June 29, 2010 by Dan White.

When your tax debt is turned over to CRA Collections Department, that is when your problems really begin.

When CRA turns over a file to collections, that is when complete unreasonableness begins.

The qualifications to be a CRA “Collections Officer” are very little. You will not likely be dealing with someone who is knowledgeable about small business.

The Collections officer will likely see you as a bad person who deserves no forgiveness for anything and will pull no stops at collecting the tax dept.

At this stage there is very little reasoning that can be done and you can expect to suffer some very unpleasant results, such as; wage garnishees, liens on your home, grabbing rent payments due to you, calling your work, issuing a search and seizure, etc.

In Vancouver BC we have even seen the collections officer doing a tag team attack on the taxpayer. The two of them were a couple of underhanded thugs that we dealt with and as a result of a declaration of war, they had to get reasonable.

We had a similar situation recently in Edmonton Alberta TSO, where they were about to put a trucking company out of business. In this case it was not the bailiff and the Collections officer. It was a little tart who personally signed a Requirement to pay issued at the taxpayer’s bank. She had no sense and no integrity. However when the Minister of Revenue’s office called things took a quick change for the better.

CRA collections likes to say that “There are no restrictions under the Income Tax Act (ITA) or the Excise Tax Act (ETA… handles GST and HST). That is a bald faced misrepresentation of the truth. There are a ton of restrictions.

For starters on the issue of no restrictions under the ITA and the ETA, nowhere in either act does it state that “CRA Collections Officers can do whatever they want in order to collect tax debts. Nowhere does it say that CRA is above the laws of this land. There are many more laws than just the ETA and the ITA. One thing CRA continually over looks is common law. Common Law dictates that when an agency prints a Taxpayer’s Bill of rights, it is the law that CRA follow what they have printed.

A taxpayer can fight them on their own, but that certainly is a second best choice to hiring a seasoned Tax Representative.

When CRA Collections starts they pretty much ignore every good principle and policy they have. Collections treats the collection of tax as a free for all where anything goes. They are usually shocked to know that they have to follow the law. Often a call from somewhere above in CRA brings them round to realty.
A taxpayer can fight them on their own, but that certainly is a second best choice. What is required in fighting collections is an understanding that you are going to have to play hardball and expect to be fought at every corner. Expect to be treated badly and to be told that they can do whatever they want. Expect that they will quote sections of the ITA and the ETA as if the mere quoting of the act will seize your home and take your first born.
We know from locking horns it is a big fight and it is not even our assets they are after.

We start by working our way up the line. We start gathering names and contact info. We find out who the team leader is, who the team leader’s manager is, who the manager is, who the Assistant Director is and who the Director is.

We very quickly escalate things. Every day we attack. We file service complaints. (See complaints section of this web site.) We fax and follow up with registered mail. We mail everyone on the list including the Minister of Revenue and the Commissioner of CRA.

We outline where the Agency is breaking laws, violating the charter, the constitution, privacy rights, overstepping authority, where they ought to know better, where they are willfully blind, where they are grossly negligent, where they are biased, where they violate criminal law, the collections act, The ETA the ITA and civil law, etc.

We can fire more legal issues at them then they know how to deal with.

We do press releases.

We advise them that the Society of Professional Tax Representatives is going to be investigating this matter. (See our website for the Society’s constitution.)

We hound them on the phone.

As we build the pressure, things start melting down.

By the time the Minister’s office is on the phone calling the Director…. Things start to getting very hot at the TSO (Tax Service Office. It often takes going all the way to the Minister to make them bend.

The fight is worth the battle, but it is not an easy one.

We don’t bother with the Ombudsman as he only investigates 20% of the cases, takes too long and has no legal authority over CRA. He can only make suggestions.

I will be adding more info on this subject to the CRA Collections area of the web site. www.taxauditsolutions.ca So stay tuned.

More to follow….

Dan

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June 21, 2010 by Dan White.

The Following article is posted at www.thestar.com as listed as The Canadian Press.
CRA Employees are caught running amok. More bad stuff from CRA. It is time for them to clean up their acts.

I don’t have the background proof in my hands, but it will not surprise me to find out that it is all true. I can state that a friend of mine who used to work for CRA; commented on the article as follows:

“We saw this all the time at TSO’s. It was Standard Operating Procedures. Also, I found people faxing, emailing and calling long distance family members and businesses (i.e. in India) planning business ventures and weddings. No Big Deal.

Scary stuff but the Fight must continue.

Thomas Jefferson said, “The Price of Freedom is Eternal Vigilance.”

Having written the above, I can tell you from my daily battle for clients against CRA… none of this surprises me.

To learn more about CRA audits and the tax problems, go to www.taxauditsolutions.ca

Dan White

_______

Dean Beeby

The Canadian Press

OTTAWA—Dozens of workers at Canada’s tax agency have been caught snooping on their ex-spouses, mothers-in-law, creditors and others by reading confidential tax files.

Internal reports at the Canada Revenue Agency show that rogue employees are improperly reviewing the private financial affairs of taxpayers without their knowledge.

And some are using agency computers to give favoured treatment to colleagues, friends, family — and themselves.

In one egregious breach last October, a woman accessed 37,500 emails and 776 documents containing confidential financial information about ordinary Canadians. She downloaded the files onto 17 compact discs for her personal use, inexplicably helped by agency technicians.

Documents outlining the forbidden invasions into private tax data were obtained by The Canadian Press under the Access to Information Act.

In one case, a worker secretly operated a business on the side with her spouse, and between 2004 and 2009 “accessed the accounts of two creditors and the spouse of one of those creditors.”

Another worker was found to have inspected his spouse’s tax information 69 times without permission.

A woman in one unidentified office poked into the agency’s data looking for confidential information on colleagues, friends and family — apparently to give them a break on their taxes.

“The employee made unauthorized access to the tax information of three colleagues and to the tax information of a colleague’s daughter, spouse and mother,” says one report.

“She accessed her own tax information and the tax information (of) 13 relatives…. She provided preferential treatment to colleagues, relatives and acquaintances.”

Agency gumshoes then stumbled on a secret cell of snoopers in the same location.

“The investigation also determined that 13 other employees of the same office made unauthorized accesses to taxpayer information. Of the 13 employees, 10 provided preferential treatment to taxpayers, five accessed their own tax information, four received preferential treatment …”

Another worker peeked at secret agency information about two companies she operated on the side — while those firms were undergoing tax audits.

“In addition, the employee made extensive unauthorized accesses to the taxpayer information of friends and family members and hundreds of other individuals.”

Yet another investigation found an employee peering into the electronic tax files of two of her spouse’s business partners, though the motive is not specified.

The documents show that ex-spouses are sometimes targeted, for reasons not made clear in the heavily censored material from September and October last year. Family members were also a favoured target.

Some workers who were caught claimed they were simply helping relatives file their income-tax forms.

But one worker admitted using the CRA computer system and confidential tax information to issue himself a false charitable donation receipt for $3,000, thus reducing his income-tax payable.

Agency records for 2008-2009 show there were 29 cases in which workers were caught accessing taxpayer records without authorization, about the annual average for the last five years. And there were a dozen instances in 2008-2009 in which tax records were improperly disclosed to third parties.

All information about disciplinary measures taken against staff who broke the rules is censored in the released documents. But in several cases, the agency appeared to be lenient with long-term employees.

“The employee admitted that she accessed the taxpayer information belonging to a former employer, her relatives including her mother, her father, her sister and her brother, as well as the information belonging to her former spouse,” says one report.

In deciding on discipline, “management took into consideration the employee’s years of service, her good employment record and her co-operation with the investigation.”

A spokesman for the agency said the number of breaches is relatively small, given that there are more than 40,000 employees.

“While the number of unauthorized access incidents is not large, the agency consistently continues to review its activities to enhance … prevention, detection and deterrence,” Noel Carisse said in an email response to questions.

Carisse said taxpayers are not always informed when workers improperly access files because the breach may be judged too minor. But taxpayers whose information is improperly disclosed to third parties are almost always alerted by telephone or mail.

“The (CRA) assessment will almost always lead to the conclusion that injury to the taxpayer is likely, or has already occurred,” he said, referring to disclosures.

Carisse did not provide information on the numbers of employees suspended, fired or criminally charged for such breaches, but said the agency has a “strict and enforced Code of Ethics and Conduct.”

“While any unauthorized access is unacceptable, the agency believes that the current numbers indicate that the agency is doing a good job protecting taxpayer information.”

He declined to provide any further information on the worker who downloaded 37,500 emails and 776 documents, saying only that the investigation continues.

There have been previous reports of isolated security breaches by insiders at the tax agency.

CTV News reported last year, for example, that a tax agency worker was found to be leaking confidential information to a violent gang in British Columbia. The worker was suspended months after the agency was first alerted to the problem through a police wiretap.

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June 18, 2010 by Dan White.

This is a great article on understanding how to defend yourself against penalties and interests over an innocent mistake.

If you need help with your penalties and interest tax problems, go to www.taxauditsolutions.ca for more information.

Thanks

Dan White

Tax Court Suggests CRA Be More Responsible in Evaluating Diligence Defenses
Print Version
9/1/2009
Bill Maclagan & Luke Mlynarczyk

The recent decision in Home Depot of Canada Inc. v. Her Majesty the Queen dealt with the common law defence of due diligence, as opposed to one of the statutory defences available to directors under subsection 323(3) of the Excise Tax Act (the ETA) or subsection 227.1(3) of the Income Tax Act. It serves to demonstrate the function of the common law due diligence defence in connection with strict liability administrative penalties and suggests that the Canada Revenue Agency (CRA) should apply commercial common sense before dismissing a taxpayer’s defence of due diligence.
FACTS

Home Depot was assessed late filing penalties pursuant to subsection 280(1) of the ETA. As part of its retail business in Canada, Home Depot collected and remitted GST as required by the ETA. Since 2005, it had contracted out its GST remitting and reporting obligations to Deloitte Tax LLP (Deloitte Tax), the largest North American provider of sales tax compliance services. Home Depot had remitted millions of dollars of GST each year, and with two exceptions, it made all its payments on time. Due to a clerical error, the two monthly GST returns and the accompanying remittances were not received on time by the CRA because Deloitte Tax had sent them to the wrong address. Once the errors were realized, Home Depot took immediate steps to re-file those returns and pay all outstanding amounts including interest. In respect of these errors, the CRA imposed late filing penalties in the amounts of C$77,097.76 and C$326,223.74. Home Depot appealed the late filing penalties on the basis that it exercised due diligence in attempting to meet its obligations under the ETA.

COMMON LAW DEFENCE OF DUE DILIGENCE AVAILABLE WHERE THERE HAS BEEN AN ERROR
The parties agreed that Home Depot could not succeed in a due diligence defence merely because it hired a third party to perform its GST obligations, and therefore, the actions of Deloitte Tax were relevant in evaluating the due diligence claim. The Minister took the position that the due diligence defence was only available in very narrow and restrictive circumstances and was not available where a taxpayer collected GST from customers but failed to remit the correct amount by the due date. The Honourable Justice Campbell Miller rejected the Minister’s position. Miller J., relied on the Federal Court of Appeal decision of Corporation de l’Ecole Polytechnique v. Canada, where the court stated “that there is no bar to the defence argument of due diligence, which a person may rely on against charges involving strict liability, being put forward in opposition to administrative penalties … due diligence excuses either a reasonable error of fact, or the taking of reasonable precautions to comply with the [Excise Tax] Act.”

The Minister then took the position that “in considering the question of what reasonable precautions were taken, the issue must be narrowed to ask [whether] reasonable precautions [were] taken to ensure the remittance was mailed or delivered to the correct address.” Miller J., took a broader approach to addressing whether Deloitte Tax, as agent for Home Depot, took reasonable precautions to properly remit GST in accordance with section 280 of the ETA. Specifically, Miller J., decided that Deloitte Tax’s overall compliance system should be reviewed and not just the specific precautions in place to make sure that remittances were properly addressed and mailed. In assessing the overall system, Miller J., found Deloitte Tax to be “a well-oiled sales tax remitting machine”. The failure to properly deliver the November and January remittances was due to simple human error.

Miller J., noted that it is easy to be critical of behaviour after an error has been committed and that one can always find something else a taxpayer might have done. Miller J., stated however, “that is not the test. The test is whether what the taxpayer in fact did was sufficient reasonable precaution – not that the taxpayer did not hold the hand of the employee throughout every single task no matter how menial.”

Finding in favour of Home Depot, Miller J., concluded that even if there were some safeguards missing at the mailing stage of the system, taken cumulatively, they would not outweigh the overall care and attention of Deloitte Tax in fulfilling its obligation to Home Depot to file returns and remittances on a timely basis.

AUTOMATIC PENALTIES SHOULD NOT BE APPLIED IN ALL CIRCUMSTANCES
The most interesting part of this case is the obiter dictum (the observation of the court which does not form part of the official reasons for the decision in the case). Miller J., was of the view that the case should never have gone to trial. He acknowledged that the penalty under subsection 280(1) of the ETA applies automatically when GST is remitted late. However, he went on to state that “a step back for a balanced look by a CRA official exercising a good dose of commercial common sense should not have resulted in [a] relentless pursuit of a half-million dollar penalty.” He made this statement after noting Home Depot’s history and the positive efforts it made to comply with its GST obligations. These comments provide a clear statement to CRA that it should be more reasonable in its application of administrative penalties where otherwise diligent and compliant taxpayers happen to make the occasional innocent mistake.

COMMENTS
This case comes on the heels of two other recent Tax Court of Canada cases which were decided under the informal procedure process. These cases found that the automatic penalties which applied, under section 163 of the Income Tax Act, could be avoided where the taxpayer exercised due diligence.

While, historically, the CRA has taken the position that penalties should be applied automatically and it is up to the taxpayer to apply under the taxpayer relief (fairness) provisions for a waiver or cancellation of the penalties, the taxpayer relief provisions do not specifically allow for the defence of due diligence and therefore, they may not be applied on that basis.

The interesting question for the future will be to see whether such positive statements by the courts will be enough to cause CRA to accept due diligence defences (where the taxpayer relief provisions might not apply) before proceeding through litigation.

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June 16, 2010 by Dan White.

Rental Expenses, paying your children.

It is clear that when you are paying your children, you need to have good records for what you paid for. This is not any different than any other discretionary business expense. You have to have proof of payment and sufficient details to prove that you received real value for that payment.

If your bookkeeping system does not catch this important information at data entry time, you may lose your deduction. You can hire your kids but the expenses have to be real and reasonable. In the following case the judge appeared a bit biased in only allowing $500, but the taxpayer has to accept responsibility of keeping good records. Audit Ready Books avoids these issues.

In a recent case, Dilys Massicotte vs. The Queen, Nov. 27, 2009, the taxpayer claimed a certain rental expense.
The expense is question were amounts paid to the taxpayer’s sons; aged twelve and fourteen to perform maintenance and cleanup work at her rental properties.

The taxpayer paid $7,500 to each of her sons per year. The total amount of $15,000 exceeded her annual gross rent. The rental loss for those two years also exceeded $15,000. The CRA disallowed the $15,000 expense for those two years. Naturally as they don’t like the idea of paying your family.

The judge acknowledged the taxpayer had rental business problems. The city had issued infraction notices regarding the property’s poor upkeep and non-removal of snow from the sidewalks. A tenant was evicted in 2004 and left her possessions behind. Removing her contents required multiple trips to the dump. The eviction’s aftermath also required extensive cleaning, repairing and refinishing of the floors.

The taxpayer paid her sons $12 per hour during those two years. The judge noted that amounted to 13 hours of work every weekend per child. In reality, the working weekend’s hours had to be longer than 13 hours after discounting certain non-work weekends due to birthdays, special occasions and hockey practices. The children did not work during the weekdays.

The rental property was situated about 30 to 35 km from the taxpayer’s home which would have required the taxpayer to drive to the property. The taxpayer claimed this travel time as part of the working hours for the kids.

The judge felt that the $12 per hour rate was on the high side and wondered if the paid travel time was reasonable for local work. In the end, he ruled the taxpayer did not provide him with sufficient evidence to show how each child could have worked more than 13 hours per weekend during those two years.

He acknowledged the children did provide valuable services and allowed a flat deduction of $500 per child for each of those two years.
The bottom line here is that if you don’t know how to keep audit ready books, you better start learning. To find out more go to www.taxauditsolutions.ca

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June 11, 2010 by Dan White.

CRA Audits run wild in Canada and they are no random event.

Audits are cold calculating attacks on the Mom and Pop businesses across this land. Alberta, BC and Ontario being the top 3 audit hot spots.

Audits are at an all time high. CRA through data mining, snitch lines, press releases, more staff and targeted audit campaigns is creating a plethora of tax problems for small businesses in Canada. Tax problems can sink companies and CRA is usually ruthless in their approach to collecting taxes.

I have been saying that audits are not random for years and if you think logically about it, the idea of a random audit evaporates in to a cold hard reality of tax problems.  William V. Baker, commissioner and chief executive of the Canada Revenue Agency, stated; “There are no random audits,” “There’s always a reason.” CRA does not audit randomly with no reason. It just does not happen.

I can tell you the number one reason for getting audited is because CRA wants your money. The number one cause of audits is a poorly done set of books that result in a poorly done tax return. Garbage in is garbage out.

If you don’t want an audit, don’t cause one. Keep audit ready books. To prevent a financial disaster from hitting you, read more about audit ready bookkeeping, CRA behavior and about CRA tax audit problems at www.taxauditsolutions.ca

More about audits;

If your tax return is selected for audit, the CRA has identified some aspect of your return, be it a deduction claimed or an industry that it is focusing on. Now CRA is looking for a reason to audit… and you likely were computer flagged as a good tax problem prospect.

So once the audit begins, the audit being a cat and mouse game. You become the mouse… or maybe it is the cat versus rat in the hat game… or maybe it is the snake and the mongoose in a life or death battle… whatever tax problem game you are in… you better realize that CRA is not going to be kind nor are they going to be fair. You may think that you have nothing to hide. Ha!!! what is fair, does not matter, you may think you have nothing to hide, but unless you are the mongoose, you are going to pay with your financial life. Just as in the game of snake and Mongoose, your audit has to be a process of being careful or you could pay dearly.

In the cat and the rodents game, CRA will intimidate and go after every nickle they possibly can. If they know you will figuratively bit off the head of the serpent, they will treat you with respect and only go only for what is provably their share. This game can not be played by the average business owner in Canada.

Being that the businesses of this land do not keep audit ready books, CRA exploits this to a point where taxpayers just pay the juice to get rid of the tax problem that is in their face.

The audits are an incredibly stressful experience for people who do not realize how much they don’t know about what can go wrong in an audit. At the end of the audit, then they know what can go wrong and then it is much harder to fix things. Harder but not impossible. CRA will stonewall…. you just have to know how to smash stone walls.

Folding when you are right, is foolish because you just set yourself up as a good paying client of the tax man.

Should you disagree with the CRA’s findings, you have the right to object to your assessment, launch an appeal and, ultimately, have your day in court.

Filing a Notice of Objection is the first formal stage of disagreeing with your assessment if you fail to resolve your differences through informal discussions with your local tax services office.

The Notice of Objection must be in writing and must clearly set out the reasons why you’re objecting. The benefit of a formal objection is that the CRA will generally suspend any collection procedures they may have started until the appeal is resolved. This will depend on whether they have just cause to move quickly to “Protect their Interests.”

Each year, the appeals branch of the CRA, which is charged with the responsibility of resolving disputes between the CRA and taxpayers, handles between 50,000 and 70,000 objections. This number will grow now that thousands of provincial auditors will move to CRA to do HST audits starting in July 2010.

92% of these objections are resolved administratively, which means you have to fight hard to keep your money.

Once the audit is over about 8% of taxpayers choose to appeal to the Tax Court of Canada.

About 1/3 of the filed appeals end up in Tax Court, which means the taxpayer folded before court in 2/3 of the cases.

The remaining balance of appeals are settled before court or withdrawn by the taxpayer.

It is a level playing field in court and the odds are good you will win if you know what you are doing. Most people do not, and they need a tax representative to solve their tax problems.

Should you lose in Tax Court, you do have the right to go to the Federal Court of Appeal — but do not count on a reversal of fortune at that level. The odds are against you. I recommend that in the majority of times, tax court is the final decision. Take your tax problems and go home.

So in summary the Mom and Pop businesses of this country are under siege by CRA. Once targeted you are either going to fight like hell or you are going to get railroaded into a big tax problem bill.

Start by learning audit ready bookkeeping and don’t talk to CRA, get a representative before the audit even happens.

Dan White
www.taxauditsolutions.ca

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