October 28, 2010 by Dan White.

Watch Out! The CRA Wants All Your QuickBooks Files.

The CRA is rolling out a new audit program. CRA auditors will be armed with Quickbooks 2010 available to look at, and request, full Quickbooks files.

CRA has been getting agresssie about getting QuickBooks files. A recent news release from the National Association of Enrolled auditors discussed The TaxMan’s decision to issue Quickbooks 2010 to 1100 and specialty tax Auditors with the intention to request full backups of business taxpayers Quickbooks files as part of certain in-person field audits.

The CRA auditors have been bringing in a specialist who has taken a training course on how to use the software, use data files, and generate various Quickbooks reports. Nowwith the new software, CRA no longer needs the special tech guy to go into your computer.

Business taxpayers and tax accountants have reason for concern.

Information Requested by the CRA in Field Audits

Initially an CRA exam is limited in scope to certain years and certain issues. Therefore they are only allowed to request information specific to tax years and issues that are within the scope of the audit. Meaning not “Statute Barred.” By requesting Quickbooks backup files, the CRA auditor gains access to all of the taxpayer’s business information- financial records for all the years that the business has been  using Quickbooks, vendor lists, client lists, client addresses and telephone numbers, client credit card information and many other valuable and often confidential business information.

Another Problem with Giving Quickbooks Files to the CRA is that  many taxpayers aren’t very adept in using Quickbooks. For example in some cases small business owners who do in-house bookkeeping have managed to double count income. Such examples prove the need for audit ready bookkeeping. The thing to ask yourself, if you are using accounting software, why is it not audit ready?

In the absence of Audit Readiness; A good accountant who is about to have a client face an CRA field audit, will generally spend countless hours with the client’s bank statements, credit card statements, and canceled checks auditing the unlucky client’s Quickbooks file and often re-doing the audit exposed year’s bookkeeping. Hmmmmm another reason to do it right in the first place.

The idea of providing, and risking a CRA auditors unanticipated review of certain auditable, accounting records that haven’t been fully reviewed is unconscionable and highly likely to increase the risk of broadened CRA audit- especially for taxpayers with poor accounting skills.

Unfortunately, the CRA has yet to set, or disclose, any changes to the Auditors Training Manual, AKA TOMS (CRA Auditor’s Bible) dictating how this new audit weapon is to be used or requested.

Professionals are very concerned that some CRA auditors may not have the restraint to keep within the limited scope of audits when so much unnecessary additional information is being provided with Quickbooks backup files.

What is to stop a CRA agent from nonchalantly peeking at books from other financial years? What then would stop the auditor from using illegitimately obtained information to open the scope of the audit to other tax years?

This is an upcoming tax issue, and one that professional legal and accounting organizations and this author will keep a vigilant eye on.

What if the Dreaded CRA Examination Notice is Received? Call a Tax Professional!

Attorneys, Accountants and Tax Representatives are authorized to represent any taxpayer before all levels of the CRA and many provincial taxing agencies. Being “represented” means that the tax professional is a buffer between taxpaying clients and the CRA agent- after a taxpayer has hired a professional that individual or business shouldn’t ever need to directly correspond with CRA personnel.

A (good) tax professional will vigorously guard clients from additional audit exposure. These upcoming requests for Quickbooks backup files is one request that should not be graciously complied with. The CRA only has a right to request information pertinent to the tax years and issues identified in the audit notification, and a business’ full Quickbooks file provides far more information than a CRA agent needs to carry out the already planned scope of the audit.

A good professional will assert all legal remedies against requests that may lead to a broadened CRA examination. If an individual or business taxpayer hires a professional that recommends compliance with audit-exposure risky CRA agent’s request like granting access to the business’ Quickbooks backup file without putting up a major fight, that taxpayer should consider hiring a new professional.

To learn more about audit ready bookkeeping go to www.taxauditsolutions.ca

Posted in Bookkeeping and Accounting, Tax Topics | Print | No Comments »

October 28, 2010 by Dan White.

In this case, the trustee and BMO Nesbit Burns Inc. Were likely wrong in attacking proceeds of insurance as belonging to the bankrupt person.

The taxpayer, Mr. Moss,  who sells insurance, sold six life insurance policies to his mother worth 700 thousand dollars. ($700,000.00) Initially he was the beneificiary, however that was subsequently changed to his daughter.

CRA audited  Mr. and Mrs.Moss and his mother. CRA wanted 800k. Naturally Mr. Moss went bankrupt.

The mother died 3 years later.

The daugher got the insurance proceeds.

Lang Michner posted the following article in their newsletter.

To learn more about taxes and bankruptcy, go to www.taxauditsolutions.ca 

To go directly to the bankruptcy information click here.  http://taxauditsolutions.ca/cms/index.php/bankruptcy-and-insolvency/

Dan White

BANKRUPTCY & INSOLVENCY:  CHANGE OF BENEFICIARY AUTHENTICITY
Between 1993 and 1995, Mr. Moss sold six policies of life insurance to his mother, Eliza, with a total face value of $700,000.  He was the sole beneficiary on all six policies.  His mother lived with Mr. and Mrs. Moss, who were then being audited and reassessed for income tax by the Canada Revenue Agency in the amount of $800,000. Mr. Moss filed an assignment in bankruptcy in 1996.  Approximately five months before his assignment, notices of change in beneficiary were purportedly executed by Eliza, changing the beneficiary of the insurance proceeds from Mr. Moss to his daughter, Carrie.  Eliza died in August of 1999 and Carrie received payment of $700,000 in insurance proceeds.  Approximately $630,000 of these funds were eventually deposited into an account at BMO Nesbit Burns Inc. (”BMO”) in Carrie’s name. Certain trades were made that resulted in losses of $320,000.  Carrie brought an action against BMO in connection with those losses. BMO learned of Mr. Moss’s bankruptcy during discoveries and amended its statement of defence, alleging that the change in beneficiary forms were invalid.  BMO sought a declaration that the insurance proceeds were the property of Mr. Moss and should be paid to the trustee in bankruptcy for distribution to creditors.  The trustee filed a statement of claim, seeking the same relief. Mr. Moss maintained that the change in beneficiary forms were valid and that he had guided his mother’s hand when she signed them.  The issue of the ownership of the insurance proceeds was made the subject of a separate trial.  The Manitoba Court of Queen’s Bench dismissed the actions for declarations brought by the trustee and the bank.  The C.A. allowed the appeal.
Danny Moss, Carrie Moss v. Keith G. Collins Ltd, et al  (Man. C.A., April 29, 2010) (33760)

“The motion for an extension of time to serve and file the application for leave to appeal is granted.  The application for leave to appeal…is dismissed with costs.”

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October 14, 2010 by Dan White.

 We know our government is in trouble when their actions indicate they are desperate to collect but reticent to pay out. We are handling cases where CRA owes money to taxpayers, but fights to keep it.

The National Post article below supports that impression.

For more info on CRA practices, click here.

Dan White

Deadbeat government late in passing out seized wages
Liberal MP Ruby Dhalla raised the issue of missed government deadlines for passing on seized payments to creditors.

Aaron Lynett/National Post

Liberal MP Ruby Dhalla raised the issue of missed government deadlines for passing on seized payments to creditors.

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Mike De Souza, Postmedia News · Thursday, Oct. 14, 2010

OTTAWA — The federal government has seized more than $51-million in wages from its public servants over the past 4 1/2 years in response to court orders to collect unpaid debts, and child and spousal support payments from tardy employees.

But it has also been late passing along the seized payments to creditors, such as single parents, in thousands of cases, its own records show.

In fact, more than a dozen federal departments and agencies were late passing on seized payments to the courts in almost 6,400 cases. That resulted in delays of about $2.4-million in support payments or reimbursements for unpaid debts by the government.

The information surfaced after Liberal MP Ruby Dhalla raised the issue of missed deadlines by the government itself. She said she had heard several complaints from single mothers and senior citizens, in her suburban riding of Brampton-Springdale near Toronto, who were struggling to get support payments from former partners who worked in the public sector.

“You have vulnerable individuals who are essentially being taken advantage of and these are alarming statistics,” Ms. Dhalla told Postmedia News. “People are unable to pay their rent, their mortgage, their credit card bills and just basic school supplies for children.”

The documents cover the period from January 2006 to May 2010, with a breakdown from each department and agency.

Approximately 2,100 public servants have portions of their wages seized wages every year by the government, according to the documents.

Several departments or agencies — such as National Defence, the Correctional Service of Canada and the Canada Revenue Agency — each have more than 200 staff members subject to court orders that require a portion of their salaries to be seized.

Under existing legislation, the federal government is required to “garnishee” a portion of wages of an employee if it receives a court order to do so for missed child support payments, alimony or other unpaid debts from a creditor. The money must then be transferred within 15 days to a court that issues a cheque to the recipient. A department or agency could be held in contempt of court if it fails to meet this deadline.

Dhalla said she recalls one single mother who came into her office devastated after missing a monthly rent payment because she was waiting for the federal government to transfer the garnisheed wages of a former spouse who worked for the Canada Border Services Agency.

“She was in tears and she didn’t know what to do,” Ms. Dhalla said. “And because her ex-husband and the father of her children, in this particular case, was employed by the federal government, she just felt vulnerable in the sense that she didn’t have the money or the resources to be able to go up against them to get what she was owed.”

Cases of delays in federal payments or cases of employees with wages seized since 2006 could involve some of the same public servants more than once.

The Department of National Defence and Veterans Affairs topped the list in terms of delays by federal bodies in transferring seized wages to the courts for child support and alimony recipients. From 2006 to the current year, DND missed the 15-day deadline in 3,592 cases, or 17% of the time, for at total of $812,949.36 in late payments, while Veterans Affairs missed the deadline in 1,334 cases, or 38% of the time, adding up to $331,003.60.

The documents did not specify whether the DND employees involved consisted of military personnel, civilians or both.

A spokesman for the Treasury Board Secretariat of the government said it had analyzed the statistics and was not able to provide an explanation for the government’s own delays in forwarding the money once it had been seized from employees.

Health Canada was also plagued by delays in transferring seized wages, with 475 payments, or 39% of cases, in which it missed the deadlines, adding up to a total of $502,338.54 in late payments.

Some departments and agencies, in their own supplied assessments, were not able to specify the number of cases of in which they themselves suffered delays in passing along support payments from seized wages. But they did note a significant number of cases in which they seized wages since 2006.

For example, the Correctional Service of Canada documented 1,397 cases of employees with about $7.3-million in seized wages.

The Canada Border Services Agency seized $2.5-million in wages in 497 cases.

The Canada Revenue Agency seized $6.5-million in 1,364 cases involving its employees.

A spokesman for the tax-collecting agency noted that it is a large organization with more than 40,000 employees across the country, who are held to high standards of conduct and conflict of interest guidelines.

“The Canada Revenue Agency … is recognized and respected for its professional and effective administration of tax and benefit programs,” wrote the agency’s assistant director of media relations, Noel Carisse, in an email. “The CRA’s success (in its overall operations and activities) is, in large part, due to the exemplary conduct of its employees and Canadians should feel confident in the protection of their information and the fairness of the tax regime.”

Other departments — including DND, which has more than 100,000 employees including civilians and military personnel — also said that the numbers should be taken into context based on the size of the workforce. But none of the departments contacted by Postmedia News were immediately able to explain the department’s delays in transferring the garnisheed wages.

Simon Forsyth, a spokesman for Veterans Affairs Canada, said in an email that there were a limited number of employees at the department allowed to process financial information on garnishments “in order to protect employees’ privacy rights” but that its objective was to respect the payment periods defined by law.

Ms. Dhalla said the federal government should immediately address the delays and ensure people are no longer kept waiting for support payments.

“It really has a domino effect on the lives of families and on the lives of women and children,” she said. “This needs to be cleaned up.”

FACTBOXES

Justice delayed? Federal departments and agencies reporting the most delays in transferring garnisheed wages to the courts:

Department in National Defence: 3,592 cases of late payments totalling $812,949.36 (17% of reported cases).

Health Canada: 475 cases totalling $502,338.54 (39% of reported cases).

Veterans Affairs: 1,334 cases of late payments totalling $331,003.60 (38% of reported cases).

Environment Canada: 284 cases totalling $259,436.62 (15% of reported cases).

Citizenship and Immigration: 161 cases totalling $51,601.00 (11% of reported cases).

Total reported delays by government: 6,393 cases totalling $2,354,835.23 (five% of reported cases).

Some other numbers:

Total amount of wages garnisheed by federal government 2006 to 2010: $51,120,003.98 from 10,533 different cases.

Total number of reported federal employees with garnisheed wages in 2006: 2,172.

Total amount of wages garnished by the federal government in 2006: $11,218,491.80.

Total number of reported federal employees with garnisheed wages in 2007: 2,252.

Total amount of wages garnished by the federal government in 2007: $11,973,491.70.

Total number of reported federal employees with garnisheed wages in 2008: 2,026.

Total amount of wages garnished by the federal government in 2008: $11,368,293.10.

Total number of reported federal employees with garnished wages in 2009: 2,261.

Total amount of wages garnished by the federal government in 2009: $12,211,519.70.

Total number of reported federal employees with garnished wages to date in 2010: 1,842.

Total amount of wages garnished by the federal government in 2010 to date: $4,348,207.68.

Top departments for employees with seized wages between 2006 and 2010:

The Correctional Service of Canada:$7.3-million in seized wages in 1,397 cases.

Canada Revenue Agency: $6.5-million in 1,364 cases.

Department of National Defence: $4.7-million in wages in 986 cases.

Canada Border Services Agency seized $2.5-million in wages in 497 cases.

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October 12, 2010 by Dan White.

 CRA’s Pacific Tax Services Offices really like to get nasty.

Now they are attacking the travel expenses occurred by sick Canadians who need medical help. 

CRA is claiming that only the actual “travel expenses” are deductible.  I guess that means if you sleep over night at a hotel on the way, that would also not be traveling… it would be sleeping and as such not deductible. Also that a business trip would exclude destination expenses?

For heavens sake!  How ridiculous is it that this relentless attack on the pocket books of Canadians go on? and on???? Is there no limit to how far our government agency can go on?  If you check out horror stories at www.taxauditsolutions.ca   you will get a sampling of the stress Canadians are going through.

CRA counts on the fact that most Canadians are employees… however now the assault has spilled over from small business to rental incomes, medical expenses and the search for reasons to deny mothers their child tax credits.

When CRA attacks mothers and the sick … that makes CRA look like “one sick mother.!”

See files from the BC Interior News

Feds wipe out medical travel deductions

Published: October 11, 2010 7:00 AM

A recent policy change within the Canada Revenue Agency (CRA) means that costs incurred while in another town for medical reasons won’t be covered, apart from the actual cost of getting there.

That’s according to Smithers Chartered Accountant Michael Mehr, who has written a letter to local governments on the issue.

“Everyone is entitled a claim a tax credit for medical expenses, including travel,” Mehr explained. “Internally, CRA has decided that the definition of travel does not include the time you spend in the other municipality that you go to to obtain those medical services.”

For an example, someone getting in their car and going to Vancouver for a procedure will have the gas and food along the way covered in tax breaks for the trip down. But any hotel stay or food purchased while there is not covered.

“CRA will allow you to claim your travel back the day you leave but those five days you spent there they feel don’t meet the definition of the word travel because in their minds they’re suggesting you’ve reached your destination.”

For the Northwest, Mehr said it could mean a significant hit to the pocket book; across the region it can add up to tens of thousands of dollars.

“You can imagine up here there’s a fair amount of travel for medical purposes and the way the medical system, especially now, is working … it’s very difficult to go down there for a day and return,” he said.

Mehr is looking for political support: letters are being sent to every hospital board in the province, and B.C. municipalities are also being requested to provide their support.

He has sent a letter to the City of Terrace, who will be dealing with the issue in tomorrow’s council meeting.

With files from the Interior News

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October 12, 2010 by Dan White.

 CRA attacks that which they created for themselves so that CRA themselves do not have to hire workers as employees. CRA forced the temp agencies to make their contractors into corporations. Now CRA is saying the workers are employees of the temp agencies. CRA wants its cake and eat it too … and they don’t care who they hurt in the process. There is no sense of fairness.

In this case; CRA is partially correct. The test of…if you removed the corporation from the picture, would the worker stand the test of self employment.  The irony is that if you apply the test properly, you will see that CRA is the real employer. If you see through the bull… you will see that CRA’s primary purpose in hiring (LONG TERM) Temp workers is simply to save long term money by avoiding hiring staff. CRA sets the hours of work, they supervise, they train, they provide most of the tools and worker space, the workers take no risks… AND… it is really CRA who pays the workers… the fact that CRA pays the temp/staffing agency… is just a process of indirectly paying the worker via the temp/staffing agency.

What is the solution requires CRA to not have double standards, it requires them to sweep their own porches. CRA needs to stand up to the plate and get real. They need to either accept that the contractors are independent businesses or they need to use the temp/staffing agencies to source workers that CRA would then hire.  If CRA wants source deductions taken, then it is CRA who should take the source deductions not the staffing agency.

This type of behaviour of our government allows for all sorts of negative words and definitions to be supplied as colorful descriptions.

The horror stories from across Canada are building.  To read more on horror stories go to www.taxauditsolutions.ca

Read on what Katherine May of the Ottawa Citizen has to say…

Contract IT workers dangle in tax limbo

Shadow workforce not self-employed, CRA rules — but they’re not employees either

By Kathryn May, The Ottawa Citizen October 12, 2010 Comments (5)

OTTAWA — Canada Revenue Agency’s crackdown on the tax assessments of small IT businesses could cut federal departments off from thousands of workers they rely upon to run their operations.

It’s a move that could alter the landscape of Ottawa’s shadow public service, where thousands of contractors, consultants, temporary help agencies and other staffing agencies rely on government work that costs taxpayers billions of dollars a year.

The tax agency’s review is felt by IT specialists and engineers who work for government through large IT businesses, consulting firms or staffing agencies that act as middlemen.

These intermediaries have contracts with government departments to find whatever talent or staff they need and charge fees for their services.

With government and high-tech as the main employers, the capital region has one of the country’s largest concentrations of IT consultants, who typically incorporate their practices, said tax lawyer Mark Siegel.

They are the IT backbone of many departments, often working for months and years at a time.

This three-way relationship has flourished in the nation’s capital for a decade.

The government gets IT staff without having to hire them and avoids pension and benefits costs. The consultants get much higher pay and more freedom than they would as bureaucrats, and the agencies pocket fees for putting consultants and departments together.

But the tax agency’s review is upsetting that relationship, said Siegel.

Many of these consultants created corporations for their businesses, which entitle them to a number of tax advantages. The staffing agencies have also demanded the consultants be incorporated since CRA reassessed them several years ago and decided that if they did not have their own corporations, the consultants were their employees, and were entitled to EI, CPP, vacation and other payroll taxes. So, if they’re not incorporated, the agencies simply won’t work with the consultants, said Siegel.

The tax agency, however, is re-assessing these corporations as ‘personal services businesses,’ which aren’t entitled to the tax advantages they have been claiming.

Siegel said some are faced with three-year tax bills that will cost them thousands of dollars. Not only do these workers owe money to CRA, but they lose their key entrée to work if staffing agencies won’t hire them.

“These people are in a hard position because if they simply accept CRA’s assessment and disband their corporations, then they won’t get work. Because the feds are not going to hire them directly and the staffing agencies only hire corporations in these circumstances.”

Siegel is challenging CRA’s assessments for a group of IT consultants. He argues they’re being unfairly penalized for a way of doing business that thrived because of the government’s inflexible hiring practices and policies.

He argues the firms he represents have two options. They can disband their corporations and pay higher taxes, but they won’t get work.

Or they could remain as corporations to ensure they get work, but they won’t get the preferential tax rates and deductions of other small businesses. Nor are they eligible for EI, CPP or other benefits.

The Commons finance committee sided with the IT professionals, particularly because they were caught unable to get the benefits of being either a small business or an employee. In a recent report, the MPs said the Income Tax Act should be modernized to “ensure tax fairness of those small business owners who are deemed to be incorporated employees.”

MPs said these IT workers are ensnared by a 1981 provision of the act that was supposed to plug a loophole that saw employees leaving their employers but returning to work under contract to get tax advantages.

They argue this provision doesn’t apply with these incorporated IT workers, because they work through intermediaries or middlemen.

Serge Buy, a lobbyist for CABiNET, which represents the IT professional services sector, said CRA’s reassessments set a “dangerous precedent. It’s intruding on how entrepreneurs want to structure their work and could affect their livelihood.”

“These people have made a choice and CRA should not be telling them how to live their lives. These are completely legitimate businesses and should not be questioned by CRA. Parliament has discussed this issue and CRA should back off.”

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October 6, 2010 by Dan White.

Scientific Research and Development program is administered by CRA. This is like having a fox run a hen house.

The Scientific Research & Experimental Development Tax Incentive Program – federal tax incentive program, administered by the Canada Revenue Agency (CRA), that encourages Canadian businesses of all sizes, and in all sectors to conduct research and development (R&D) in Canada.

It is the largest single source of federal government support for industrial R&D.  The SR&ED program gives claimants cash refunds and/or tax credits for their expenditures on eligible R&D work done in Canada.

This also serves as a major source of audit information for CRA. So when someone applies for the credit, they are automatically flagged. I have heard of at least on SR&D company who helps Canadian Businesses get these grants, has had 100% of their clients audited. Now being that CRA is the one who approves the credits, how is it that CRA would audit all of certain companies clients?

I can tell you what it looks like: It looks to me like a clever scheme to recover more money in punitive actions than they give out. In my opinion if you are going to apply for the credits you better have audit ready bookkeeping and have a tax expert do an overview audit to see if you are in a good position to avoid having your business in turmoil for the duration of anywhere from a few days to a few years.

To learn more about Audit Ready Bookkeeping, go to www.taxauditsolutions.ca

Dan White

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