August 31, 2010 by Dan White.

Statute Barred Years
Important Information
3 Year Rule

This whole issue around statute barred years seems to confound a lot of people, including The Canada Revenue Agency.

Generally, CRA, often referred to as “The Minister” cannot reassess a taxation year after the normal reassessment period of three years has passed.

A tax year is considered as statute barred 3 full years after the date on your original notice of assessment issued from CRA, and not your reassessment dates.

Statute barred years should not be confused with the retention of records. Section 230 of the Income Tax Act requires that you retain all books and records until six years after the date the return is filed. You would need those records if a statute barred year was opened up.

Unlike Income Tax, the GST/HST is four years from the date the GST/HST Tax Returns were due to be filled.

For example: Income Tax returns are statute-barred three years after the earlier of the Notice of Assessment or a notice to you that states no taxes are payable. If you file your 2005 tax return and the Notice of Assessment is dated June 30, 2006, the government is not allowed to question your 2005 tax return after June 30, 2009.

Regarding proving “gross negligence,” as in the tax court case of Francisco v The Queen in 2003, the Tax Court of Canada found that the burden of proof shifted to the CRA on statute-barred years. In other words, if the government is going to go after a taxpayer, they need to prove their case rather than have the taxpayer defend against the CRA allegations.

In non-statute barred years, you simply have to be able to prove your income and expenses. However GAAP… (Generally accepted accounting principles) make audits a nightmare for Canadians. Very few businesses keep truly audit ready books.

There are two conditions that allow the opening of stature barred years by CRA. One is if the taxpayer foolishly signs a waiver of the time limit and the other is if the taxpayer made a misrepresentation attributable to neglect, carelessness or wilful default or fraud. One of those conditions would normally be referred to as constituting “Gross Negligence.”

The other reason would be the signing of a waiver. Taxpayers are often requested to provide a Waiver, allowing the Statute Bar period to be extended indefinitely. CRA threatens they will reassess unless the Waiver is signed. In almost every instance, they are going to reassess anyway - the Waiver just gives them more time to gather information to be used against you. The decision as to whether to provide a waiver or not should be made in consultation with your tax representative.

Note that the minister has to provide you with the proper prescribed form in order for you to sign off on your rights of preventing an audit of statute barred years. A good general rule is go get solid professional advice before signing any CRA forms.

Waivers are open-ended and remain in effect until the Taxpayer revokes it in writing. There is a notation on the top of the Waiver provided by CRA, that CRA will not accept waivers if you try to write in a time limit. They give the Agency a great advantage by allowing them as long as they want to find new reasons to reassess you. If you have already signed and returned a Waiver, you should consider sending in a Revocation of Waiver, which will take effect 6 months from the date you deliver it to CRA and reestablishes the years as statute barred. If you are doing a revoking, make sure you use the prescribed form as required by the income tax act.

If one of those two aforementioned conditions applies, the Minister could reassess the taxation year at any time after the normal reassessment period, but only in respect of the particular subject matter of the waiver or misrepresentation. It is a critical point of law to note that the assessment going back into statute barred years only applies to the particular subject matter.

If the Minister reassesses a taxation year after the normal reassessment period, the Minister has the onus of establishing the right to do so, by proving that the taxpayer either waived the time limit or was grossly negligent in order for the Minister to justify a late reassessment.

Proving Gross Negligence is very hard to do, so one should not roll over easily and accept gross negligence penalties from CRA. When CRA attempts to levy said penalties, one should be fight this with full vigor.

It is important to know that Gross Negligence is not just making a mistake on your tax return. Gross Negligence is much more than a simple error or omission. In this regard, any error in a return is considered to be “misrepresentation”. It is a separate question to determine whether the “misrepresentation” was merely an innocent mistake or was attributable to neglect, carelessness or wilful default or fraud.  If you had clean hands and honestly believed your tax return was correct, at the time of signing and sending the return into CRA, then there is a very slim chance that CRA could make their claim of gross negligence stick.

One needs to consider risk management when doing a loss carry back on a tax return. The normal reassessment period for a taxation year will be extended from three to six years if the taxpayer claims the benefit of a loss carry-back from a subsequent taxation year. However the access is limited to the particular subject matter and not the rest of your tax return. Keep in mind, that you may not want CRA looking at your past tax returns.

If the tax years in question are not statute barred, The Minister may at any time make an assessment, reassessment or additional assessment of tax for a taxation year, and charge; interest or penalties.

Where a taxpayer or CRA wish to open up a statute barred year for their own particular reasons, the following tax court case is critical to understand.

Chief Justice Gerald J. Rip of the Tax Court of Canada invoked Ralph Waldo Emerson when summing up a case he decided last month(Leola Purdy, Sons Ltd. v The Queen, 2009 TCC 21) – “A foolish consistency is the hobgoblin of little minds.”

The dispute, which began as a classic question of income vs. capital gains treatment, became a lot more interesting when a secondary issue arose: whether you can carry forward a loss, which was not originally reported, from a tax year that is otherwise “statute-barred.”

In 2005, the CRA reassessed Leola and found the $1.2 million capital gain in 2002 should have been reported as income since it constituted a business activity. As a result, instead of it being half taxable, it became 100% taxable.

While the judge agreed that “1998 is a lost cause” since it had already been assessed and the assessment was now statute-barred, an error made in correctly assessing the true nature of Leola’s trading activity in 1998 had an impact on the corporation’s 2002 taxation year.

Allowing the non-capital loss carry forward, the judge wrote, “Nobody is saying that a statute barred year can be reassessed. The tax the taxpayer has been assessed for the statute-barred year cannot be changed. But it’s valid and binding only for the year assessed. If an error was made in the assessment of the statute-barred year, which affects another year, the (CRA) in assessing the other year, must follow the Act and if there was an error in law in a previous year, including a statute-barred year, that error ought to be corrected.”

So all in all, what all businesses in Canada need to fully realize: You have to keep audit ready records. Failing to do so caused headaches. Our society is one where there is no pity for the entrepreneur who fails to keep good books and records. The government agencies live to feast on the bank accounts of those who would not head this advice.

For more tax information go to www.taxauditsolutions.ca

Dan White

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August 26, 2010 by Dan White.

The tax system in Canada is a way to complicated. It is so convoluted that CRA, accountants, lawyers and tax representatives do not agree on the interpretations of an act that has grown over thousands of pages and millions of words. We need changes made. I have taken on the process of introducing a simplification process.

Not only that but I am starting a petition that will give Canadians a chance to vote for change. For more see the www.taxauditsolutions.ca web site.

The following is a series of DRAFT suggestions on how the SIMPLIFIED income Tax Act (ITA) should read.

Please use the comment form at the side bottom of this page to comment and or to make suggestions.

FLAT TAX:  While a flat tax is a great idea and we already have the mechanism in place to deliver this across CANADA… by way of the HST…. it would be reasonably easy to implement this and abolish the entire Income Tax Act and the Excise Tax Act.

HOWEVER: There are a way too many vested interests in the current system. SO; the only hope is to simply … SIMPLIFY the Income Tax Act.

So the following is where we begin….

DRAFT VERSION BY DAN WHITE
PART I
INCOME TAX
DIVISION A
LIABILITY FOR TAX

ITA Simplified

Income Tax In Canada

All Canadians pay tax on their worldwide income unless they pass the defined test of nonresident status.
See residency test. Section #…………. “Residency Test.”

Tax payable by persons resident in Canada
1.    All Canadian residents are taxed on their world wide income.
2.    All financial benefits received by a tax payer are taxable income unless specifically exempt.
3.    See definition of taxable income Section #………”Taxable Income.”
4.    See list of exemptions. Section # ………. “Exemptions from Taxable Income.”

Tax payable by persons non-resident in Canada
Offshore income is taxed at the normal rate except as adjusted by a relevant tax treaty between Canada and the Offshore country.

Filing of tax returns.

All Canadians must file a tax return each fiscal year when they have a tax liability owing or when they receive a demand to file from CRA.

DIVISION B
COMPUTATION OF INCOME
Basic Rules

ITA Simplified

To learn more about how a simplified tax would work, click here or go to

http://taxauditsolutions.ca/cms/index.php/flat-tax-or-simplified-tax/

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August 24, 2010 by Dan White.

 Here is an interesting article written by Charles Rotenberg, Counsel
Doris Law Office

222 Somerset St., 2nd Floor
Ottawa, Canada Area, Ontario K1n 5r9, Canada

If you are considering tranfering property to someone related to you (an arm’s length transfer), you need to beware.

Read on…

Dan White

www.taxauditsolutions.ca

What’s Mine is Yours – Including the Tax Bill

Section 160 of the Income Tax Act is probably one of the most, if not the most, dangerous
collection tools available to the Canada Revenue Agency (CRA). If (i) a taxpayer transfers
property to his or her spouse, a minor, or anyone with whom he or she does not deal at arm’s
length; (ii) the transferee does not pay fair market value consideration for the property; and (iii)
the transferor has a tax liability for the year of transfer or any previous year, the transferee will
be liable for some or all of the outstanding tax liability.

The transferee’s liability will be the lesser of the transferor’s liability and the shortfall in the
consideration paid for the property. For example, if I owed the CRA $50,000 for 2010, and in
2011 I gave my child a property worth $20,000, for which he pays only $10,000, his liability will
be limited to the $10,000 shortfall in consideration paid for the property. If my tax liability had
been only $7,000, his liability cannot be more than that.

The transferee’s liability does not depend upon knowledge or intention. He may have no idea
that I owe taxes. For that matter, I may have no idea. If I transfer a property to my son today, and
three years from now CRA assesses me in respect of 2010 and establishes that there was a
liability outstanding, Section 160 will fix a joint and several liability on my son, even though the
transfer was in good faith and, to our knowledge, there was no tax liability at the time. The tax
liability will include any income or capital gain triggered by the disposition of the property.

There is case law to support a Section 160 assessment against the recipient of a dividend from a
non-arm’s length company, if the company had outstanding tax liabilities. For those inactive
shareholders receiving dividends from family companies, this can be a major concern.

There is also authority for assessing the beneficiaries of an estate who receive a bequest, if the
deceased had tax liabilities outstanding.

In a somewhat more rational vein, the Tax Court, in the 1998 decision of Michaud, found that
payments made by a tax debtor on a mortgage on the family home, even though the home was in
the wife’s name, did not constitute a transfer for no consideration. At the conclusion of the
judgment, Judge Lamarre Proulx stated:

“when the evidence discloses that the payment on the hypothec was made in performing the
legal obligation to provide for the family’s requirements that it was made for valuable
consideration within the meaning of s. 160(1) of the Act.”

The Courts have not been unanimous in their acceptance of the Michaud rationale, but neither
has there been any clear rejection of this view.

Unlike normal tax liabilities which must be assessed within 3 or 4 years, there is no time limit on
Revenue’s ability to assess the transferee. The subsequent bankruptcy of the transferor, which
eliminates his or her liability, does not reduce the liability of the transferee. Payments of tax by
the transferor are applied first to other tax liabilities and do not necessarily reduce the liability of
the transferee.

The Courts have held that the transferee assessed under Section 160 is entitled to challenge the
tax assessment of the transferor. Even if the transferor would have been out of time to challenge
the assessment, since the CRA is not limited in the time to assess under Section 160, the
transferee still has the ability to challenge the assessment.

Clearly, in any contemplated transfer of property, both the transferor and the transferee must
have good advice and information.

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August 16, 2010 by Dan White.

“CRA versus the People of Canada.”
The income tax act being so convoluted, it provides a gold mine for CRA. With over two million words in the income tax act alone, not to mention the Excise Tax Act, The Information Circulars, The Interpretations, and the fact that CRA themselves can’t understand the Acts, the situation has become unmanageable and we need to introduce a program of simplification of the ITA. I will be writing on our proposal for a solution to this lunacy in a separate article.

This battle is a one sided affair where most assaulted taxpayers have to fold because they cannot afford the cost of the battle. Even though companies such as ours have managed the rough efficiencies of scale, to keep the cost to the consumer down to a manageable fee, however it is still a hunk of change for the average small business to come up with.
It is an interesting view of the battle field where CRA agents extract their toll from the toils of the people. The tax man has never been a popular entity, but one wonders how much pressure they can put on small business before there is an explosion. Some kind of tax anger uprising will happen, of that there is no doubt.

The level of intensity of this battle is escalating. The other day in a response to a Globe and Mail article on CRA activities, I read as follows; “It is said government is needed to protect person and property. That’s what I permit in my schools I provision you. What is unsaid but equally true is I will initiate force/aggression against said persons if they fail to inventory their property so I can decide what I take or they are allowed to keep. I am the Mafia with a flag and an anthem.”

Such a statement is in alignment with what taxpayers are telling me what they think and feel about our tax collections agency. Anger is at a boiling point. Blogs bombast the CRA, interest in class action suits is building. There are cases for damages in the courts, trouble is brewing in TaxLand.

I can tell you, if I were working for the CRA, I would wear a bullet proof vest between my home and my Tax Services Office. When taxpayers are on the verge of suicide, facing financial ruin, there is no telling where their emotions will go or what the results will be. Will it be anger or suicide? No one can be certain of the pending outcome.  We have seen outbreaks of violence before in other situations, where people break and shootings occur. I really hope CRA cleans up their act before something awful starts happening, and then the copy cats get the idea. You may think I am being overly dramatic, but please understand that it is me who is hearing the hostility directly from the taxpayers who are under the abuse of overzealous auditors who act like the raiders of the Dark Forces from the evil empire. here will be retribution, what exactly it looks like is anyone’s guess. What is for sure; is there is a “Tipping Point”coming.

What we read on the CRA’s web site about what an audit is or how you can expect to be treated. Reasonable treatment is certainly not what taxpayers who come to see us are experiencing. To be fair, no one comes to us who has had a good experience in an audit. So either there are no good experiences by taxpayers, or there are good experiences but we just don’t hear about them. Which of those two possibilities are true will be based on your own perceptions.

Some CRA staff are the salt of the earth, others act as if they work for the Mafia and are quite threatening. At one point when I took an auditor to task about the nastiness of the written communication, I complained and was told that they needed to be blunt for legal reasons. So I redid the letter for them to show that it could be every bit as clear, only the tone was factually neutral. My letter was much easier to digest, yet still addressed the seriousness of the matter. From my perspective, it is pointless to suggest that the taxpayer could go to jail, when that just would not be the case.

Our aggressive auditor problem has been compounded because the Conservative government added millions of dollars in performance pay for public service executives during the recession even as it pledged to slash bonuses in the face of hard times. One can only rationally assume that the increase of bonuses for CRA bureaucrats is like giving a business sales person a performance bonus, in which case the company makes more sales.

This information was provided to you the reader, as a result of Stockwell Day doing an Access to Information. This revealed that in CRA’s case the Management Tab went up, and so to did the CRA Revenue. Thus proving that pay bonuses do result in higher taxation. What does this tell you about our taxation system.

The government promised in June, 2009 to cut bonuses by 70 per cent – a target it eventually succeeded in meeting when the final numbers came in earlier this year.

However, in the technical language of the federal bureaucracy, “bonus pay” is only a small part of what many would consider to be a bonus. There is also the practice of giving an extra lump-sum payment at the end of the year based on performance. Executives in the Federal Government also qualify for extra bonuses by calling the bonuses “At Risk Pay.” These are often very lucrative bonuses and are on the rise.
While most private employers have a similar concept of at-risk pay that is often referred to as incentive pay, he said most workers still call these payouts a bonus.

“When people hear bonus, they will likely think it’s going to be anything you get that isn’t part of your salary, paid out annually,” he said. “That’s just how people think. A bonus is a bonus.”

“Clearly the government was very careful in the language they used,” said Christopher Chen, a private-sector compensation consultant at Hay Group in Toronto. “And they followed through exactly to the letter of their own definition of bonus.”

What this boils down to is that CRA is paying their way to larger tax revenue from small business in Canada. That would be fine if CRA was being reasonable in their audits. It is not our experience that audits are not usually based on the published policies and practices on the CRA web site.

Simply rewarding the tax man for collecting quantity of dollars puts the auditors in a conflict of interest situation. On one hand there is there service contract signed with CRA with their job description, but on the other hand there is pressure to bring in dollars as the number one objective. These two interests are juxtaposed to two different interests. Do the audit right or get as much booty as you can.
So the question has to be asked. “Does CRA mean what they write? Or is that just marketing to lull taxpayers in to a false sense of security in knowing that they never intentionally did anything wrong, and inadvertently believe that the CRA audit is just what the Agency web site says it is.?”

For a taxpayer to think that they have nothing to worry about is completely foolhardy. In today’s audits where the auditors are measured on the amount of money they collect, you cannot rationally be assumed that the audit is just a compliance education. An audit is an education all right, a financially very painful one indeed.

Now with the PST Auditors leaving the Provincial work force and now working for CRA, audit numbers have spiked and on top of this so too has the nastiness an unreasonableness of audits increased.

We are seeing that the ITA and ETA are not enforced equally across the country, for instance we see that the Pacific CRA Tax Services Offices (TSO) operations are the most aggressive and punitive in the country. In the case of one particularly nasty CRA auditor; a Mr. Chuck Henault, he teamed up with a bailiff to harass and intimidate a small business. Chuck likes to have conference calls with the taxpayer and the bailiff on the line and to demand money or he will close the business down. This is in spite of the fact that the taxpayer was current in his filings and payments. The balance owing was as a result of a CRA audit determining a mistake in accounting. A particularly nasty bit was forcing the taxpayer to pay bailiff fees, when there was no need for a bailiff in the first place.  In this case we had to get the Minister of Revenue involved with this case. This is an ongoing battle; at least we now have the assurance that they won’t cause the loss of 16 family’s sources of income. Not that Chuck or the Bailiff care about that at all. The bailiff an Chuck were pretty outraged by our attack on them, but they have since become a bit more respectful and a lot more careful. In this case and one other where CRA put the Directors other business out of business for lack of common sense and reason. CRA went from audit to closing the business down in no time. This is particularly unfair, unreasonable and frustrating when the business did nothing wrong. The GST owing was an error of interpretation by the auditor who later admitted the mistake. Now we are headed for tax court on this one. Civil court will follow.

CRA website promotes what an audit is, however they use enforcement and other titles to muddy the water. Enforcement supposedly is to deal with special audits, but we are seeing more and more aggressive audits under this banner. This process certainly works to intimidate, however it has little to do with a regular audit.

Investigations and enforcement is used to muddy the water allowing investigations under the guise of a CRA audit. This is not only crossing the Rubicon, but it is highly aggressive disregard for the laws of Canada. Auditors who think that there are no restrictions under the ITA or the ETA (Income Tax Act and the Excise Tax Act) are misinformed and grossly negligent in their duties to the people of Canada.

We are also experiencing auditors, who think it is ok to punish taxpayers beyond the scope of the auditors’ jobs if they are not cow towed by the auditor. We are making sure that these misguided bullies get some startling wake up actions from us. Contrary to some auditors thinking that there are no restrictions to their powers, there are in fact laws and rights in this country that they have to observe. The rule of law governs, and this often has to be brought to auditors’ attention. Tax Audit Solutions holds auditors accountable to behave within the law. Auditors are often shocked to find themselves under the lime light for abusing their power. The courts take a dim view of auditors abusing their positions of trust. CRA auditor bullying is not tolerated in the courts.

What we have here is a situation that has gone beyond reason. Because Canadians are often afraid to fight, or cannot afford the help they need to defend themselves against CRA, it presents us with an opportunity to assist others when they need the help the most.
There is a ton more information on our web site, be sure to go to www.taxauditsolutions.ca

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August 11, 2010 by Dan White.

This is an interesting article published in the Daily Gleaner by Heather McLaughlin

One has to always wonder, what is the real reason behind the scenes. The Prosecutor says the charges are staid due to economic reasons. Hmm. While that makes sense, it is not normal for CRA to deal with tax problems from a common sense approach. So I wonder; Was David Little, the pro lifer on to something? If CRA and the Courts are correct; Why would they not just throw Mr. Little in jail as an example of what happens to those who decide to fight CRA?

For more information on CRA Tax Problems, go to www.taxauditsolutions.ca

Dan White

______

Charge against pro-lifer stayed
Published Wednesday August 11th, 2010
Taxes | Prosecutor says it’s better to dedicate resources to other matters
A1
By HEATHER MCLAUGHLIN
mclaughlin.heather@dailygleaner.com

The federal attorney general has stayed an income tax charge that was laid against anti-abortion activist David T. Little in April.

Provincial court Judge Julian Dickson was set to hear Little’s plea Tuesday on a new charge against Little brought by the Canada Revenue Agency for failing to comply with a judge’s order to file income-tax returns for 2000-02.

However, the judge instead announced that he had received word that a stay had been issued by the federal government.

A stay halts the prosecution of the charge.

Little wasn’t present in court Tuesday.

In April, Little, after refusing to pay fines for previous tax charges, was ordered to serve 66 days in jail in default.

Chief provincial court Judge Leslie Jackson convicted Little in November 2007 of failing to file income-tax returns for 2000, 2001 and 2002 and fined him $3,000.

Jackson further ordered him to file his outstanding tax returns.

Keith Ward, senior counsel with the Atlantic region office of the Public Prosecution Service of Canada and the lead federal prosecutor on Little’s case, said he made the decision to stay the charge.

“It’s for reasons of economy,” Ward said from his Halifax office Tuesday.

“He was essentially going to run the same defence … He can easily manipulate the system all the way up to the Supreme Court of Canada level.”

When Little was charged for failing to file tax returns for 2000-2002, his defence was that it violated his right of freedom of religion.

During his April court appearance, Little made it clear he would mount a similar defence on the new charge of failing to comply with a judge’s order.

Ward said it was decided federal resources should be dedicated to more important matters.

Ward said it’s also apparent that Little has no taxable income of which to speak.

The 66-year-old Roman Catholic and father of eight has vowed publicly never to file another tax return as long as there’s tax-funded abortion in Canada.

With files from The Daily Gleaner staff writer Don MacPherson

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August 6, 2010 by Dan White.

Well! here we have it.

There are so many Requirements To Pay (RTP’s) in other words…. there are so many bank seizures by CRA, that the RBC or AKA has now made it easy to assist CRA in grabbing your dollars.

Take not of the scanned letter below. It shows clearly just how insidious CRA collections has become and just how willing RBC is to assist in the manner.

RBC has now set up a National Requirement To Pay Centre, and all just to assist in CRA being able to move quickly and easily to grab your money.

Isn’t this nice? We trust our banks, they just do whatever CRA wants; NO Questions Asked.

It really makes you wonder why anyone knowing that Royal Bank has a National Center to assist CRA in grabbing money would deal with them.

Let’s not even talk about that CRA does not care if they grab grocery money.

Here is the letter. Scanned and OCR’d

Also for more information on this subject, go to www.taxauditsolutions.ca

…

RBC Royal Bank CZ

xx July 2010 -
Dear SirlMadam:
Re: Requrement to Pay

By: Canada Revenue Agency
Amount: $12,012.31
Reference Number: xxxxxxxx ( Number removed to protect the privacy of the taxpayer)
(CRA) Contact Officer: Mr. S. Mailoux
Contact Phone: 1-866-406-2214 ext 6458
Requirement to Pay
Canada Revenue Agency
$13,012.41  Business Identity Number ……… xxxxx __ RTOOOI
Mr. S. Mailloux
866-406-2214 x 6458
Royal Bank of Canada
National Third Party Demands
P.O. Box 4509, Station A
Toronto, ON M5W 4K5
Our Royal Bank of Canada branch located at 200 Bay St - Main Fir, Toronto, ON, M5J 2J5 has received service of an attachment order as described above.
Please be advised that, in accordance with its legal obligation, the Bank has complied with and acted upon the  attachment to the extent necessary from available funds in your account.

If there are any further concerns please call the Contact Officer mentioned above.
Sincerely

(Dean’s signature)

Dean Gray
Assistant Manager
Third Party Demands
Our toll-free number is 1-800-582-3615. Any agent/representative will be able to assist you.
® Registered trademark of Royal Bank of Canada. RBC and Royal Bank are registered trademarks of Royal
Bank of Canada.
Rev. 12105
–
• •

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