government of Canada’s response to an April 2009 court decision on the application of GST to certain investment management fees.

As you may recall (from our blog of July 6, 2009), the Federal Court of Appeal had ruled in favour of the taxpayer, Canadian Medical Protective Association (”CMPA”), in their bid to have their investment management fees charged to their discretionary investment account considered as a “financial service” and thereby exempt from GST under Schedule V of the Excise Tax Act (the “ETA”).

The Government’s response to that decision was the December 14, 2009 press release; in their words, an effort to “reaffirm the policy intent and provide certainty respecting the GST”.  The proposals state that they will “clarify” that “financial services”, as defined for purposes of the ETA, do not include investment management services, in spite of the Appeal Court’s ruling.  In addition, they have identified a number of credit management and credit facilitatory services which are also confirmed to not be financial services.  Additional details are available at http://www.fin.gc.ca/n08/09-115-eng.asp.

It is important to note that these proposals apply not only to services rendered from December 14, 2009 forward, but also to previous transactions where the service provider had originally charged GST.  Our understanding of this wording is that if the supplier had originally charged GST and the recipient had applied for a rebate (based on the CMPA case) the rebate will be denied.  Also the Canada Revenue Agency has up to the later of one year after these proposals become law and the normal reassessment period under section 298 of the ETA to reassess.  An exception exists for any case where a final determination has already been made by the courts.

Draft legislation was not included with the proposals, so complete details are not available.  However, such legislation will be introduced at “an early opportunity”.

The CMPA case was of particular interest to the mutual fund industry as they faced the prospect of Ontario’s new 13% HST (beginning July 1, 2010).  It would appear, at this time, that the Ontario Government is not prepared to extend an exemption to the mutual fund industry from the extension of the HST to the management fees they incur.  The reason this is a concern to our readers across Canada is because the place of supply rules will likely apply to have that 13% tax apply to all mutual funds that are managed in Ontario (which is the vast majority - at least for now!).

We await the release of detailed legislation and will also monitor the HST situation, but for those hoping for a break on the application of the HST to mutual fund investment costs, these legislative proposals clearly indicate the Government is moving in the opposite direction!

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December 16, 2009 by Dan White.

Here is a classic case of just what kind of tax problems can happen to Canadians.

It will be interesting to see what kind of solutions will happen, when this gets back in tax court.

For further info, conact me at dw@911taxes.com and check out www.tax-audit-solutions.com

Dan White

Tax dispute heats up
Written by Frank Peebles
Citizen staff
Monday, 14 December 2009
00670000
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Million-dollar tax miscalculations caused Irvin Leroux to lose everything he owned, but a tax official also offered to end his tax troubles for a personal fee.
This is the latest accusation by a Prince George man who was, by Canada Revenue Agency’s own admission (proven in court once already), the victim of an incorrect tax bill.
The events began with an audit of Leroux’s books in 1995, but CRA officials accidentally shredded all his documents, but forged ahead with claims that Leroux owed the federal government enormous amounts of money - about $1 million.
He fought back, insisting that he had always fastidiously paid his taxes.
In 2005 the CRA dropped their claim that Leroux owed them any money at all. In fact, they discovered in the process he had actually overpaid $24,000 in taxes and was entitled to a refund. They paid him that amount (then took it back immediately for an outstanding GST bill). Yet the CRA refused to compensate him for all his losses as a result of the years-long fight. Leroux lost his home, his business (an RV park near Valemount), land with timber, a housing subdivision, his life savings, and other assets, not to mention his credit rating and potential earnings. According to a Statement of Claim Leroux filed in Prince George court in 2006, his losses equaled more than $4 million.
To properly fight for his lost assets, Leroux asked for copies of all documents the federal government had that pertained to his taxes. He and his lawyer received a shipment of 2,500 pages of material, most of it heavily censored.
One part wasn’t blacked out though, said Leroux, and it was the most important part of the whole ordeal. It was a piece of paper that allegedly points out a corruption incident. It is now a major part of a vastly new Statement of Claim that was just handed in to Prince George court last week. The Citizen got the first look at it, outside of the legal groups on either side of the issue. In it was a damning allegation that involved a Prince George tax official named Hansen (now deceased):
“On Dec. 23, 1998 Hansen telephoned the plaintiff (Leroux) and requested another meeting to discuss the resolution of (Leroux’s) tax problems,” said the revised Statement of Claim. “The plaintiff met with Hansen at which time Hansen advised the plaintiff he could resolve the plaintiff’s ‘tax problem’ if the plaintiff would pay $25,000 cash to Hansen personally. The plaintiff refused, whereupon Hansen stated that he should reconsider, failing which the plaintiff would encounter significant, costly problems with the (CRA).”
This week in Prince George court the CRA’s lawyers attempted to quash the proceedings, insisting that too many delays were unfair to the tax agency. They also asked Mr. Justice Eric Chamberlist to officially declare Leroux as the one who should bear all court costs if he ultimately loses the case.
Not so fast, Chamberlist said on both accounts.
“I am of the opinion that this plaintiff should have his day in court,” the judge said.
He allowed both sides to adjourn for several weeks to properly prepare their cases in light of the new allegations. He also deferred the issue of court costs until farther into the proceedings.
“I can understand the position of the defendant with regard to now having to face amended pleadings from those originally filed,” said Chamberlist. “But by the same token I am concerned that the court not deal with issues raised by the plaintiff in his claim without a proper hearing, and all matters being heard.”
A date is now being fixed between the lawyers for some time later this winter. Chamberlist gave the CRA lawyers up to 30 days to revise their defense documents. When those are submitted, Leroux and his lawyer would have up to 14 days to prepare their counter-position. At the end of this back-and-forth

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December 9, 2009 by Dan White.

Victor Drummond writes and excellent article. I have been aware of this case for a while now, and I see it as just one example of our government creating horrible tax problems for Canadians. The Tax Department is about collecting money and will use every angle they can.

To learn more about keeping out of tax trouble, go to www.tax-audit-solutions.com

Read on…

 Dan White

________

Victor Drummond ©
Posted by Victor Drummond at 12:01 PM

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December 5, 2009 by Dan White.

As usual Jamie Golombek writes useful and informative articles.

In respect to charitable donations; I would add the following observations…
Canadians have reason to second guess donations as a safe do good things tax strategies.
We can not trust just checking with CRA to see if the charity is in good standing with them. That does not mean we can use the charitable receipts. Many Canadians who donated to charity schemes were shocked to find out they could not even claim ther actual cash part, and that CRA argues that because the money was never used properly by the charity, the deduction is denied.
Further Many Canadians think that they save money by donating, they never break even tax wise because of the donation, CRA still gets anywhere from a small slice to the the whole thing.
We can not trust our tax department to have the true spirit of giving, so one wonders why donate this way at all.
I recommend considering donating directly to the needy and forget the deduction.
For more information, contact danwhite@danwhite.ca  or go to www.danwhite.ca or www.tax-audit-solutions.com
Here is Jamie’s info.
Dan White
_________

New rules needed to spur small donations

Charities increasingly depend on wealthy donors for survival

Jamie Golombek, Financial Post  Published: Saturday, December 05, 2009
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*

Jamie Golombek
*

C.D. Howe Institute

‘Tis the season for giving, not only to friends and family members but to the numerous worthy charitable causes that vie for our attention — and wallets — this month.

As a reminder, donations to registered charities need to be made by Dec. 31 to be eligible for the donation tax credit for 2009.

This credit was the subject of a new study released this week by the C.D. Howe Institute titled, “Lending a Hand: How Federal Tax Policy Could Help Get More Cash to More Charities” by A. Abigail Payne, fellow-in-residence at the Institute, and also an associate professor and Canada research chair in public economics at McMaster University in Hamilton, Ont.

Prof. Payne has observed a marked change in the pattern of charitable giving over the past twenty years, specifically noting that the share of Canadians reporting cash donations has fallen while at the same time the charitable sector’s reliance on large donations by wealthy donors has risen.

This dichotomy is problematic to charities that primarily rely on numerous smaller cash donations for their funding. Prof. Payne proposed a couple of tax reforms that would encourage wider cash donations.

Under the current rules, the amount you donate is eligible for both federal and provincial donation tax credits. For the first $200 of donations you make in a calendar year, the federal donation credit is equal to 15% of the amount given. Once you’ve made at least $200 of donations in any year, however, the donation credit jumps to 29% federally. The provinces and territories also provide provincial donation credits at varying rates.

Prof. Payne recommends two possible reforms to the federal donation system, the first one being a “united rate” of 29% for all donations. This would simplify the administration of the credit and provide an additional incentive for smaller, lower-income donors.

Taxpayers who already donate $200 or more would save an extra $28 in taxes [$200 x (29% -15%)] for an estimated total cost to the government of approximately $110-million in lost federal tax collections.

The second reform would be to provide a higher tax credit, say 40%, for the first portion of donations that would be linked to your annual income. This higher rate would, however, be capped for higher-income earners.

For example, let’s assume a higher tax credit was available for donations made up to the first 1% of your income, subject to a $500 cap. If you earned $40,000 per year, you would get the high 40% donation credit for your first $400 in annual donations (being 1% of $40,000) and the regular 29% credit for donations above this amount. If you earned $50,000 or more, your high-credit donation would be capped by the $500 limit.

Finally, Prof. Payne recommends that amounts eligible for the higher tax credit be allowed to accumulate in much the same way that unused RRSP and TFSA room can be carried forward from year to year. This amount would be tracked by the Canada Revenue Agency and reported to you annually on your Notice of Assessment.

Jamie.Golombek@cibc.com—

- Jamie Golombek, CA, CPA, CFP, CLU, TEP is the managing director, tax and estate planning with CIBC Private Wealth Management in Toronto.

Read more: http://www.financialpost.com/personal-finance/fp-investing/story.html?id=2305729#ixzz0Yp8sCbTc
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December 3, 2009 by Dan White.

CRA goes into competition with with the banks.

They are offering better than bank rates if you overpay your taxes.

Canada Revenue Agency: Interest Rates for the First Calendar Quarter

OTTAWA, ONTARIO–(Marketwire - Dec. 3, 2009) - The Canada Revenue Agency (CRA) today announced the prescribed annual interest rates that will apply to any amounts owed to the CRA and to any amounts the CRA owes to individuals and corporations. These rates are calculated quarterly in accordance with applicable legislation and will be in effect from January 1, 2010 to March 31, 2010.

Income tax

- The interest rate charged on overdue taxes, Canada Pension Plan contributions, and Employment Insurance premiums will be 5%.

- The interest rate paid on overpayments will be 3%.

- The interest rate used to calculate taxable benefits for employees and shareholders from interest-free and low-interest loans will be 1%.
If you have tax problems requiring solutions, be sure to go to www.tax-audit-solutions.com or go to www.danwhite.ca

Best Regards

Dan White

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December 3, 2009 by Dan White.

The following article by Vern Krishna, who writes for the Financial Post, give some very good advice on one of the biggest tax problems you can have e.g. a tax search and seizure.

While the article focuses on tax practitioners, it is still completely relevant for small business owners.

Dealing with CRA problems requires expert help. If you are having a problem like this, then email me at dw@911Taxes.com, put “Tax Emergency” in the subject line.

Or call our hotline  905-668-4816

For more information on tax problems and tax solutions go to www.tax-audit-s0lutions.com and or www.danwhite.ca

Dan White

_______

Dealing with a tax-search warrant

Know the process, and remedies after search and seizure

Vern Krishna, Financial Post  Published: Wednesday, December 02, 2009
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Dealing with a tax-search warrant

Know the process, and remedies after search and seizure
Vern Krishna, Financial Post  Published: Wednesday, December 02, 2009
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A tax search and seizure of a lawyer’s or accountant’s office can be stressful, but it does not have to be so. What do you do when the taxman arrives with a search warrant and sworn information authorizing the search to look for documents in connection with a criminal tax investigation?

First, take a deep breath and normalize your blood pressure. There are various legal protections available, but you must be calm enough to invoke them.

Both the Income Tax Act and the Criminal Code allow the Minister of Revenue to apply ex parte, or without notice, to a judge for a search warrant to enter into premises and seize documents or things found therein. The minister (officially, it’s a minister of the Crown that seeks the warrant) seeking the warrant must support the application for a warrant with information establishing the facts on which he or she seeks the warrant.

The judge has discretion to issue the warrant. The judge will issue the warrant if the government establishes reasonable grounds that the taxpayer or person being investigated has committed an offence under the Income Tax Act and that documents contained on the premises will be evidence of the offence. This is a fairly low threshold and the tax authorities will likely have enough to get a warrant.

Second, examine the search warrant and any information sworn to determine the scope of the warrant and any limitations that it outlines. At this juncture, you must determine whether the Canada Revenue Agency is investigating a particular client, the professional firm or a third party.

The warrant must be specific and identify the particular offence to which it relates. It must also identify the particular building or premises that it authorizes for search and the person who is the target of the search and is alleged to have committed the particular offence.

If the search warrant pertains to a client, you should obtain instructions immediately from the client and, on his or her instructions, retain legal counsel.

If the client authorizes the search, you can co-operate with the authorities in their investigation, but you should keep a detailed record and notes — preferably in the presence of another person– of all documents that the CRA seizes.

You should co-operate with the tax officials to the extent that you can do so. It is an offence to interfere with, hinder or molest any official or prevent him from doing his authorized duties under the tax statute or the Criminal Code.

Third, claim privilege on all documents at the outset. You can ask for the documents to be sealed and placed in custody under the authority of the Criminal Code or the Income Tax Act.

Once the documents have been seized and are in authorized custody, you have 12 days to apply to the court to determine whether the documents — or any portion thereof — should be disclosed to the tax authorities. You will need to review all of the documents to select the particular ones in respect of which you wish to claim privilege on behalf of your client. Failure to pursue this document review will result in the documents being turned over to the CRA after 14 days.

Read more: http://www.financialpost.com/news-sectors/legal/story.html?id=2292884&p=1#ixzz0YY7goFKX
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The Charter of Rights and Freedoms circumscribes the law in respect of search and seizure warrants. The information cannot be simply a fishing expedition; it must specify the documents or things that the government is looking for. Thus, the tax authorities or police must limit their search and seizure to the documents or things that they specify and believe reasonably support the commission of the offence. Under the “plain view” doctrine, however, the person executing the warrant may also seize any other documents or things that are evidence of any other offence under the law.

There is very little that the taxpayer or his or her legal counsel can do to curtail the execution of a properly obtained and executed warrant. The remedies, if any, lie after the search and seizure.

A judge will determine whether the government can retain the seized materials. The revenue minister is entitled to retain seized materials — and the judge must so order — unless the government waives retention. The taxpayer can, however, through his legal counsel apply to a judge for the return of documents if he can show that the documents will not be required for an investigation or in criminal proceedings. Of course, any documents or things that were improperly seized and outside the scope of the warrant will be returned to the taxpayer.

A tax search and seizure can be traumatic. If handled professionally and politely, it should be less so. The client may panic; the professional must remain calm. The courts are quite zealous in protecting unwarranted state intrusions in matters pertaining to criminal tax evasion charges.

- Prof. Vern Krishna, CM, QC, FCGA, is tax counsel and a mediator and arbitrator at Borden Ladner Gervais and is executive director of the CGA Tax Research Centre at the University of Ottawa.

Read more: http://www.financialpost.com/news-sectors/legal/story.html?id=2292884&p=2#ixzz0YY7WytKX
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December 3, 2009 by Dan White.

I am having fun tracking this subject with all the spin doctoring going on. It is amazing to see how CRA is so effective in their scare tactics.

While I agree, Canadians need to report all their income and prepare their tax returns completely and honestly, I don’t agree that a voluntary disclosure is the right answer.

In most cases, there are much better ways to handle coming clean.

For more information on alternatives to Tax Amnesty / Voluntary Disclosures.

Go to www.tax-audit-solutions.com and www.danwhite.ca

or email dw@911Taxes.com

Dan White

________

here is John Greenwood’s interesting article on what the Minister of Revenue has to say, and what

Steven Kohn, the lawyer for Bradley Birkenfeld, a key whistleblower in the UBS case has to say;

Canada’s tax cheats confess in record numbers

6,798 people holding $1.66-billion in hidden assets come clean with CRA

John Greenwood, Financial Post  Published: Wednesday, December 02, 2009

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A flood of Canadian tax cheats are voluntarily coming forward to disclose hidden assets and offshore accounts in record numbers, says Jean-Pierre Blackburn, the Minister of National Revenue. Reuters A flood of Canadian tax cheats are voluntarily coming forward to disclose hidden assets and offshore accounts in record numbers, says Jean-Pierre Blackburn, the Minister of National Revenue.

A flood of Canadian tax cheats are voluntarily coming forward to disclose hidden assets and offshore accounts in record numbers, says Jean-Pierre Blackburn, the Minister of National Revenue.

As of Wednesday, 6,798 Canadians had come clean to the Canada Revenue Agency since the start of the year, revealing $1.66-billion of assets they had not paid tax on, or about 50% more than in the whole of 2008, Mr. Blackburn said in an interview.

The jump in the numbers is because people are getting the message that “people should pay their taxes” after publicity around a recent string of tax-evasion cases, he said.

“People realized that it’s a question of time before we get them,” he said. “I tell them, we’ll get you, we’ll find you.”

The comments come after tax authorities in the United States announced last month that 14,700 well-heeled Americans had confessed to evading taxes to take advantage of the government’s amnesty program.

The lion’s share of those cases involved hidden offshore accounts with UBS AG, which agreed this year to reveal the names of 4,450 U.S. clients with US$18-billion in hidden assets.

Despite evidence that many well-heeled Canadians also hid money with UBS, only a trickle disclosed the information to the CRA, which has led some observers to complain the government is not doing enough to fight tax evasion.

Indeed, of the nearly 7,000 people who came forward in Canada, only 90 involved UBS cases. The rest involve either different offshore banks or other forms of tax evasion, Mr. Blackburn said.

He said the critics are failing to take into account this country’s overall very strong record on persuading Canadians to pay their taxes, which compares well with the United States where in a typical year very few tax cheats come forward.

Under the law, Canadians can avoid legal penalties and fines if they voluntarily disclose assets they are not paying taxes on and there is no deadline. By doing so, they are liable only for the taxes and accrued interest.

South of the border the laws are a lot tougher and in the case of UBS there is a deadline, with no breaks for people who fail to confess in time. On top of that there are rewards for whistleblowers.

“I think our system is a lot better, more [attractive] for Canadians to use,” said Mr. Blackburn.

Not everyone agrees with that.

A central figure in the UBS case Wednesday slammed the CRA for failing to take tax evasion seriously.

Steven Kohn, the lawyer for Bradley Birkenfeld, a key whistleblower in the UBS case, said the Canadian government needs to put in place laws to protect people who come forward with information about tax evasion and reward those who help the government collect revenue that is owed to it.

“The first issue is, does the Canadian government really want to stop tax evasion, and if they want to stop it we now know the steps that have to be taken to do that?” said Mr. Kohn. “Any government that is not instituting effective whistleblower programs is really turning their back on most effective detection mechanism for fraud.

“Canada does not have good whistleblower protection,” said Mr. Kohn. “It’s kind of remarkable that they’re lagging behind [so many other countries.]”

jgreenwood@nationalpost.com

Read more: http://www.financialpost.com/story.html?id=2295700#ixzz0Ydn0JNRd
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December 2, 2009 by Dan White.

End of year tax reminders

Couple of Tips

The Home Renovation Tax Credit-Remember the feds are basically giving anyone who completes home renovations a 13.5% tax credit on the first $10,000 in expenses as long as they are completed by the end of January 2010. Virtually any true renovation expense is eligible, so long as the the expense is incurred before February 1, 2010.

Purchasing Business Assets- If you are thinking about purchasing office equipment or furniture as a small business owner, if you do it prior to the year end, you will be eligible to take advantage of the depreciation one year earlier.

This is the time to buy Computer equipment as you will be eligible to get a full 100% write-off for both Federal and Quebec purposes. This 100% deduction program actually expires at the end of January 2010, but why not write off the full expense now and reduce your 2009 taxes instead of waiting a full additional year.

If you want more information on this topic, please email danwhite@danwhite.ca

Dan White

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December 2, 2009 by Dan White.

 This Bloomberg.com article reinforces the point I am making about swiss banking dangers in respect to doing a voluntary disclosure.

I am bugged over this latest round of CRA propaganda because it is not honest. Can’t we at least expect the Minister of Revenue for Canada to be honest with us?

Why not just be truthful and say, “We are going to do everything we can to nail every ass in Canada for every cent we can get, starting with offshore banking.” Instead he implies  that UBS is going to turn over the names of Canadians who bank in Switzerland.

I am not saying two wrongs make a right, but I am saying it is wrong to mislead Canadians for any reason.

If you read between the lines in what Revenue Minister Jean-Pierre Blackburn says; you will see the following.

Likely if names are released, it will be for amounts over a million dollars. (A swiss frank is worth slightly more than a Canadian dollar).

UBS has refused to turn over names to Canada. Canada is “threatening” that it will sue….. I guess if they actually do launch an action, it could be more believable, that names would be turned over, but I doubt it.

If 88 Canadians who banked in Switzerland came forward and have paid 14.3 million in taxes, that would be an average of $162,500 each. That is quite short of the million threshold that applies is the USA issue.  How many of those 88 were over the one million threshold?

But the most imporant question of all is. “Did those who did the Voluntary Disclosures and up paying less tax than if they had come clean without the disclosure?” What are the real numbers. What is the story behind the aftershocks.?

I have seen in first hand. A voluntary disclosure is often not the way to go.

If you have offshore wealth, be sure to talk to someone who is not selling the Voluntary Disclosure Program, to find out if it really is the right thing for you to do or if it is absolutely the wrong thing to do.

To learn more, go to www.tax-audit-solutions.com and www.danwhite.ca

If you have a serious tax issue, contact me dw@911taxes.com

Dan White

________

Here is the article by Alexandre Deslongchamps

Canada Has Tax Disclosures From 88 UBS Clients, Blackburn Says
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Dec. 2 (Bloomberg) — Eighty-eight Canadian clients of UBS AG have contacted the country’s revenue agency to voluntarily disclose income they previously failed to report, Revenue Minister Jean-Pierre Blackburn said today.

Forty-one of those customers have reached settlements with the Canadian government, reporting C$15 million ($14.3 million) in previously undisclosed income, Blackburn said in an interview today. He didn’t say how much revenue the federal government will recover from the tax adjustments.

Canada has been trying for several months to recoup tax losses caused by citizens who hid assets in UBS accounts. UBS, Switzerland’s largest bank, said in August that it will divulge information on 4,450 accounts to settle a U.S. lawsuit that sought names of clients suspected of evading taxes.

Blackburn said the government is “very firm on this; we want the list of clients and we hope that UBS fully collaborates.” He added that the government will go to court if the discussions don’t yield “tangible results.”

Switzerland said last month it will turn over details of UBS AG accounts held by U.S. residents who had more than 1 million Swiss francs ($1 million) in undeclared assets to the U.S. Internal Revenue Service.

To contact the reporter on this story: Alexandre Deslongchamps in Ottawa at adeslongcham@bloomberg.net
Last Updated: December 2, 2009 10:42 EST

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December 2, 2009 by Dan White.

Taking losses on rental property is not always a good idea. There is a lot to think about when you start using losses as a plan to reduce your taxes.

To learn more about proper records and what happens when you are audited go to

 www.tax-audit-solutions.com

and

www.danwhite.ca

Here is a good article from Andy Wong.

Andy Wong
Guest columnist
Monday, November 30, 2009

Previous columns

The taxman gets jumpy and may sniff around if you deduct losses from a rental property. Here is a reason why your losses may attract some unwanted attention.

Losses from a rental operation can be applied against other income such as wages. In essence, your rental loss is a tax deduction that nets you a refund and the taxman doesn’t like to hand out refunds unless there is a legitimate reason.

To be fair, the Canada Revenue Agency isn’t out to disallow all rental losses, per se. Rather the agency tries to distinguish between deductible losses from real rental operations and non-deductible losses where the operation involves a strong personal element. For instance, the tax courts have made it quite clear the CRA cannot disallow rental losses from legitimate rental operation. The key considerations are: Why did you buy and rent the property?

Was it a bona fide commercial activity, i.e., to make money, or was it a personal endeavor? If it was a commercial activity, the train stops there and the losses should be deductible.

The tax courts have also agreed losses from rental operations that involve a personal element are non-deductible if the operation isn’t conducted in a business-like manner. And what do ‘personal element’ and ‘business-like manner’ mean?

Say you owned a house with two bedrooms; your parent lives in one and while living in the same house, you rented the other bedroom to your girlfriend. Consequently you claimed rental losses from deducting a percentage of the house expenses against the rented bedroom. Is there a personal element involved? If yes, was the rental operation conducted in a business-like manner? If no, the rental losses are denied.

In Slagado versus the Tax Court of Canada, Nov. 5, 2008, involving the above facts, the judge quickly concluded there was a clear personal element because the taxpayer had rented out his bedroom to his girlfriend and they shared its use. Was the rental conducted in a business-like manner?

The taxpayer had charged annual rent of $1,950 for 2003 and 2004 and claimed rental losses of $5,827 and $3,426 for those years. It turned out his girlfriend didn’t even live in that property during 2003. The judge concluded there wasn’t a business-like arrangement because rent was charged to a non-existent tenant.

The above case is a reckless example of an illegitimate rental operation. The case of Landriault & Bercier versus the Tax Court of Canada, July 29, 2009, is more typical of rental losses that fail the smell test.

The taxpayers, a married couple, lived on the lower floor and rented the upper floor to their son at less than fair market value. They claimed rental losses of $7,523 and $4,836 for 2003 and 2004.

The judge concluded there was a personal element because the tenant was their son. Since the rent was below fair market value and the couple could not expect to make a profit at that rent level, there was no evidence the rental activities were carried out in a business-like manner.

He concluded the operation was a family arrangement to charge minimal rent to help defray the operating costs of the property and he denied their losses.

Andy Wong, CGA, CFP, is a tax consultant at MacKay LLP, Chartered Accountants, in Yellowknife. He can be reached at: andrewwong@yel.mackayllp.ca

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December 2, 2009 by Dan White.

If you are being audited; Read This First!
Canada Revenue Agency (CRA) has one objective. Their sole reason for existing is to collect more and more money from Canadians. You are up against a well-oiled machine that is out to get as much booty from you as they possibly can. Don’t think for one second that there will be any kindness or overlooking of things when it comes to audits and collections.

To think that you are dealing with an agency that is set up for any other purpose than to collect revenue in Canada is not only naive, but it is missing the point that CRA’s mandate is to get as much money as they can.

CRA has risen to a new level of sophistication by way of technology. Data mining, snitch lines fed by disgruntled employees and angry X spouses have resulted in a never before numbers of audits.

CRA treats the collection of revenue as serious business, and if you don’t also treat it as serious business, your financial head is on the chopping block. Your savings and assets will be severed from your ownership by a well-orchestrated swing of the tax man’s axe.

There are so many audits going on by the now over seven thousand auditors in Canada, that CRA is six months behind in their case work. That does not mean that they will not get to it, what it does mean is that they will hire more auditors.

And just where are those auditors going to come from? Auditors already trained in the art of extraction of money? If you guessed the BC and Ontario provincial sales tax auditors, you are right. Good by to the PST auditors and Hello HST auditors. Thousands to trained hit men will join the ranks of CRA.

When the new auditors join the ranks of CRA, then the work will be all laid out for the new army of auditors who will speed up the audits.

If you have received that phone call or the letters from CRA telling you that you are going to be audited, then you need to get help before you talk to them.

Call us now at 1-905-668-4816 and tell the operator that this is a tax emergency.

If it is late at night, and you cannot sleep because of the stress this is causing you, and you just found us on the internet, then email us at info@tax-audit-solutions.com and use the word “EMERENCY” in the subject line. If you have just sent that email, you will hear from us first thing in the morning.

If you want to read on for more valuable insight into the workings of our tax regime, then read on;

You may not know that although Canada Revenue Agency is officially part of the
Government of Canada, since December, 2003, CRA has acted as an independent
agency working for the federal government and most of the provinces.
CRA administers most individual and corporate income taxes in Canada. It also
administers the Goods and Services Tax (GST) in all provinces except Quebec,
where Revenu Quebec administers both the QST and GST. In Nova Scotia, New
Brunswick and Newfoundland & Labrador, the GST has been replaced with the
Harmonized Sales Tax (HST) which is administered by CRA. On March 26, 2009, the
Government of Ontario proposed that the Ontario Retail Sales Tax be harmonized
with the GST on July 1, 2010. Although no announcement has been made, it is
likely this harmonized tax will also be administered by CRA.
The introduction of HST will cost Ontario taxpayers billions of dollars over the next
decade by taxing all kinds of essential items, such as heating fuel, gasoline and
everything that is currently PST exempt. If you write your MP and promise that the
next 5 generations of your family will never vote for the party if the bill passes, you
can defeat the HST. If you think your neighbour will look after that, it will pass for
sure. If you want to reduce your future taxes, this is one easy way to do so.
Governments do not enact bills that are wildly unpopular.
CRA has two main responsibilities: to collect taxes and administer tax law. There is
even a separate court, the Tax Court of Canada, to oversee justice with respect to
tax law. Unlike other courts in Canada, at Tax Court, you are considered guilty until
proven innocent.
CRA is a business, and like any business, it has to watch its bottom-line very
carefully. Auditing a taxpayer is expensive and, even though CRA gets its funding
from 10% of our taxes, they won’t waste the time and money required to perform
an audit unless they feel there is a good chance of making a decent return on their
investment.
What does this mean for you? It means that CRA has already pre-determined that
auditing you is a good investment. The auditor’s mandate is to go after you
aggressively to obtain the most money possible. Fairness is not part of the
mandate - maximum profit is the name of their game. If you don’t realize this from
the outset, you are in for a very rough ride.
We know that most taxpayers don’t try to cheat the tax man — it’s too difficult and
risky. However, most taxpayers don’t save all their receipts and keep audit-proof
books.  CRA relies on those statistics to gain leverage when auditing. They’re
hoping that because you have been honest and fair in preparing your tax returns,
that you expect them to return the favour, in kind. As you will discover exploring
this site, that is not likely to happen.
No, this is a battle. CRA has already targeted you and developed a strategy for
winning. You need to recognize that and arm yourself appropriately to prevent your
financial slaughter.
For more information go to www.tax-audit-solutions.com or www.danwhite.ca

Dan White

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December 2, 2009 by Dan White.

I do not promote tax evasion, neither offshore or onshore. But for Canadians to go into a Tax Amnesty a.k.a. Voluntary Disclosure, thinking that coming clean by way of a Voluntary Disclosure, is always the best way to go is foolhardy.

So far 90 Canadians have lined up for slaughter. They knowingly committed tax evasion, they lived with it. Now out of fear that they may get caught, come willingly into the spiders webb.

I am not saying that they should not come clean. I am saying that there may be better ways to sleep at night.

Simply Stated. CRA is not having any luck getting the records from the United Bank of Switzerland.

To learn more about voluntary disclosure risks go to www.tax-audit-solutions.com  or www.danwhite.ca

Dan White

_______

Canada says could sue UBS over list of clients
Wed Dec 2, 2009 4:19pm EST

* Canada won’t say when it would start suing UBS

* 90 UBS clients have voluntarily revealed accounts

OTTAWA, Dec 2 (Reuters) - Canada, which is trying to clamp down on tax evasion, is prepared to take Swiss bank UBS (UBSN.VX) (UBS.N) to court if necessary to compel it to hand over details of Canadians who might be account holders, a government minister said on Wednesday.

Ottawa has been pressing UBS since early September for the names, but has had no success.

National Revenue Minister Jean-Pierre Blackburn said 90 people have voluntarily disclosed their UBS accounts to Ottawa. The government has reached deals with 44 of them, raising an extra C$15.3 million ($14.6 million) in tax revenue in the process.

“We are still discussing with UBS authorities to try to obtain that list of Canadians who are on their list, who have (accounts in) tax havens abroad,” he told reporters.

“It’s not easy. If we realize that it won’t be possible to obtain it, if they just try to obtain time, we will go (to) court to obtain this list.”

Blackburn did not say at what point the government would end the talks with UBS and go to court.

Earlier this year a high-profile U.S. lawsuit against UBS AG prompted the bank to agree to promise to reveal the names of 4,450 client accounts held by Americans.

Offshore private banking involves managing the wealth of rich clients from a foreign location. Some have exploited the system to avoid paying taxes, especially if transactions are carried out in traditional banking secrecy strongholds.

Last month U.S. officials said some 14,700 rich Americans, worried about a crackdown on offshore tax cheats, had turned themselves in under a government amnesty program.

($1=$1.05 Canadian) (Reporting by David Ljunggren; editing by Peter Galloway) ((david.ljunggren@reuters.com; +1 613 235 6745; Reuters Messaging: david.ljunggren.reuters.com@reuters.net))

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