Life style Audits and Net Worth Assessments

January 12th, 2013

Beware of having CRA auditors come to your principal residence. If they get the tour, there is a real and genuine risk that that they will add up your net worth and assess you on the money they believe you made to pay for your niceties.

Always meet CRA staff away from your home, or hire a tax representative.

Dan

Beware of who you do business with if you have trade secrets.

January 12th, 2013

I am completely irritated over an internet advertising company, that we hired to assist in marketing our services,  that decided to change their business and become our competitor.

So if you are looking to hire a tax representative, make sure, it is not that someone who is pretending to be a tax representative and then just farms the work out. If the web site does not give the personal names of the representative, then you need to just move on to someone who puts their personal name to their tax service.

In our company, we work hard to get the best results, and we do all our work in house. And we put the key staff names and position on our web site. www.taxauditsolutions.ca

Don’t share your tax problems sensitive tax information with a company that lacks in integrity. Who knows who they will sell the information to or use against you.

I guess being careful with inside information is something we all need to exercise extreme caution as to who you share your information with… not just when it comes to taxes.

Dan White

Open letter to visitor to our web: Rant on CRA

April 10th, 2011

EMAIL RECEIVED:

Your site is so enlightening wow! I think I’m doing everything correct but to your point these malicious people are out there to destroy our lives. Do you have an office in Montreal? If they knock on my door you’ll the first person to be contacted, my God this is so scary!! We must revolt against this atrocity of treatment. I’m surprised people have not protested yet.  I thought IRS is bad but CRA is as bad, if not worse. Our taxes are higher than the US, so basically the government robs us twice and we keep taking the jabs…We need to camp in Ottawa to be heard, this abuse of power must stop.

 

RESPONSE:

 

 Thanks for your words and for taking the time to show your appreciation.

 

I will answer in a bit of a rant…

 It is an interesting situation we have in respect to taxation in Canada. The average Canadian never gets to see just how bad things really are.  We get about 500 real visitors a day who read our site.

What seems to escape people is that there is a reason there is a downturn in the Canadian economy. It has nothing to do with the mortgage fiasco in the USA and the spill off to other countries.

 

The Canadian economy is different that most of the rest of the world. The Canadian economy would boom but for one simple reason.

 

There is no shortage of desire or willingness to work in Canada. There is just a shortage of money.

 

Here is a bit of an economics rant… I could really expend on this subject… but it is a digression… and it is just my opinions.

 

There are two solutions to fixing a money shortage:

 

1.      Create more money, which the government has the constitutional right to do.

2.      Reduce taxation which would be the more appropriate conclusion.

 

It is the Canadian consumer who makes the economy healthy, when they have money to spend the economy thrives.

 

When the governments tax wealth and makes us poor, we end up with a poor economy.

 

There is really little need to tax corporations, as they just spend the money anyway. Of course there would need to be a tax if the money is removed from Canada. When corporations have money, they spend and they make jobs…. So let’s drop the idea that we need to impede businesses by taxing them in to demotivation.

 

Taxation interferes with the flow of money, taking it out of industry and redirecting it to government financial mismanagement and to buy jets and to spend millions on advertising … we can not afford.

 

There is no need for income tax as we know it. That could be dropped and the HST rate  could be increased if necessary… not likely necessary.  Likely the rate could be reduced.

 

More money exchanging hands more often would generate more income for the government services.

 

Retail taxes such as GST and PST, drain money from the economy… In Canada it costs on average 13 cents to use a dollar. As the dollar circulates through the economy generating 13 cents per time. Being that that dollar will change hands on average of 100 times per month, it will generate $13 per month or $156.00 per year. Think about that…. One dollar takes $156 dollars out of circulation…..

 

A dollar taxed as income can only generate about $.46 per year…. That leaves 54 cents to circulate in the economy until the HST drains it to Zero.

 After a dollar drains its value to zero, then the person in possession of the dollar needs to take other money to pay the 13 cents to use the dollar…. Another way to see this is;  The government mints a loony and we pay 13 cents to use it. 13 cents every time, time after time, until we no longer have any money to pay for the use of the loonys. Talk about your Loony Toons.

As I see it … the governments are not stupid….. so one assumes they know what they are doing.

 

Therefore the way to control the population is to control the money, keep it scarce and keep people working until they drop dead. Make sure you tax seniors and keep them working… they know too much and could cause some real problems for the government of the day.

 

It used to be that taxpayers could take advantage of tax loopholes. Today the taxpayer loopholes  have been replaced by loopholes that allows CRA to exploit taxpayers.

 

Today tax audits are a taxpayer loophole nightmare. Small business is lucky if they can survive today’s audit. If CRA finds nothing, they can do a lifestyle audit and bankrupt you with that. If you have the money to fight, you win. If you don’t have the money to fight, you go bankrupt.

 

The Income Tax Act and the Excise Tax Act are so complicated that many lawyers do not understand it. So to win the day, it is often necessary to get in front of a judge.

 

The Tax Court Judges are mostly good people who do a just service to the taxpayer.  A day in court is a day of education. There are many lessons to be learned there. Every time we go to court we get better and better at winning our game.

 

Fighting CRA on your own is really hard, and elf-representing in tax court is a very bad idea. You go up against a lawyer who knows the game, in front of a judge that has to follow the rules. They can only rule on what you prove to them, so if you don’t know how to play the rules, you are a small fury animal in front of a big Mac truck.

 

As far as I know, we are the only company that helps people keep their books in “audit ready” format. I am not aware of any software other than our owns that allow people to keep audit ready records.

 

So the government of the day, knows full well what they are doing.  

 

When the government is finished removing all wealth from the people by using Canada Revenue Agency as Revenue Collectors, then they can give incentives to the people to earn more back…

 

It is all a game, and we the Canadians sit back and let it happen.

 

Well it is election time…. We have the right to kick out the old Dictators and elect new Dictators… we should at least do that until we get an ethical government.

 

The government of the day informs CRA that they are the client and taxpayers are to do as they are told.

 

The government of the day does abuse its power and is in contempt of the Canadian people.

 

Our first step is to change that by considering how we vote.

 

The next step is to support the Society of Professional Tax Representatives, to bring the truth to the people and we need to get a political party on board.

 

At the moment all I can do is help one taxpayer at a time who is in trouble, and to publish useful information on my web site. We are making change, one taxpayer at a time.

 

I would love to see change… it would not be good for our business, but there are other ways for our company to make money than in correcting injustices to the Canadian Taxpayers.

 

Anyway… that is my rant of the day.

 

For more information on tax problems and solutions go to www.taxauditsolutions.ca  or click here.

 

Best Regards

Dan White

CRA loses a big one in Provincial Criminal Court. VooDoo Accounting Fails the CRA.

April 9th, 2011

The following case is just a tip of the ice berg as to what is going on with CRA today.

This is taken from the  Nanaimo Daily news Published: Thursday, April 07, 2011

We deal with this stuff everyday and it is hard to believe that this can happen in Canada today. I suggest the smoking gun lies with the government of the day. Think about this when you cast your federal vote.

Also see comments below, also published in the Nanaimo Daily News.

Tax fraud case is a ‘David and Goliath story’ that vindicates restaurant owners: Lawyer
Danielle Bell, Nanaimo Daily News
The owners of Nanaimo’s MGM Restaurant were found not guilty on Wednesday on allegations of tax fraud totalling more than $1 million.

Calling the Crown prosecution’s case weak, flawed and the alleged numbers “highly uncertain,” Judge Justine Saunders said the evidence against the owner and the two corporations could not sustain a conviction on any of the counts.

Tony and Helen Samaroo, their restaurant and their holding company Samaroo Holdings, were named in 21 charges of making false statements and evading payments under the Income Tax and Excise Tax Acts.

They were discharged in provincial court in Nanaimo.

“This is not just an acquittal, this is a vindication of their innocence,” said Chris Tollefson, lawyer for Helen. “This is truly a David and Goliath story.”

Afterwards at the MGM, which the Samaroos have operated for more than two decades, the couple and their lawyers celebrated with champagne.

“I’m glad this over,” said Tony, 62. “This has been very hard on my family and kids.”

The trial took 19 days to complete, most used for the Crown case. The offences allegedly took place between 2004 and 2006. The amount of unpaid taxes alleged against the Samaroos was $512, 776 each. Crown prosecutors had several theories, namely that the Samaroos misappropriated unreported cash and understated their income and the income of the MGM and Samaroo Holdings.

Allegations included a paper trail pursued by a Canada Revenue Agency accountant in the investigation pointed to nearly $1 million being deposited to their personal accounts of the Samaroos and shareholder loan accounts of the MGM and Samaroo Holdings; that Tony skimmed unreported cash from one till tape or shift per day; that the Samaroos used unreported cash to pay third-party suppliers, liquor and wages, and the net worth analysis indicated they could not have saved close to $1 million from 1980 to 2003.

A CRA investigation began in March 2006, which led to several search warrants and the seizure of numerous documents at the MGM, the nightclub owned by Samaroo Holdings, the motel owned Samaroo Motel Ltd, the Samaroo home, bank, credit union and accountant offices.

In her 23-page reasons for judgement, Saunders said the Crown theory is that the figure of $1.7 million, as alleged in the indictment, is “undoubtedly completely incorrect.”

As defence lawyer Steve Kelliher puts it, said Saunders, the Crown engaged in “voodoo accounting” to come up with the numbers to support the charges.

With the significant flaws in the net worth analysis, discrepancies between evidence regarding shareholder loan accounts, the unreliable extrapolation regarding sales at the MGM and the enormous markup calculated by the CRA accountant, deemed too hypothetical to rely on, Saunders said the Crown’s case is weak.

Saunders also said the Crown cannot rely on the calculations of the CRA accountant to prove its case.

There were 51 Crown exhibits, most of which were large binders containing hundreds of working papers.

DBell@nanaimodailynews.com 250-729-4255

The Daily News (Nanaimo) 2011
COMMENTS ON THIS STORY

t netley
Thu, Apr 7, 11 at 10:45 AM
The owners have a lot more b— than I would. Congratulations on proving these bullies wrong
Going South
Thu, Apr 7, 11 at 12:07 PM
Congratulations to the Samaroo family for fighting CRA and winning. We are also fighting RCA right now; it’s not easy or cheap and certainly doesn’t feel fair. Many innocent taxpayers are screwed by RCA each year but either dont realize it or can’t afford the legal costs to fight it. The government isn’t always right or honest, and I’ve learned that unfortunately there’s not much you can do about it.
Brian
Thu, Apr 7, 11 at 01:31 PM
Good, now turn around and counter sue them in civil court for damages and launch a private criminal prosecution for malicious prosecution against the individuals in the CRA. The CRA is out of control! Who says Government doesn’t rule with a gun?
kinikinik
Thu, Apr 7, 11 at 04:11 PM
I was thrilled to read of this victory. CRA are nothing more than thugs. I know of one lovely family who have been nothing less than hunted down and harassed beyond belief. These are hard working, honest, law abiding people who have done absolutely nothing wrong, and yet are hounded year after year. I hope the family I am thinkin of reads this and takes hope and strength that CRA CAN be beaten!
cory p
Thu, Apr 7, 11 at 06:29 PM
i plead guilty to these guys trumped up stuff a few years ago. i could not afford the fight .they were dishonest all the way through.
Jack & Mary
Fri, Apr 8, 11 at 02:40 AM
Congratulations Helen & Tony.
Kirk L. Nymann
Fri, Apr 8, 11 at 08:36 AM
Clearly, we are under the thumb of a corrupt government. Changing the seats in the dancehall will not stop the dancehall from collapsing. The very structure of government needs to change. It’s time for the People of Canada to stand up, REMOVE the old system of governance and REPLACE it with a system based on a CONSTITUTION (rather than a Constitution Act). And, surprise, surprise, there IS one available at CanadianConstitution@yahoo.ca – just e-mail for a free PDF copy today!
Concerned citizen
Sat, Apr 9, 11 at 12:57 AM
A hearty congratulations to the defence counsel — Chris Tollefson and Steve Kelliher.

An anatomy of a court case … Another win in court for Tax Audit Solutions

April 4th, 2011

Review of the John Wiens Court case.
Or
“An anatomy of a court case.”

This was written for information and understanding of what to expect in tax court.

 

INTRODUCTION

 

The following article is written both for professional tax representatives and for those who would consider defending themselves in tax court. This article brings out the seriousness of the things you don’t know that you don’t know about that will kill you.

For the point of understanding our company’s role in this exercise: There is a role for us in Tax Court in that we can represent our clients in informal tax court but not General Procedures. In General Procedures we still to the audit/court ready accounting, but we do it on behalf of the client who self represents or who has retained a lawyer. Our services dramatically reduce the cost of the overall exercise.

Usually hiring a lawyer for informal tax court is not cost justified, that is the primary reason we act as an agent for our clients in informal court.

When you need a lawyer, make sure you go by reference because there is a huge difference between a good tax lawyer and a dabbler in the profession.

The following case was in Informal Tax Court case that could have gone to General Procedures but was heard in Informal Tax Court as per the wishes of the client.


The bottom line financial results of this court case is that the Appellant (The Taxpayer) succeeds in his appeal and gets a reduction in his taxable income, subject to the limitations of informal procedure and is awarded costs.


It is significant that costs were awarded, because it shows how the judge saw the case in terms of how CRA handled the case.


The text in italics is what I have inserted with what Justice Webb wrote in his judgement.

Docket 2010-2625(IT)I

John Wiens and Her Majesty the Queen.

Justice Wyman W. Webb

 

Agent for the Appellant: Dan White

 

Counsel for the Respondent: Samantha Hurst.

 

JUDGEMENT

The Appellant, Mr. John Wiens, has his appeals allowed with Costs. The matter is referred back to the Minister for reconsideration and reassessment based on Justice Webb’s judgment on the matter.

The following is an explanation of how I interpret the judgment and what I think is noteworthy as a reference to tax knowledge. I think this is very useful information for anyone thinking of handling their own tax case, or who wants to know what is going on in court.

The judgment is a 47 page document by Justice Webb. One can only respect the judge for the care and attention he took to his decision and how useful his explanations were. He is a credit to his profession.

The issues revolved around a series of real estate transactions by the Wiens family. Was this the business of buying and selling real estate? An adventure in the nature of trade, or was it capital gains?

There was the question of who earned the money from the exercises.

There was an issue as to was one year statute barred due to CRA opening up the year based on a signed waiver by the taxpayer… The taxpayer was gravely ill at the time and does not remember signing the waiver.

There was an issue around a retail store that was closed down after various disasters including multiple robberies. Was the insurance payout income or not?

THE CASE WAS TRIED IN (IT) INFORMAL TAX COURT.
[2]    Section 18.12 of the Tax Court of Canada Act provides that:
18.12 Where, before the start of the hearing of an appeal referred to in subsection 18(1), it appears to the Court that
(a)    the aggregate of all amounts in issue exceeds $12,000, or
(b)    the amount of the loss in issue exceeds $24,000,
as the case may be, the Court shall order that sections 17.1 to 17.8 apply in respect of the appeal unless the appellant elects to limit the appeal to $12,000 or $24,000, as the case may be.
[3]    Section 2.1 of the Tax Court of Canada Act provides that:
2.1 For the purposes of this Act, “the aggregate of all amounts” means the total of all amounts assessed or determined by the Minister of National Revenue under the Income Tax Act, but does not include any amount of interest or any amount of loss determined by that Minister.
[4] Since no penalties were assessed under the Income Tax Act (the “Act”) against the Appellant, for the purposes of the Tax Court of Canada Act “the aggregate of all amounts” in this case would mean the taxes assessed under the Act. In Maier v. The Queen, [1994] T.C.J. No. 1260, Justice Garon (as he then was) held that the aggregate of all amounts in dispute means the aggregate amounts in dispute under a particular assessment (or reassessment) and not under a Notice of Appeal. When a Notice of Appeal relates to more than one assessment (or reassessment) the issue is not whether the total amounts in dispute under the Notice of Appeal exceed $12,000 but whether the total amounts in issue in relation to any particular assessment or reassessment exceeds $12,000. Therefore, if a person elects to limit an appeal to $12,000, the limitation will apply to each assessment (or reassessment) that is the subject of the appeal. In this case, the $12,000 limit will apply to the appeal from the reassessment of the Appellant’s liability for his 2002 taxation year and a separate $12,000 limit will apply to the appeal from the reassessment of the Appellant’s liability for his 2003 taxation year.

INTERPRETATIONS & COMMENTS BY DAN (in italics) In our case, the taxpayers had reasons to want to keep the matter in informal proceedings. One big factor was the cost of formal procedures of General Procedures. Their decision limited the amount of federal tax in dispute to a $12,000 limit. Being that no penalties had been assessed by CRA,  that meant the aggregate of all amounts would be exclusive of penalties or interest on those penalties. Because there were two years under appeal it meant that winning the case would result in a $24,000 reduction in tax owing on the years in question as well as all the related interest that would have accumulated after the assessment was issued by CRA.

The $24,000 loss limit allowed in informal court, was not relevant in this case, so I will not get into that here.

It is important to note that the amount in dispute is not what is in the Notice of Appeal, but rather what is in the assessment or reassessment issued to the taxpayer by CRA. The aggregate amount of $12,000 is exclusive of interest. The way it works, is the taxpayers income would be reduced by $12,000 for each year in question and then the interest would be calculated based on the reassessed lower income, from that point in time on until the present.

It is also important to note that the reduced income would also lower the provincial tax owing portion which is not included in the $12,000 limit. Therefore the total tax owing would be reduced by more than the 12k per year.

Naturally one has to reduce their taxable income by at least 12k per year otherwise it would be a lesser amount based on what the taxpayer won on.

Without agreeing to the limit the case would have had to be heard in General Court proceedings. Justice Webb was very clear in the seriousness of the limiting decision.

It is a bitter sweet victory when you get 100% of the amount you went after, but see that you possibly would have received much more in General Proceedings. Making the call to limit your win versus a dramatic increase in the cost of the case in General Proceedings is a tough call and there are no guarantees in court. For 2002 General proceedings would have been further reduction of income of around $7,400 more and for 2003 it would have been about $54,200. But that was a decision that was made and we accept that because we made the decision fully informed.

Getting costs awarded is a nice bonus and means to me that we did a good job of representing the case.

Reducing the amounts in dispute also means that there is less attention paid to certain details required. One limits their scope to going after what they are sure they can win. The issue of my pointing my attention away from certain areas was noted by Justice Webb in relation to the Agent not putting his mind to questioning and certain proofs of evidence as in the issue of the three real estate properties.

Having said that, it still leaves me with the notion that it would have been better to go for all the points as we would have if it was General Procedures. The more considerations the more work is required and the higher the related costs will be. As you get into a complicated case, you really see the benefit an experienced tax lawyer brings to the game, due to the complexity of tax law. We are not lawyers so we need to do extensive research and subscribe to the same expensive resources. With each case we get better and better, but it is a hard road.

In our company’s world, we bring professional services to an area where it is hard to justify a lawyer’s fees. That specially is that Tax Audit Solutions addresses that niche market of informal tax court. Our first objective is to prove what was or what should have been done in the accounting.

Where the amounts are above the threshold of informal court, we then support lawyers by doing the audit and tax court ready accounting.

One has to be really aware of court proceedings, I am of the strong opinion, that one only gets good in court as a result of experience. There is no school that provides the learning platform as a day in court. Tax Court is not a place for a taxpayer to defend themselves. The deck of cards is too stacked in favor of those who know the game. I would compare a day in self-represented tax court to a day in a chess tournament by a novice against a Chess Master.

In our business we see all to much of what happens when taxpayers self-represent. Earning your stripes in court is the only way to get good at it. Self-representation is a recipe for a big loss.

How we see it, is for every case we have in court, win or lose, it makes us stronger. It also makes us much more aware of how badly a really good tax lawyer who is skilled at litigation, is needed if you want to win your case in General Procedures.

Back to the Tax Case at hand:

Justice Webb in point #7 states the following.

[7] It is clear that the Appellant and his agent have received adequate notification of the limitations related to appeals under the informal procedure and that the Appellant has elected to limit the amount of taxes in dispute for each year to $12,000. As a result, the hearing continued under the Informal Procedure.
The decision to represent in informal tax court is a serious decision and Justice Webb was nailing things down so it was very clear that the agent and the taxpayer knew full well the consequences.

[8] There were only two witnesses who testified at the hearing – the Appellant and his spouse. An issue arose during the re-examination by the agent for the Appellant of his witnesses. Counsel for the Respondent objected to questions that the agent was asking of each witness during the re-examination of such witness by the agent for the Appellant on the basis that:
Re-examination is another term for re-direct. That is where the Appellant gets to re-examine the witness after the defendant is done cross examining them.

MS. HURST: In my submission, reply is directed at issues that were raised in cross that the Appellant could not have known in chief.

Ms. Hurst was attempting to prevent me from introducing new information to dispute what the defendant agent had brought up in cross examination. It would be appropriate to introduce questions around that new information, but not for me to include new additional information.


I think it was a bit gray as to was the information new or just a clarification on the matter brought up by the Appellant’s agent.


It is interesting to consider, that if allowing me to introduce new information, the judge could have also have allowed the defendants agent to get a shot at another cross examination of the plaintiff’s witness.
It is usually a one two three and you are done scenario. One “Direct Questions, by the appellant.”, Two is “Cross Examination by the defendant’s agent,” and Three is “Re-direct by the appellant’s agent.

[9] This was an informal procedure hearing and I allowed the agent to ask questions on re-examination of a witness in relation to matters that were raised during the cross-examination of that witness but which had not been addressed during the direct examination of that witness.

Informal Tax Court allows a judge greater scope in allowing the presentation of information that helps in making his decisions.


Justice Webb outlined the following case to support his decision. The case gives an excellent example of what needs to be considered in re-direct of questions to a witness by the appellant’s agent.

[10] In R. v. Evans, [1993] 2 S.C.R. 629, 104 D.L.R. (4th) 200, Justice Cory writing on behalf of a majority of the Justices of the Supreme Court of Canada, stated as follows:

Should the Question Have Been Permitted on Re-examination?

37                  Even though it has been determined that the evidence was admissible, (in the direct examination) it remains to be seen whether the question should have been permitted on re-examination.

38                  The issue is put very well by E. G. Ewaschuk in Criminal Pleadings & Practice in Canada, 2nd ed., in these words at p. 16.29, para. 16:2510:

Questions permitted as of right on re-examination must relate to matters arising out of the cross-examination which deal with new matters, or with matters raised in examination-in-chief (The questioning of your own witness under oath.) which require explanation as to questions put and answers given in cross-examination. [Emphasis added by Justice Cory.]

This is an important point to understand. So let’s explain it in other words.


1.    The agent for the Plaintiff, gets do “Direct” questions to his witness to create the story they want to tell the judge. The agent brings out all the information and evidence to build the case.


2.    The agent for the defendant gets to “cross-examine” the witness to tear the story apart. The agent tries to break the story down and introduces new information to damage the appellant’s case.


3.    The agent for the plaintiff gets to re-direct the questions to rebuild any tearing apart that was done and reinstate the appellant’s credibility. The agent must only deal with information provided in the direct or to ask questions about any new information provided by the agent for the defendant in her cross examination.

Generally speaking, the right to re-examine must be confined to matters arising from the cross-examination. As a general rule new facts cannot be introduced in re-examination. See R. v. Moore (1984), 15 C.C.C. (3d) 541 (Ont. C.A.), per Martin J.A. In this case, the cross-examination of Linda Sample referred to her statements to police about the appellant. The police interview of December 30 was specifically alluded to during the cross-examination and had not been dealt with in’ chief. It was in response to this cross examination that Linda Sample stated that, from the time of that meeting, she suspected the appellant of committing the crime. // would seem that the Crown had the right to re-examine Linda Sample as to precisely what she told the police at that time with regard to the appellant. It was a subject that had not been raised in the examination in chief but arose from the cross-examination. The trial judge erred in failing to allow re-examination on this point.

I think the judge was correct in allowing me to bring up information related to the new information provided by the agent for the defendant.

[11] It seems to me that when the witness was being examined in chief the Crown would have known (or could have known if the Crown would have asked the police) about the police interview with the witness. Not having referred the witness during the examination-in-chief to her statements that she had made to the police should not have prevented the Crown from asking that witness questions about her statements during the re-examination of that witness because the matter was raised during the cross-examination of the witness. Therefore, even though a matter was not raised during examination-in-chief of a witness, if that matter is raised during cross-examination of that witness, the witness can be re-examined in relation to that matter following cross-examination, even though the agent or counsel who called the witness would have (or could have) known about the matter prior to the cross-examination of that witness.

This is another interesting technicality… if the agent for the plaintiff knew about the information, but did not bring it up in the direct examination, then they should not be allowed to address that in re-direct. In the case at hand, the agent did not have prior knowledge about the information brought up by the agent for the defendant.

[12] In The Law of Evidence in Canada (third edition) by Justice Bryant, Justice Lederman, and Justice Fuerst all of the Superior Court of Justice for Ontario, it is stated at page 1164 as follows:
VII. RE-EXAMINATION
16.183 The purpose of re-examination is to enable the witness to explain and clarify relevant testimony which may have been weakened or obscured in cross-examination. The witness is not ordinarily allowed to supplement the examination-in-chief by introducing new facts which were not covered in cross-examination.* The general rule is that reexamination must be confined to matters which arose out of cross-examination. *

Based on the above, it indicates I was correct in my assumptions.

16.184 The right to re-examine, however, extends to rehabilitation of the credibility of the witness which may have been impaired in cross-examination. This includes the right to ask the witness to explain or clarify discrepancies between the witness* evidence-in-chief and cross-examination.* In addition, this may entail the introduction of a previous consistent statement to rebut the suggestion that the witness’ evidence was a recent contrivance.*
16.185 In addition to the right to re-examine, the trial judge has a discretion to permit re-examination in circumstances that do not accord with the principles stated above. It is a discretion that is to be exercised sparingly, but extends to permit re¬examination on matters not touched on in cross-examination which may, through oversight, have been omitted in chief. In such cases, the opposing party will have a further right to cross-examine the witness.*…
(* denotes a footnote reference that is in the text but which has not been included.)

[13] Therefore even if a matter has not been addressed during the examination-in-chief or during the cross-examination of a witness, it is still possible to permit the matter to be addressed during re-examination, with the opposing party having the right to a further cross-examination of the witness.

I see this as a very valuable tid bit…. because if the agent for the appellant finds that the agent for the defendant has opened up a can of worms, it may be worth asking the judge if you can introduce new information. Having said that it obviously is better to be well prepared in the first place.

[14] The Appellant’s tax liability for 2002 was originally assessed on October 14, 2003 and the Appellant’s tax liability for 2003 was originally assessed on May 25, 2004. The Appellant was reassessed to include the additional income referred to above by notices of reassessment dated August 30, 2007. The notices of reassessment were issued after the expiration of the normal reassessment period as defined in subsection 152(3.1) of the Act. Subsection 152(4) of the Act provides, in part, that:

(4) The Minister may at any time make an assessment, reassessment or additional assessment of tax for a taxation year, interest or penalties, if any, payable under this Part by a taxpayer or notify in writing any person by whom a return of income for a taxation year has been filed that no tax is payable for the year, except that an assessment, reassessment or additional assessment may be made after the taxpayer’s normal reassessment period in respect of the year only if

(a) the taxpayer or person filing the return
(i) has made any misrepresentation that is attributable to neglect, carelessness or willful default or has committed any fraud in filing the return or in supplying any information under this Act, or Page: 7
ii.    has filed with the Minister a waiver in prescribed form within the normal reassessment period for the taxpayer in respect of the year;

In this case, the appellant had signed a waiver that we were challenging as being binding.

[15] A waiver in respect of “Business Income & Expenses & Real Estate Transactions” for the 2002 taxation year of the Appellant was dated October 10, 2006. The Appellant acknowledged that the signature on the form appeared to be his signature but he stated that he has no recollection of signing the waiver. No waiver was submitted in respect of the 2003 taxation year.

The following is what was covered in the direct questioning by the agent for the appellant.

[16]   The Appellant was not well in 2006. He described his condition as follows:
Q. Mr. Wiens, I was asking you: Do you recall where you were and what you were doing on October 10,2006?
A. I was either in the hospital or out for a few days or on day passes or so on. I was awaiting surgery.
Q.      Can you describe what type of surgery you were waiting to do?
A. I was going to take out my spleen. They said it was in danger of a spontaneous rupture. They wanted to diagnose it or something. I don’t understand what the doctors do.
Q.      Were you physically ill as a result of this?
A.      Yes.
Q.      Were you on medication?
A.       A lot of it.
Q.       Do you recall what that medication was?
A. Some of them were narcotics, but I know you have to get a special prescription. If I was in the hospital I would get a whole bunch of pills. My wife knew more of what I was taking at home. It would be a shot glass of a whole bunch of different stuff. I don’t know exactly what everything was.
Q. Would you say that you were your normal self and functioning mentally properly at that time?
A.      I couldn’t drive. They told me that with the drugs I was on I couldn’t operate a motor vehicle.
Q.      Were you dealing with your tax matters at that time? A.      No.
Q. In regard to taxes, to your mental and physical state, your ability to make decisions; all that stuff.
A. My wife described me as a vegetable. I remember getting a call when I was in the hospital -1 think it was in July – or it was a message from a nurse to call the auditor. I asked my wife if she could get the accountant at that time or a bookkeeper to take care of it. As days went on, I got worse and worse. I was on more and more drugs, so I didn’t know what I was doing. I couldn’t operate a car. I couldn’t even walk.
Q.      Canyon.
A. My mental condition, I was probably close to how my wife described me. I didn’t know what I was doing. I didn’t know anything.
Q. How far back do we go before you had your normal clarity of thought? If we took October 10 as a benchmark, when did you start having your memory and thinking capacity affected by your illness? That is what I’m trying to establish.
A. I know I was admitted to the hospital in late July, I think it was, of 2006, and I stayed there for a long time. While I was there I was in pretty bad shape. Previous to that when we were having all the problems with the store, I think I probably had some kind of nervous problem because I was not very well there. You can imagine the effect if someone’s house is broken into once or so or twice, three times, five times, I don’t even know how many times it was. It was a big stress. I was paranoid, I guess. I didn’t know what was going on.
Q. What would you say your capacity was to look after your own affairs – especially around the audit – during that period of time?
A.      None.
Q.      Who was looking after your affairs?
A. An accountant named Kathy Currie. I’m not sure if she is an accountant or a bookkeeper.
[17] In Nguyen v. The Queen, 2005 TCC 697, [2007] 5 C.T.C. 2654, Justice Dussault of this Court dealt with a waiver of a right to appeal that the taxpayer had signed but was subsequently challenging. Justice Dussault made the following comments:

32     The Appellant therefore accepted a settlement which he surely believed was in his favour at the time, and assessments were done based on that settlement, that is, with no penalty. He waived his right to object and appeal in respect of the expenses the deduction of which was disallowed for the years 1997, 1998 and 1999. He did not offer any compelling evidence showing that he was unable, for reasons related to his origin or language, to understand the consequences of his waiver or that tax officials tried to mislead him, threaten him or apply undue pressure in connection with the waiver. Subsections 165(1.2) and 169(2.2) of the Act sanction such waivers.

33        It is clear to me that a waiver of the right to object and appeal signed by a taxpayer cannot be set aside except on a preponderance of evidence that the taxpayer did not freely consent to the waiver or was unduly pressured. I do not believe such evidence was put forward in this instance.

[18] It seems to me that the same principles should apply to a waiver of the normal reassessment period as would apply to a waiver of the right to object and appeal. Justice Dussault referred to setting aside a waiver on “a preponderance of evidence”. As a result of the decision of the Supreme Court of Canada in F./f. v. McDougall, referred to below, it seems me that there is only one standard of proof and therefore the waiver in this case cannot be set aside unless the Appellant establishes on a balance of probabilities the he did not freely consent to the waiver1. The question of whether a person has consented would include the issue of whether the person had the capacity to consent. In Chitty on Contracts (twenty-ninth edition) at page 579, it is stated that:
Contractual incapacity. The incapacity of one or more of the contracting parties may defeat an otherwise valid contract. Prima facie, (Prima Facie is (Latin) A legal presumption which means on the face of it or at first sight. )however, the law presumes that everyone has a capacity to contract; so that, where exemption from liability to fulfill an obligation is claimed by reason of want of capacity, this feat must be strictly established on the part of the person who claims the exemption.


One needs to make sure that they have good evidence to prove the incapacity of the party to consent to the waiver.

[19] It also seems to me that these comments should apply to the waiver in this case and would also apply to any alleged incapacity arising as a result of any medication that the Appellant was taking at the time, subject to the qualification that
In this case there was no suggestion that the Appellant was unduly pressured. The reference to “strictly established” does not impose a standard of proof that is different from a balance of probabilities or impose a requirement on the trial Judge to scrutinize evidence more carefully than such trial Judge would in other civil matters. Based on the decision of the Supreme Court of Canada in F.H. v. McDougall, referred to below, since the Appellant is claiming that he is not bound by the waiver, the Appellant will need to establish on a balance of probabilities that he did not have the requisite capacity to execute the waiver on October 10, 2006.
[20] However, in this case it is not at all clear whether the Appellant was in the hospital on October 10, 2006. No records from the hospital were introduced to show the date that he was admitted to the hospital or discharged from the hospital. His recollection was that he was admitted in late July 2006 and that he “stayed there for a long time”. A long time is very subjective and of little assistance in determining whether he was still in the hospital on October 10, 2006. For some people a couple of weeks in a hospital may be a long time.

I see this issue as a stark reminder of how important it is for an agent to verify all facts and not to make assumptions. We were told the appellant was in the hospital and have no reason to think it was not so, however by the agent not verifying that the appellant was actually there on that date, there was no hard evidence to introduce to the court.

[21] It is also not clear what medication he was actually taking on October 10, 2006 or what his capacity was on that date to understand the nature of the document that he was signing. Simply not remembering that he had signed the document is not sufficient. It seems to me that testimony from medical experts would have been important in relation to the capacity of the Appellant on October 10, 2006 if the Appellant wanted to establish that he lacked the capacity to understand the nature of the document that he was signing on that particular day.

This is where we should have had the proof of the appellant being in the hospital at the time of signing the wavier of his rights.

[21] It is also not clear what medication he was actually taking on October 10, 2006 or what his capacity was on that date to understand the nature of the document that he was signing. Simply not remembering that he had signed the document is not sufficient. It seems to me that testimony from medical experts would have been important in relation to the capacity of the Appellant on October 10, 2006 if the Appellant wanted to establish that he lacked the capacity to understand the nature of the document that he was signing on that particular day.

Certainly it would have been good to have the testimony or at least a sworn affidavit of a medical expert to prove the point.

[22] In relation to the onus of proof, Justice Rothstein, writing on behalf of the Supreme Court of Canada, in F.H. v. McDougall, [2008] 3 S.C.R. 41 stated that:
(4)      The Approach Canadian Courts Should Now Adopt
40 Like the House of Lords, I think it is time to say, once and for all in Canada, that there is only one civil standard of proof at common law and that is proof on a balance of probabilities. Of course, context is all important and a judge should not be unmindful, where appropriate, of inherent probabilities or improbabilities or the seriousness of the allegations or consequences. However, these considerations do not change the standard of proof….
We often hear judges speak of “Balance of Probabilities” and the following information needs to be looked at closely to understand how this is handled in court.

44    …. As Lord Hoffmann explained in In re Bat para. 2:
If a legal rule requires a feet to be proved (a “fact in issue”), a judge or jury must decide whether or not it happened. There is no room for a finding that it might have happened. (key issue to keep in mind when providing information in court, there can be no assumptions) The law operates a binary system in which the only values are zero and one. The fact either happened or it did not If the tribunal is left in doubt, the doubt is resolved by a rule that one party or the other carries the burden of proof. If the party who bears the burden of proof fails to discharge it, a value of zero is returned and the fact is treated as not having happened. If he does discharge it, a value of one is returned and the fact is treated as having happened.

A binary system of zero and one is a good way to visualize the determination of the balance of probabilities.


I like this, it is a simple way to look at information. First determine who has the onus to prove the information and secondly ask yourself what proof is there? This underscores the importance of understanding who has the onus of proof.


In my view, the only practical way in which to reach a factual conclusion in a civil case is to decide whether it is more likely than not that the event occurred.

45        To suggest that depending upon the seriousness, the evidence in the civil case must be scrutinized with greater care implies that in less serious cases the evidence need not be scrutinized with such care. I think it is inappropriate to say that there are legally recognized different levels of scrutiny of the evidence depending upon the seriousness of the case. There is only one legal rule and that is met in all cases, evidence must be scrutinized with care by the trial judge.
Key note here is that if the judge is going to scrutinize your evidence then the evidenced needs to be scrutinized before giving it to a judge.

46           Similarly, evidence must always be sufficiently clear, convincing and cogent (persuasive) to satisfy the balance of probabilities test. But again, there is no objective standard to measure sufficiency,in serious cases, like the present, judges may be faced with evidence of events that are alleged to have occurred many years before, where there is little other evidence than that of the plaintiff and defendant. As difficult as the task may be, the judge must make a decision. If a responsible judge finds for the plaintiff, it must be accepted that the evidence was sufficiently clear, convincing and cogent to that judge that the plaintiff satisfied the balance of probabilities test.

In our case we were trying to prove that the appellant was in the hospital, the onus of proof was on us, but we did not have any visual evidence. Had the onus been on the defendant, they would have to prove that the appellant was not in the hospital and or the date of signing was not close to the date of the time in question… at the time of the signing.

46           Finally there may be cases in which there is an inherent improbability that an event occurred. Inherent improbability will always depend upon the circumstances. As Baroness Hale stated in In re B, at para. 72:
Consider the famous example of the animal seen in Regent’s Park. If it is seen outside the zoo on a stretch of greensward regularly used for walking dogs, then of course it is more likely to be a dog than a lion. If it is seen in the zoo next to the lions’ enclosure when the door is open, men it may well be more likely to be a lion than a dog.

In this case, had the appellant signed the document near the date of the stay in the hospital, on the balance of probabilities, he would not have been in a mental state to know what he was signing.

48     Some alleged events may be highly improbable. Others less so. There can be no rule as to when and to what extent inherent improbability must be taken into account by a trial judge. As Lord Hoffmann observed at para. 15 of In re B:
Common sense, not law, requires (that in deciding this question, regard should be had, to whatever extent appropriate, to inherent probabilities.

It will be for the trial judge to decide to what extent, if any, the circumstances suggest that an allegation is inherently improbable and where appropriate, that may be taken into account in the assessment of whether the evidence establishes that it is more likely than not that the event occurred. However, there can be no rule of law imposing such a formula.

(5)             Conclusion on Standard of Proof
49 In the result, I would reaffirm that in civil cases there is only one standard of proof and that is proof on a balance of probabilities. In all civil cases, the trial judge must scrutinize the relevant evidence with care to determine whether it is more likely than not that an alleged event occurred. (Emphasis added)

[23] While the Appellant might have lacked the capacity to execute a valid waiver on October 10, 2006, this is not sufficient. The Appellant must establish that it was more likely than not that the Appellant lacked the requisite capacity on October 10, 2006 to consent to the waiver. The Appellant has failed to establish that it was more likely than not that on October 10, 2006 the Appellant lacked the requisite capacity to execute a valid waiver and therefore I find that the waiver is valid and the Respondent had the right to reassess the Appellant for 2002.

While there was no doubt the waiver was signed, there was no proof of when the appellant was in the hospital, and being that there was more time out of the hospital than in, one could take the position, that it is more likely that the appellant was not in the hospital at the time of signing.

We now go into an area where one needs to fully see the power of good evidence to demolish an argument and shift the onus to the other party.

[24] In Hickman Motors Ltd. v. Her Majesty the Queen, [1997] S.C J. No. 62, Justice L’Heureux-Dube of the Supreme Court of Canada made the following comments in relation to an Appellant’s onus of “demolishing” the Minister’s assumptions:

92           … The Minister, in making assessments, proceeds on assumptions (Bayridge Estates Ltd. v. Minister of National Revenue (1959), 59 D.T.C. 1098 (Can. Ex. Ct.), at p. 1101) and the initial onus is on the taxpayer to “demolish” the Minister’s assumptions in the assessment (Johnston v. Minister of National Revenue, [1948] S.C.R. 486 (S.C.C.); Kennedy v. Minister of National Revenue (1973), 73 D.T.C. 5359 (Fed. C.A.), at p. 5361). The initial burden is only to “demolish” the exact assumptions made by the Minister but no more: First Fund Genesis Corp. v. R. (1990), 90 D.T.C. 6337 (Fed. T.D.), at p. 6340.

93           This initial onus of “demolishing” the Minister’s exact assumptions is met where the Appellant makes out at least a prima facie case: (Prima Facie is (Latin) A legal presumption which means on the face of it or at first sight.) Kamin v. Minister of National Revenue (1992), 93 D.T.C. 62 (T.C.C.); Goodwin v. Minister of National Revenue (1982), 82 D.T.C. 1679 (T.R.B.).

In the case at bar, the Appellant adduced evidence which met not only a prima facie standard, but also, in my view, even a higher one. In my view, the Appellant “demolished” the following assumptions as follows: (a) the assumption of “two businesses”, by adducing clear evidence of only one business; (b) the assumption of “no income”, by adducing clear evidence of income. The law is settled that unchallenged and uncontradicted evidence “demolishes” the Minister’s assumptions: see for example Maclsaac v. Minister of National Revenue (1974), 74 D.T.C. 6380 (Fed. C.A.), at p. 6381; Zink v. Minister of National Revenue (1987), 87 D.T.C. 652 (T.C.C.). As stated above, all of the Appellant’s evidence in the case at bar remained unchallenged and uncontradicted. Accordingly, in my view, the assumptions of “two businesses” and “no income” have been “demolished” by the Appellant.

94           Where the Minister’s assumptions have been “demolished” by the Appellant, “the onus shifts to the Minister to rebut the prima facie case” made out by the Appellant and to prove the assumptions: Magilb Development Corp. v. Minister of National Revenue (1986), 87 D.T.C. 5012 (Fed. T.D.), at p. 5018. Hence, in the case at bar, the onus has shifted to the Minister to prove its assumptions that there are “two businesses” and “no income”.

95           Where the burden has shifted to the Minister, and the Minister adduces no evidence whatsoever, the taxpayer is entitled to succeed: see for example Maclsaac, supra, where the Federal Court of Appeal set aside the judgment of the Trial Division, on the grounds that (at pp. 6381-2) the “evidence was not challenged or contradicted and no objection of any kind was taken thereto”. See also Waxstein v. Minister of National Revenue (1980), 80 D.T.C. 1348 (T.R.B.); Roselam Investments Ltd. v. Minister of National Revenue (1980), 80 D.T.C. 1271 (T.R.B.). Refer also to Zink v. Minister of National Revenue, supra, at p. 653, where, even if the evidence contained “gaps in logic, chronology and substance”, the taxpayer’s appeal was allowed as the Minster failed to present any evidence as to the source of income. I note that, in the case at bar, the evidence contains no such “gaps”. Therefore, in the case at bar, since the Minister adduced no evidence whatsoever, and no question of credibility was ever raised by anyone, the Appellant is entitled to succeed.

It has been my experience that establishing credibility of both the appellant and the agent is critical. Our position is to defend what we can prove was done and not defending what was done that we cannot prove, allows us to build credibility in front of the judges.

96           In the present case, without any evidence, both the Trial Division and the Court of Appeal purported to transform the Minister’s unsubstantiated and unproven assumptions into “factual findings”, thus making errors of law on the onus of proof.
My colleague Iacobucci J. defers to these so-called “concurrent findings” of the courts below, but, while I fully agree in general with the principle of deference, in this case two wrongs cannot make a right Even with “concurrent findings”, unchallenged and uncontradicted evidence positively rebuts the Minister’s assumptions: Maclsaac, supra. As Rip T.C.J., stated in Gelber v. Minister of National Revenue (1991), 91 D.T.C. 1030 (T.C.C.), at p. 1033, “[the Minister] is not the arbiter (Supreme Authority) of what is right or wrong in tax law”. As Brule* T.C.J., stated in Kamin, supra, at p. 64:
the Minister should be able to rebut such [prima facie] evidence and bring forth some foundation for his assumptions.
The Minister does not have a carte blanche in terms of setting out any assumption which suits his convenience. On being challenged by evidence in chief he must be expected to present something more concrete than a simple assumption. [Emphasis added by Justice L'Heureux Dub&]

[25] The British Columbia Court of Appeal in Northland Properties Corp. v. British Columbia, 2010 BCCA 177, 319 D.L.R. (4th) 334 commented on this decision of Justice L’Heureux Dube and stated that:

26        The use of “demolish1′ has carried through to the present: see Hickman at para. 92; or, most recently, in Norton v. Canada, 2010 TCC 62 at para. 59. The choice of word is unfortunate, because it tends to cloud the actual nature of the standard of proof. “Demolishing” does not imply a higher standard, and, in that regard, the careful statement of McQuaid J.A. in Island Telecom Inc. v. P.E.I. (Regulatory and Appeals Commission) (1999), 176 D.L.R. (4th) 356 (P.E.I.C.A.) at para. 22 is apposite:
[22]… Once … the assumptions have been “demolished” or, to express it somewhat less emphatically, once the taxpayer discharges the … burden of showing that the facts or assumptions relied upon by the assessor are incorrect,… [Emphasis added.]

So as we come back to the word “Demolish” we are reminded that demolish does not require a higher standard to prove the point. So how I would define the word would be as follows; To demolish an argument means that; on the balance of probabilities, you have to remove any doubt the argument made was wrong.

27       The standard of proof in discharging this burden is nothing more or less than the balance of probabilities. As Justice Lowry stated in Trac (at para. 30):

[30]… The act of “demolishing” a ministerial assumption entails proving on the balance of probabilities the material facts that are within the taxpayer’s knowledge if those facts do not support the assumption.

28          Additional confusion about the standard flowed from Justice L’Heureux-Dub6′s use of “prima facie case” in Hickman (at paras. 92-95):
[92] … The Minister, in making assessments, proceeds on assumptions … and the initial onus is on the taxpayer to “demolish” the Minister’s assumptions in the assessment…. The initial burden is only to “demolish” the exact assumptions made by the Minister but no more …
[93] This initial onus of “demolishing” the Minister’s exact assumptions is met where the appellant makes out at least a prima facie case: Kamin v. M.N.R., 93 D.T.C. 62 (T.C.C.); Goodwin v. M.N.R., 82 D.T.C. 1679 (T.R.B.). In the case at bar, the appellant adduced evidence which met not only a prima facie standard, but also, in my view, even a higher one. In my view, die appellant “demolished” the following assumptions as follows: (a) the assumption of “two businesses”, by adducing clear evidence of only one business; (b) the assumption of “no income”, by adducing clear evidence of income. The law is settled that unchallenged and uncontradicted evidence “demolishes” the Minister’s assumptions: see for example Maclsaac v. M.N.R., 74 D.T.C. 6380 (F.C.A.), at p. 6381; Zink v. M.N.R., 87 D.T.C. 652 (T.C.C.). As stated above, all of the appellant’s evidence in the case at bar remained unchallenged and uncontradicted. Accordingly, in my view, the assumptions of “two businesses” and “no income” have been “demolished” by the appellant.
[94] Where the Minister’s assumptions have been “demolished” by the appellant, “the onus … shifts to the Minister to rebut the prima facie case” made out by the appellant and to prove the assumptions: Magilb Development Corp. v. The Queen, 87 D.T.C. 5012 (F.C.T.D.), at p. 5018. Hence, in the case at bar, the onus has shifted to the Minister to prove its assumptions that there are “two businesses” and “no income”.

[95] Where the burden has shifted to the Minister, and the Minister adduces no evidence whatsoever, the taxpayer is entitled to succeed: see for example Maclsaac, supra, where the Federal Court of Appeal set aside the judgment of the Trial Division, on the grounds that (at p. 6381) the “evidence was not challenged or contradicted and no objection of any kind was taken thereto”. See also Waxstein v. M.N.R., 80 D.T.C. 1348 (T.R.B.); Roseiawn Investments Ltd. v. M.N.R., 80 D.T.C. 1271 (T.R.B.). Refer also to Zink, supra, at p. 653, where, even if the evidence contained “gaps in logic, chronology, and substance”, the taxpayer’s appeal was allowed as the Minister failed to present any evidence as to the source of income. I note that, in the case at bar, the evidence contains no such “gaps”. Therefore, in the case at bar, since the Minister adduced no evidence whatsoever, and no question of credibility was ever raised by anyone, the appellant is entitled to succeed. [Emphasis in original removed.]

29     Before us, counsel for the Crown made persuasive submissions on the issue of the so-called “prima facie” standard: L’Heureux-Dubé J.’s use of “prima facie” was made in the context of a case in which the Crown had not called any evidence whatsoever; it was relying solely on its assumptions. It is certainly possible in such circumstances that a prima facie case, or even one with “gaps”, would be sufficient to displace the Crown’s assumptions, but the prima faciestandard described by Justice L’Heureux-Dubé should not be interpreted as having altered the usual standard of proof in tax cases: see the comments in Sekhon v. Canada, [1997] T.C.J. No. 1145 at para. 37; and Hallat v. The Queen (2000), [2001] 1 C.T.C. 2626 (F.C.A.).

30     The other potentially confusing aspect of Hickman was Justice L’Heureux-Dubé’s statement (at para. 92) that the “initial burden [on the taxpayer] is only to ‘demolish’ the exact assumptions made by the Minister but no more: First Fund Genesis Corp. v. The Queen, 90 D.T.C. 6337 (F.C.T.D.), at p. 6340.” [Emphasis in original.]

31     This statement is consonant with the taxpayer’s initial legal burden: The taxpayer’s only task is to rebut the Minister’s assumptions so that the Minister does not have the benefit of the assumption. If the Minister adduces alternate evidence to support the assessment then there is a tactical burden on the taxpayer to challenge it, but, in theory, the taxpayer need do “no more” than bring evidence to unseat the assumptions.

This is very interesting to ponder over. How I see this; is … being that during a tax audit, the Minister has the right to make assumptions in the absence of facts… when a taxpayer comes to court, the taxpayer has to bring evidence to unseat the assumption. This is different that simply proving the Minister’s assumptions wrong.


A good example of this is if the Minister assumes no income, but the taxpayer shows that the taxpayer reported income on his tax return, it does not prove there was income. It only shows that the taxpayer claimed income which would unseat the Minister’s assumption. Certainly the tax return did not prove the income as would bank deposits, but it does unseat the assumption of no income.

32     The taxpayer has a number of ways of meeting the Minister’s assumptions: Pillsbury at 5188. The taxpayer may
(a)               challenge the Minister’s allegation that he did assume those facts,
(b)               assume the onus of showing that one or more of the assumptions was wrong, or
(c)        contend that, even if the assumptions were justified, they do not of themselves support the assessment.
These points are subtle but powerful.

33     In response to the taxpayer’s submissions, the Crown may adduce its own evidence to prove either that the assumptions are correct or to show that, even without relying on the assumptions, the assessment is nevertheless valid: Pillsbury at 5188; Pollock at 6053. The Crown may also challenge the taxpayer’s evidence, either on cross-examination, or by raising serious issues of credibility. A court may draw a negative inference “from the taxpayer’s failure to adduce material evidence in the taxpayer’s possession or control” and conclude the taxpayer has not met its initial burden of disproving one or more of the assumptions: Trac at para. 31. Once all the evidence is in, the judge must weigh it and first determine whether the taxpayer has met the initial legal burden with respect to the assumptions. If the taxpayer has failed to meet its burden, then the Crown need not go on to discharge its conditional legal burden because the precondition has not been met.


How I see this, is that the taxpayer ought to provide as much proof as possible at all times.

34     If the taxpayer has successfully discharged its legal burden with regard to an assumption, the Crown may not rely on that assumption in attempting to prove the validity of the assessment. If unproven assumptions are necessary to the assessment, the taxpayer will succeed. Assumptions not disproven are deemed facts which, if sufficient to establish the Minister’s case, will cause the appeal to fail.


So we get that one must be very cognizant of all the assumptions made by the Minister and disprove all of them.

35     In summary form, the proper approach on the appeal of a tax assessment may be described thus:

i.         What are the assumptions?

ii.        Have some or all of the assumptions been disproven? (i.e., has the taxpayer discharged the initial legal burden?)

iii.      If the taxpayer has successfully discharged the initial legal burden, then has the Crown shown that the assessment is valid? (i.e., has the Crown discharged the conditional legal burden?)


This is a wonderful clarification. I have traditionally looked at a tax case as “what are the issues?”

Now I will still start with the issues, then in addition, I will outline what assumptions the Minister made and indicate my plan to disprove those assumptions. This may not sound too noteworthy, but based on what Justice Webb has written, I now have my eyes wide open about this. Previously in court I did talk about onus, but this approach is much clearer, of better process and gives the judge something to help him make decisions on.

[26]         It seems to me that the conclusion to be drawn is simply that the Appellant has the initial onus of proving on a balance of probabilities (i.e. that it is more likely than not), that any of the assumptions that were made by the Minister in assessing (or reassessing) the Appellant with which the Appellant does not agree, are not correct. This is a general rule and there are exceptions if the assumption that is made is related to a matter which is within the knowledge of the Minister. In the decision of the Federal Court of Appeal in The Queen v. Anchor Pointe Energy Ltd., 2007 FCA 188, Létourneau J.A. stated that:

[35]      It is trite law that, barring exceptions, the initial onus of proof with respect to assumptions of fact made by the Minister in assessing a taxpayer’s liability and quantum rests with the taxpayer. …

[36]      I agree with Bowman A.C.J.T.C., as he then was, that there may be instances where the pleaded assumptions of facts are exclusively or peculiarly within the Minister’s knowledge and that the rule as to the onus of proof may work so unfairly as to require a corrective measure: see Holm et al. v. The Queen, supra, at paragraph 20.**

**[20]          I mention in passing another practice that will require re-examination and that is the pleading as “assumptions” facts that are exclusively or peculiarly within the Minister’s knowledge and then, at the same time as the Minister alleges that the taxpayer has the onus of disproving those facts, he (or she) also refuses to disclose the basis of the assumptions because it is said that the information is confidential, secret or privileged. The unfairness of this practice is evident. (apparent/evident)
I am including extra data from the Holm case… as I think it is relevant. SEE *** at the end of my insertion.

[21]          Nonetheless, I do not propose to apply any of the sanctions or remedies that might be available in other circumstances. Counsel allege that sub paragraph 5d) is an abuse of the process of this court. In some circumstances I would agree that pleading as an assumption a fact that was not made (or could not possibly have been made as in Anchor Pointe Energy Limited v. The Queen, 2002 DTC 2071) calls for a severe sanction. However I am dismissing the motion for several reasons.

(a)     To plead as an assumption a fact that was undoubtedly assumed when the assessment was confirmed but arguably not when the assessment was issued may reflect an erroneous interpretation of the words “the findings or assumptions of fact made by the Minister when making the assessment” as used in the rules of this court, but it is not an egregious or flagrant abuse of this court’s process. To conjure up “assumptions” that were never made at any time until the reply was drafted is of course a much more serious breach of the Crown’s responsibilities and calls for a more severe remedy. I agree with the observation of Rip J. in Anchor Pointe and General Motors Acceptance Corporation of Canada Limited v. The Queen, 99 DTC 975, that assessment means assessment, not confirmation. Nonetheless, there is some authority for the proposition that confirmation may be a part of the assessing process. For example, in Parsons et al. v. M.N.R., 83 DTC 5329 (reversed on a different point) at p. 5332 Cattanach J. said

Upon receipt of a notice of objection it is the duty of the Minister with all due dispatch to reconsider the amount. This has been referred to by counsel for the respondent as an “in-house” appeal.
In my opinion it is not an appeal. It continues to be part and parcel of the assessment process.
The introduction of that case of Holm vs the Queen stated:

1]            These motions were brought by the appellants for an order allowing the appellants’ appeals or, in the alternative, for an order striking out the replies to the notices of appeal in their entirety coupled with an order that the respondent not be permitted to file fresh or amended replies. In the further alternative they request an order that paragraph 5 of the replies (paragraph 7 in the appeal of Reverend Powell) be struck out. The basis of the motions is that the respondent pleaded as an “assumption” a fact that the appellants say was not assumed at the time the assessments were made.

So what we get out of this, if the Minister assesses and a taxpayer files a notice of objection (also noted as an in house appeal) which and the Minister confirms the assessment. The Minister can not assume any facts after that point in time.


If the taxpayer files an appeal to the confirmed assessment, the Minister may not introduce new assumptions in their reply to the appeal.

[27]         This is not a case “where the pleaded assumptions of facts are exclusively or peculiarly within the Minister’s knowledge and that the rule as to the onus of proof may work so unfairly as to require a corrective measure”. Therefore the Appellant in this case has the initial onus of proving that any assumptions, that were made in reassessing the Appellant for 2002 with which the Appellant does not agree, are not correct. There are two items in dispute in relation to the reassessment of the Appellant’s 2002 tax liability. One is related to the real property transactions and the other is related to the amounts paid by the insurance company in relation to claims filed by the Appellant.

[28]         The real property transactions that have resulted in the reassessment of the Appellant for 2002 are the following:

Property    22 Pembroke Road    428 Redonda Street
Date purchased:    February 15, 2002    September 11, 2002
Date sold:    August 16, 2002    December 13, 2002
Total cost:    $90,520    $81,486
Net Proceeds of sale:    $122,319    $83,725
Gain:    $31,799    $2,257.00

[29]         The first property was held for approximately six months and the second for approximately three months. It is the position of the Appellant that any gain realized on the sale of these properties is income of his daughter. If any gain is income of his daughter, then it will not matter whether the gain is a capital gain or an income gain as only the reassessment of the Appellant is in issue in this case. How his daughter should have reported such gain (if such gain should have been reported by her) is not in issue in this case.
It was the taxpayer’s position that the houses were bought and sold for the sole benefit of his daughter.

[30]         It is the position of the Respondent that the gains realized on the sales of these two properties in 2002 were income gains of the Appellant.

[31]         The Appellant and his spouse have three children. Their daughter, Jessalyn, would have been 20 years old in 2002. Their other two children would have been 17 and 13 in 2002. Jessalyn Wiens graduated from high school in 2001 and worked part time at Smitty’s restaurant and the retail store operated by the Appellant. It was assumed in the Reply that Jessalyn Wiens was paid $4,000 for working at the store in 2002 and the Appellant has not established that this assumption was not correct. She was living with the Appellant in 2002 prior to the purchase of the Pembroke Road property.

[32]         It is the position of the Appellant that the money required to purchase the property located at 22 Pembroke Road was advanced to Jessalyn Wiens from a line of credit that the Appellant and his spouse had with CIBC. It is not clear whether the amount advanced from the line of credit was the full purchase price of $90,520 (including repairs and improvements) or a down payment amount (with the balance being financed from another loan). Jessalyn Wiens graduated from high school in 2001. The property at 22 Pembroke Road was acquired on February 15, 2002 which was before she started working at the retail store operated by the Appellant. The Appellant did not start operating the retail store until July 2002. Therefore it appears that the only income that Jessalyn Wiens had from the end of June 2001 (when she graduated from high school) to mid February 2002, would have been whatever income she earned from her job at Smitty’s restaurant. It is more likely than not that Jessalyn Wiens did not have any money to apply towards the purchase of the property located at 22 Pembroke Road.

[33]         The Appellant introduced a letter from Currie Accounting Services Ltd. to the Canada Revenue Agency. Attached to this letter is a schedule that is identified as “Jessalyn Wiens Real Estate Transactions 2002 & 2003”. This schedule appears to list various amounts borrowed by and repaid by Jessalyn Wiens. However, as noted above, only two witnesses testified at the hearing. The first witness, the Appellant’s spouse, did not address this schedule. The only testimony related to this schedule was that of the Appellant. His testimony in relation to this schedule was as follows:

Q.        Mr. Wiens, if you could take a look at the last page I was about to ask you something on where it is entitled across the top “Jessalyn Wiens Real Estate Transactions 2002, 2003″. It’s the third page of the last exhibit. The bottom number on the right hand corner is 245. We had some discussion earlier, and I think we came to the agreement that this was prepared by your previous accountant. My first question to you is: Have you seen this before?

A.        No.
Q.        Can you read what “Explanations” says, and what that means to you, just to get familiar? For instance, the first line under “Explanations”, the “Borrowed from dad for down payment on first house,” what would that mean to you?
A.        There, there is $10,000 so that must have been a loan to her.
Q.        Do you see on the far right “Balance owed to dad, $10,000″? Would that seem to be about how loaning your money to your daughter was handled?
A.        Yes. I have never seen this before, but it seems to be something dealing with loans for houses.
Q.        As you read down, you see that money was paid out to various parties. As it is paid out down the right side of the page, it appears that the balance owing to dad keeps increasing. Do you see that?
A.        Yes.
Q.        If we get right down to the bottom and we look underneath the trust account and it says the trust account balance is zero, it says the total paid back is $105,907.35 and then “Final balance to dad” was $97,013.80.  That is what it says there. If you look at that and then you look at the bottom, immediately below that it says “Total borrowed $148,000 and some. Total paid back, $245,000 and some”. That would appear to take us to the last statement, “September 30, 2003, Dad holding $97,000 to purchase house in Lorette”. Did that money go to your daughter to buy the house in Lorette?

A.        I think the house in Lorette was $75,000 but there were some improvements also done there, and they didn’t have money. I think they had a new baby then when they moved in. It’s foggy. They didn’t have a lot of money. Between me and my daughter, we didn’t keep this type of accounting. It looks like somebody put a lot of work into this. They are probably missing something. Between a father and a daughter, everyone knows you are not going to strictly make her pay back everything she owes or not give her money when she needs it. It is very loose accounting between me and her; between me and my wife and her. Someone spent a lot of time going into specifics. I agree    and I’m sure Jessie would agree too    that we were even after that house.
This testimony hurt the appellant because it indicated that there was no recourse to the loan and makes it look like the daughter was less involved and really the mind and management of the buying and selling of these houses was the appellant and not the daughter.
[34]         Since the first time that the Appellant saw this schedule was during the hearing this schedule was obviously not prepared by the Appellant or reviewed by the Appellant during 2002 or at any other time prior to the hearing. As well since the Appellant stated that he and his daughter did not “keep this type of accounting” it raises questions about whether it really was the intention of the Appellant that he intended to create a debtor / creditor relationship with Jessalyn Wiens. His statement that “everyone knows you are not going to strictly make her pay back everything she owes” confirms that he did not intend to create an enforceable obligation on the part of Jessalyn Wiens to repay amounts used to purchase properties that were put in her name. If they would have intended to create an enforceable obligation, then presumably they would have maintained a schedule similar to the one submitted at the hearing.
This is an important lesson for parents who are looking to help their children in obtaining home ownership. If the agreement is too lose, the income would attribute to the parent and the equity earned would be a gift from the parent to the child.

[35]         I find that there was no intention to create an enforceable obligation for Jessalyn Wiens to repay amounts used to purchase the properties that were in her name.

[36]         During cross-examination of the Appellant, the following exchange took place:

Q.        You are saying to us today that it is Jessalyn who owns these properties. Do you agree with me so far?
A.        I’m saying it was Jessalyn?
Q.        Yes.
A.        The land title said it was Jessalyn’s.
Q.        Your evidence today is that it was Jessalyn. Would you agree with that?
A.        As far as I know, yes.

[37]         The registration of the title at the applicable registry office would simply relate to the legal title to the property. For the purposes of this appeal the issue is whether Jessalyn Wiens was the beneficial owner of the property, not whether she was the legal owner of the property.


This is a very important factor to consider as beneficial is to taxation what legal has to do with control. The appellant realized the gain, because the gains would go back to his bank account, but the daughter had legal control over the property.

[38]         Jessalyn Wiens had no money to contribute towards the purchase of the property located at 22 Pembroke Road, which was the first property that was acquired in 2002. The only evidence at the hearing was that the line of credit was used to finance the purchase of the houses in 2002. The line of credit was a personal line of credit of the Appellant and his spouse. The fact that the spouse was a joint owner of the bank account, that brings her into the beneficial owner picture. A copy of the statement for the line of credit dated July 10, 2002 was introduced at the hearing. This statement shows that as of June 8, 2002 the amount outstanding under this line of credit was $91,307 which was slightly more than the total cost of the property located at 22 Pembroke Road. This was also approximately one month before the retail store opened and approximately four months after the Pembroke property had been acquired.

To make things real, the daughter should have had the proceeds of each house sold go to her bank account and not to the account of her parents.

[39]         The Appellant also stated that the proceeds realized from the sale of the properties were deposited in the same account (which, since the only statement introduced in relation to the line of credit shows that there was a balance outstanding under the line of credit, would mean that the sale proceeds would be applied against the amount outstanding under the line of credit). Jessalyn Wiens was not liable under the line of credit with CIBC. The Appellant and his spouse were liable under this line of credit. When the amounts received from the sale of the properties were applied against the amounts outstanding under the line of credit, the Appellant and his spouse received the benefit from the sale proceeds since such proceeds reduced their indebtedness to CIBC.


This is key evidence as to who received exactly what benefit. The paying off of a loan can only be done with after tax income or you will be taxed on that amount. (Minus expenses to get net income.)

[40]         I find that Jessalyn Wiens did not acquire any beneficial interest in the property located at 22 Pembroke Road or 428 Redonda Street in 2002.


One has to agree, because the question has to be asked… “What benefit did Jessalyn receive?” The answer being that the money went to her parent’s bank account, there does not appear to be any benefit to Jessalyn upon the sale of each of the properties
.

[41]         The next question is whether the Appellant was the beneficial owner or whether the Appellant and his spouse were the beneficial owners of these properties. The only source of funds that was identified in relation to the purchase of the properties in 2002 was the amount that was borrowed under the line of credit. When the amount was borrowed to purchase the property located at 22 Pembroke Road, both the Appellant and his spouse were liable to repay the amount borrowed from CIBC since both individuals are identified in the statement for the line of credit. There is no indication that the Appellant used any of his own funds.  (This is a fine detail to consider in that borrowed money is not his money, it is the banks money. Had he taken his own money to loan his daughter, then there would be no financial benefit to the appellant in having a loan paid back without interest. ) in relation to the purchase of either one of the two properties in 2002. It appears that the proceeds from the sale of the property located at 22 Pembroke Road were applied against the amount outstanding under the line of credit (which benefitted both the Appellant and his spouse now this begins to implicate his spouse, although it would be very hard for CRA to make this attack back on statute barred years.)  and that the line of credit was again used to finance the purchase of the property located at 428 Redonda Street. Again the proceeds from the sale of this house were applied against the amount outstanding under the line of credit (which again benefitted both the Appellant and his spouse).

[42]         As a result it does not seem to me that the Appellant acquired all of the beneficial interest in the properties in 2002 but rather that he acquired one-half of the beneficial interests in these properties. (Because his wife was also on the personal line of credit that was used to finance the purchase of the various houses.) Therefore, in my opinion, the Appellant should only be required to report one-half of the gain realized on the sales of these properties. It is not necessary to find that there was any partnership between the Appellant and his spouse, it is only necessary to find that he was only the beneficial owner of a one-half interest in the properties.
Hence the appellant would only be liable for half the income CRA assessed against him. However now the question comes up was this income or capital gain…

[43]         The next question is whether the gain realized should be reported as an income gain or as a capital gain. In Friesen v. The Queen, 95 DTC 5551, Justice Major writing on behalf of a majority of the Justices of the Supreme Court of Canada stated as follows:
The concept of an adventure in the nature of trade is a judicial creation designed to determine which purchase and sale transactions are of a business nature and which are of a capital nature. This question was particularly important prior to 1972 when capital transactions were completely exempt from taxation. The question was succinctly stated by Clerk, L.J. inCalifornian Copper Syndicate v. Harris (1904), 5 T.C. 159 (Ex., Scot.), at p. 166:

Is the sum of gain that has been made a mere enhancement of value by realising a security, or is it a gain made in the operation of business in carrying out a scheme for profit-making?


Now we get into what is a business and what is an adventure in trade. In this case the appellant does not meet the test of being a business, so we have to look does it qualify as an adventure in trade… an activity with an expectation of profit.

The first requirement for an adventure in the nature of trade is that it involves a ‘scheme for profit-making’. The taxpayer must have a legitimate intention of gaining a profit from the transaction. Other requirements are conveniently summarized in Interpretation Bulletin IT-459 ‘Adventure or Concern in the Nature of Trade’ (September 8, 1980) which references Interpretation Bulletin IT-218 ‘Profit from the Sale of Real Estate’ (May 26, 1975) for a summary of the relevant factors when the property involved is real estate. IT-218R, which replaced IT-218 in 1986, lists a number of factors which have been used by the courts to determine whether a transaction involving real estate is an adventure in the nature of trade creating business income or a capital transaction involving the sale of an investment. Particular attention is paid to:

(i)                  The taxpayer’s intention with respect to the real estate at the time of purchase and the feasibility of that intention and the extent to which it was carried out. An intention to sell the property for a profit will make it more likely to be characterized as an adventure in the nature of trade.

This is a very important point, which demonstrates the importance of written plans, which could also be referred to as a journal. I believe that a journal is an important way to document Reasons and Rationals of decision making. This becomes a record to fall back on for a variety of reasons.

(ii)               The nature of the business, profession, calling or trade of the taxpayer and associates. The more closely a taxpayer’s business or occupation is related to real estate transactions, the more likely it is that the income will be considered business income rather than capital gain.

This is another point in the case at hand. The Appellant had a history in buying and selling of homes. This took the spotlight on his experience and probabilities that this was an endeavour fr the purpose of making money. Had he not taken all the proceeds into his account before giving the money earned to his daughter, things could have looked quite differently in the eyes of the judge.

(iii)               The nature of the property and the use made of it by the taxpayer.
In this case there were times when the house was not occupied by the daughter.
(iv)              The extent to which borrowed money was used to finance the transaction and the length of time that the real estate was held by the taxpayer. Transactions involving borrowed money and rapid resale are more likely to be adventures in the nature of trade.

In this case, the homes were financed by the line of credit over short periods of time where the houses where not held for long term uses. There were quite plausible explanations of why the turn overs were rapid, but none the less the facts are that  the turn arounds were quite frequent.

[44]         In Canada Safeway Limited v. The Queen, 2008 FCA 24, 2008 DTC 6074,[2008] 2 C.T.C. 149, Justice Nadon, writing on behalf of a majority of the Justices of the Federal Court of Appeal, stated that:

61     A number of principles emerge from these decisions which I believe can be summarized as follows. First, the boundary between income and capital gains cannot easily be drawn and, as a consequence, consideration of various factors, including the taxpayer’s intent at the time of acquiring the property at issue, becomes necessary for a proper determination. *(This is why we stress so much around indicating intent by way of business planning. )  Second, for the transaction to constitute an adventure in the nature of trade, the possibility of resale, as an operating motivation for the purchase, must have been in the mind of the taxpayer.(By nailing down intent in a business plan it demonstrates intent at time of queston.)   In order to make that determination, inferences will have to be drawn from all of the circumstances. In other words, the taxpayer’s whole course of conduct has to be assessed. Third, with respect to “secondary intention”, it also must also have existed at the time of acquisition of the property (Note that if you intend to keep and not resell at the time in question, that is in your favour. )  and it must have been an operating motivation in the acquisition of the property. Fourth, the fact that the taxpayer contemplated the possibility of resale of his or her property is not, in itself, sufficient to conclude in the existence of an adventure in the nature of trade. In Principles of Canadian Income Tax Law, supra, the learned authors, in discussing the applicable test in relation to the existence of a “secondary intention”, opine that “the secondary intention doctrine will not be satisfied unless the prospect of resale at a profit was an important consideration in the decision to acquire the property” (see page 337). I agree entirely with that proposition. Fifth, the viva voce evidence of the taxpayer with respect to his or her intention is not conclusive and has to be tested in the light of all the surrounding circumstances.

[45]         The Appellant’s stated intention in acquiring the Pembroke Road property was to provide his daughter with a place to live. He stated that she did live there for a few months. As noted, the statement of the Appellant’s intentions is not conclusive and must “be tested in the light of all the surrounding circumstances”. In this case it appears that the full amount of the purchase price of 22 Pembroke Road was financed by amounts borrowed from the line of credit of the Appellant and his spouse. It seems to me that a line of credit would be a short term form of financing and not, in general, a long term form of financing. The use of short term financing to purchase the property would support a conclusion that the sale of the property was an adventure in the nature of trade.
This brings us back to the point of seeing that this real estate endeavour because it had short term financing, makes it look like a short term money making exercise… e.g. if this was to be a long term loan… there should have been a mortgage put on the property.

[46]         The personal line of credit statement dated July 10, 2002 indicates that the previous balance was $91,307 and that this increased to $108,761 by July 10, 2002. The Appellant’s income for 2002, not including the loss related to the store, consisted of:

Employment income:                                          $32,500

Dividends                                                            $1,250

Total:                                                                  $33,750

[47]         The Pembroke Road property did not produce any income (except the income arising as a result of the sale of the property).  This property was acquired on February 15, 2002 which was approximately 4.5 to 5 months before the Appellant started to operate the retail store in July 2002. The only evidence in relation to the income of the Appellant’s spouse in 2002 is that she was not paid while she was working at the retail store. The Appellant introduced into evidence an excerpt from his tax return for 2003. The excerpt included the first page of this return but the net income amount for his spouse was redacted. Therefore the only sources of funds that were identified at the hearing that could be used to repay the amount borrowed from the line of credit to purchase this property, other than any amount realized from the sale of this property, were the employment income and dividend income of the Appellant as stated above. Since the amount owing on the line of credit was increasing during a period of time when no properties were being acquired, it appears that his income was being used for other expenditures. The Appellant would presumably have to use his income for the living expenses for himself and his spouse and his two other children who were living at home after February 15, 2002. If reselling the property was not an important consideration when the property was acquired in February 2002, how would the amount borrowed against the line of credit be repaid?

[48]         The property located at 428 Redonda Street was acquired approximately one month after the property located at 22 Pembroke Road was sold. It was acquired for $81,486. There was no indication of the balance of the line of credit on September 11, 2002 but since this was after the retail store was operating and since the Appellant indicated that he was losing money in operating this store, it seems more likely than not that there was an outstanding balance owing under the line of credit when the Redonda Street property was acquired. It would again seem that the only feasible way that the amount borrowed against the line of credit to purchase this property could be repaid would be if this property was sold.

[49]         The very short holding periods (approximately six months for the Pembroke Road property and three months for the Redonda Street property) support a finding that the purchase and sale of these properties was an adventure in the nature of trade. The use of the line of credit to finance the purchase of these properties (which would be a form of short term financing) would also support a finding that the purchase and sale of these properties was an adventure in the nature of trade.[3]

[50]         As a result I find that the gain on the properties sold in 2002 was an income gain and not a capital gain. I also find that one-half of this gain should have been included in determining the income of the Appellant for 2002 as he held one-half of the beneficial interest in these properties.

[51]         The other item in issue for 2002 is the amount paid by the insurance company in relation to claims filed in respect of break-ins at the retail store. The retail store was the target of a number of break-ins. The amount included in the Appellant’s income for 2002 (By the CRA auditor)  in relation to the insurance payments was $10,914. A copy of the fax from ING Insurance dated September 1, 2006 was introduced at the hearing. In this fax it is indicated that the amount paid was in relation to two separate claims:

Claim for Break and Enter on November 14, 2002:           $7,281

Claim for Break and Enter on November 17, 2002:           $3,633

Total:                                                                           $10,914

[52]         In a subsequent fax from ING Insurance dated September 14, 2006 it is stated that:

For the first claim of November 14, 2002; the client had claimed a loss of $4,238.99 consisting of lost property – namely 55 cartons of Cigarettes, Cash ($500.) and a Cash Register. We paid the client $3,738.99 which was the loss amount less the $500 policy deductible. The rest of the payments were to contractors for repair of the glass, door and lock. These repairs were done in December, after the time of all 3 losses. Hence, no repair expenses claimed in the next 2 losses. Part of the expense payment was an emergency call to “board-up” the broken glass until permanent repairs could be made. This was done immediately after the first loss.

For the Second Claim of November 17, 2002; the client claimed a loss of $4,133.00 which again consisted of Cigarettes, Cash ($50. – $60.) and a Cash Register. We paid the client $3,633.00 which was the loss less the $500 policy deductible.

[53]         Therefore, of the $7,281 paid in relation to the first claim, $3,739 was paid to the Appellant and the balance of $3,542 was paid by the insurance company to the contractors who did the repair work. As noted by Justice Rothstein in F.H. v. McDougall, above:

48     Some alleged events may be highly improbable. Others less so. There can be no rule as to when and to what extent inherent improbability must be taken into account by a trial judge. As Lord Hoffmann observed at para. 15 of In re B:

Common sense, not law, requires that in deciding this question, regard should be had, to whatever extent appropriate, to inherent probabilities.

It will be for the trial judge to decide to what extent, if any, the circumstances suggest that an allegation is inherently improbable and where appropriate, that may be taken into account in the assessment of whether the evidence establishes that it is more likely than not that the event occurred. However, there can be no rule of law imposing such a formula.


When it comes to dealing with improbabilities, it is clear that a judge needs to really ponder a case before ruling on it. This is not something that can really be properly done during the trial.

[54]         In this particular case the event in question is whether the Appellant would have deducted the amount paid by the insurance company to the contractors for the repairs in determining his income from the sole proprietorship. Since the Appellant did not pay the contractors, it seems to me that it was inherently improbable that this occurred. (This was an issue during the trial, as I was put in the awkward spot of proving something did not happen, when I did not have all the backup data to prove no income or expense was claimed because it was a wash.) I requested. )As a result it seems to me that it is more likely than not that the Appellant would not have claimed a deduction for the amount paid to the contractors for repairs and therefore no amount should have been added to the Appellant’s income for this amount. If this amount were to be added to the Appellant’s income, then he would be entitled to claim a deduction for repairs in the same amount and therefore no net amount would be added to his income. As a result, the Appellant’s income is reduced by the amount of $3,542 (which is the amount paid by the insurance company to the contractors).
So in this case the law of improbabilities saved the day.
[55]         With respect to the balance of the amount paid in relation to the first claim ($3,739) and the amount paid in relation to the second claim ($3,633), no breakdown was provided for the amount claimed for the loss of cigarettes and the loss of the cash register. InTransocean Offshore Limited v. R., [2005] 2 C.T.C. 183, 2005 DTC 5201[4], Sharlow J.A. of the Federal Court of Appeal stated as follows:

For the purposes of Part I of the Income Tax Act, the answer to that question requires the application of a judge-made rule sometimes called the “surrogatum principle”, by which the tax treatment of a payment of damages or a settlement payment is considered to be the same as the tax treatment of whatever the payment is intended to replace.
Surrogatum Principle

I have added a lot of information here, because I see this as an important principle to understand.


For taxation in Canada purposes, damages or compensation received, either pursuant to a court judgment or an out-of-court settlement, may be considered as on account of income, capital, or windfall to the recipient. The nature of the injury or harm for which compensation is made generally determines the tax consequences of damages. Under the surrogatum principle, the tax consequences of a damage or settlement payment depend on the tax treatment of the item for which the payment is intended to substitute.[4]


As a judge-made tax principle, the surrogatum principle must relate to tax treatment, not just to the nature of the payment, though in most cases the two will go hand-in-hand. The surrogatum principle should apply to assist in reaching a tax result in accordance with the tax legislation, not to encourage a result of either windfall at one end of the spectrum, or double taxation at the other end. The surrogatum principle should apply to maintain tax neutrality of damages.[5]


If a taxpayer in the course of carrying on a business or earning income from a property receives damages or similar compensation, such as that received as a result of another party’s breach of contract or tortuous act, the receipt will be either income or capital for income tax purposes. As a general rule, the courts have held that the character of such a receipt will depend on the character of the item or subject matter that the receipt is intended to replace. This judge-made rule is often described as the “surrogatum principle”.


The general principle is that damages in lieu of receipts that would otherwise have been taxable to the taxpayer are taxable as income.


“Where, pursuant to a legal right, a trader receives from another person, compensation for the trader’s failure to receive a sum of money which, if it had been received, would have been credited to the amount of profits (if any) arising in any year from the trade carried on by him at the time when the compensation is so received, the compensation is to be treated for income tax purposes in the same way as that sum of money would have been treated if it had been received instead of the compensation. The rule is applicable whatever the source of the legal right of the trader to recover the compensation. It may arise [1] from a primary obligation under a contract, such as a contract of insurance; [2] from a secondary obligation arising out of nonperformance of a contract, such as a right to damages, either liquidated, as under the demurrage clause in a charter party, or unliquidated; [3] from an obligation to pay damages for tort . . . ; [4] from a statutory obligation; [5] or in any other way in which legal obligations arise.” [6]


Thus, one must determine whether the receipts, in lieu of which the damages compensate, would have been taxable. Note, however, the characterization of damages as taxable income or non-taxable capital receipts depends upon the nature of the legal right settled and not upon the method used to calculate the award.
Case law


In the seminal case of London and Thames Haven Oil Wharves, [1967] 2 All E.R. 124, the taxpayer’s jetty, which was used in its income-earning operations, was damaged by an oil tanker. In settlement of a tort claim for negligence, the taxpayer received compensation from the owner of the oil tanker, part of which compensated for the loss of the jetty during the period of repair. In holding that the compensation effectively replaced the taxpayer’s profits and was therefore taxable as income, Lord Diplock of the House of Lords described the guiding principle as follows:


“I start by formulating what I believe to be the relevant rule. Where, pursuant to a legal right, a trader receives from another person compensation for the trader’s failure to receive a sum of money which, if it had been received, would have been credited to the amount of profits (if any) arising in any year from the trade carried on by him at the time when the compensation is so received, the compensation is to be treated for income tax purposes in the same way as that sum of money would have been treated if it had been received instead of the compensation. The rule is applicable whatever the source of the legal right of the trader to recover the compensation. It may arise from a primary obligation under a contract, such as a contract of insurance; from a secondary obligation arising out of non-performance of a contract, such as a right to damages, either liquidated, as under the demurrage clause in a charterparty, or unliquidated; from an obligation to pay damages for tort, as in the present case; from a statutory obligation; or in any other way in which legal obligations arise.”


In Commissioners of Inland Revenue v. Fleming & Co. (Machinery), Ltd., (1951), 33 TC 57, the taxpayer received an amount as compensation for the loss of a sales agency agreement with a manufacturer of explosives. The taxpayer had been the sole selling agent pursuant to the agreement. The amount paid to the taxpayer was arrived at by doubling the normal annual commission that it had received pursuant to the agreement. The agency provided between 30% and 45% of the company’s total earnings in commissions. In finding that the amount received by the taxpayer was income, Lord Russell formulated the following test, which has been cited in several subsequent Canadian cases and is also described in paragraph 8 of Interpretation Bulletin IT-365R2:
“When the rights and advantages surrendered on cancellation are such as to destroy or materially to cripple the whole structure of the recipient’s profit-making apparatus, involving the serious dislocation of the normal commercial organization and resulting perhaps in the cutting down of the staff previously required, the recipient of the compensation may properly affirm that the compensation represents the price paid for the loss or sterilization of a capital asset and is therefore a capital and not a revenue receipt … On the other hand when the benefit surrendered on cancellation does not represent the loss of an enduring asset in circumstances such as those above mentioned — where for an example the structure of the recipient’s business is so fashioned as to absorb the shock as one of the normal incidents to be looked for and where it appears that the compensation received is no more than a surrogatum for the future profits surrendered — the compensation received is in use to be treated as a revenue receipt and not a capital receipt.”


In contrast, if a contract constitutes a significant part of the company’s business structure, compensation paid on the termination of the contract may be on capital account. In Van den Berghs, Ltd. v. Clark, [1935] A.C. 431, the taxpayer was an English company that entered into an agreement with a competing Dutch company which provided that the two companies (which were manufacturers and dealers in margarine) would conduct their businesses in cooperation with one another along certain prescribed lines and that they would share profits or losses. The agreement was to run for thirty years, but differences subsequently arose over the proper distribution of the profits. A settlement was reached under which a lump-sum amount was paid by the Dutch company to the taxpayer and the agreement was terminated. The House of Lords held that the rights of the taxpayer under the agreement constituted a capital asset and the sum paid for their cancellation was a capital receipt.


The case of Parsons-Steiner Ltd. v. Minister of National Revenue, 62 DTC 1148 (Ex. Ct.) was one of the first in Canada to consider the nature of damages received upon the termination of a business contract. The taxpayer received a lump-sum payment upon the cancellation of a sales agency contract under which it sold “Doulton” figurines and china products. This agency, when combined with another with the same company, accounted for 80% of the taxpayer’s business and in the last two or three years of the agency one of the products accounted for 55% of the taxpayer’s business. The agency relationship had lasted twenty years prior to its termination. Given the length of the agency relationship, its importance to the taxpayer’s business operations, and the fact that the taxpayer suffered decreased sales by reason of its inability to replace the agency with an equivalent arrangement, the Exchequer Court found the damages to be capital. The Court held that the damages related to the loss of the taxpayer’s interest in the goodwill and business in Doulton products in Canada, which the Court viewed as “a capital asset of an enduring nature”.


In H. A. Roberts Ltd. v. Minister of National Revenue, 69 DTC 5249, the taxpayer carried on a mortgage business in one of its five departments, having obtained two mortgage agencies (as well as a third less significant agency). The mortgage department was operated as a separate division from the taxpayer’s other businesses. The net income of the mortgage department ranged from 27% to 51% of the taxpayer’s total net income. The two agencies were cancelled and pursuant to the agency agreements the taxpayer received compensation payments. The cancellation of the agencies terminated the taxpayer’s mortgage business; the department was closed and the staff was disbanded. In holding that the payments were capital, the Supreme Court of Canada held that the loss of the two agencies represented “the loss of capital assets of an enduring nature the value of which had been built up over the years and that therefore the payments received by this appellant represented capital receipts”.


In The Queen v. Manley, 85 DTC 5150, the taxpayer was hired to find a purchaser for the shares of a family-owned company in exchange for a finder’s fee. When he found such a purchaser but was not paid, he sued the former controlling shareholder of the company, who on behalf of the other family shareholders had agreed to pay the finder’s fee. The taxpayer was successful in the lawsuit and was awarded damages for the shareholder’s breach of warranty of authority. In holding that the damages were income from a business, the Federal Court of Appeal held that they were compensation for the failure to receive the finder’s fee, which would have been income from a business because the taxpayer had engaged in an adventure in the nature of trade.
In Canadian National Railway Company v. The Queen, 88 DTC 6340, the taxpayer received an amount upon the termination of a contract for the transportation by road and rail of certain supplies and building materials. Justice Strayer of the Federal Court–Trial Division held that the operations under the contract did not constitute a separate business and that they were not that significant that the termination of the contract destroyed the taxpayer’s “profit-making apparatus” or seriously dislocated its “normal commercial organization”. He went on to hold that the purpose of the compensation provision in the contract was to enable the taxpayer to “absorb the shock as one of the normal incidents to be looked for” and that the compensation received was “no more than a surrogatum for the future profits surrendered”. As a result, the payment was income. In contrast, in Pe Ben Industries Company Limited v. The Queen, (88 DTC 6347), heard concurrently with Canadian National Railway, a similar payment was held to be capital. In that case, Justice Strayer concluded that the payment was compensation for the destruction of a distinct part of the taxpayer’s business. It had been the first “intermodal” undertaking of the taxpayer, which required it to establish a base of operations at a rail yard solely for that purpose. Justice Strayer held that the termination of the contract put an end to the intermodal operations of the taxpayer, such that the payment was capital. He went on to hold that the taxpayer’s rights under the contract constituted “property” and that the termination payment constituted “compensation for property destroyed” and therefore proceeds of disposition received in respect of the property. Since the taxpayer had a nil adjusted cost basis in the contract, the amount of the termination payment was a capital gain.


In T. Eaton Company Limited v. The Queen, 99 DTC 5178, the taxpayer was a tenant under a long-term lease for retail space in a shopping centre. The terms of the lease included a “participation clause” entitling the taxpayer to 20% of the annual net profits of the shopping centre over the duration of the lease. For several years, the taxpayer reported the amounts received under the participation clause as income. In 1989, the landlord offered to buy out the participation clause for $9.25 million. The offer was accepted and the taxpayer reported the $9.25 million amount as proceeds of the disposition of a capital property that had an acquisition cost of nil. Accordingly, the taxpayer reported a capital gain of $9.25 million. The Minister reassessed the taxpayer on the ground that the entire amount constituted income from a business. The Tax Court of Canada agreed with the Minister and characterized the participation clause as part of an ordinary business contract not forming part of the taxpayer’s capital structure. However, the Tax Court decision was overturned on appeal to the Federal Court of Appeal. The Federal Court rejected the Minister’s position that the participation clause was analogous to an ordinary trade contract. The Federal Court instead characterized the participation clause as an integral part of the lease, which was a capital asset of the taxpayer. The Court held that buy-out of the participation clause had the effect of diminishing the value of this capital asset by $9.25 million. Accordingly, the buy-out amount was on capital account.


Historically, the surrogatum principle has been applied by the courts only in the determination of profit from a business or property under general principles. However, in the case of Tsiaprailis v. The Queen, 2005 DTC 5119, the Supreme Court of Canada applied the principle in its consideration of a more specific statutory provision dealing with amounts received pursuant to a disability insurance plan, namely paragraph 6(1)(f). The case dealt with a lump-sum settlement payment received in respect of a disputed claim under a disability insurance plan. The payment ostensibly represented both past disability benefits accruing to the time of the settlement and the taxpayer’s foregone future benefits under the plan. The Court held that the portion of the lump-sum payment reflecting the taxpayer’s future benefits was not made pursuant to the insurance plan because there was no obligation to make such a lump-sum payment under the terms of the plan. Therefore, such amount was not taxable under paragraph 6(1)(f). However, turning to the portion of the payment that represented the past benefits under the plan, the Court applied the surrogatum principle in concluding that the portion was taxable under paragraph 6(1)(f) because it was meant to replace amounts that were payable pursuant to the plan.
In Transocean Offshore Limited v. The Queen, 2005 DTC 5201, the non-resident taxpayer received a US$40 million lump-sum payment from a group of Canadian residents who had repudiated a bare boat charter agreement. The Federal Court of Appeal held that withholding tax under paragraph 212(1)(d) applied to the payment because it was made “in lieu of” rent that would have been pursuant to the agreement had it not been repudiated. Although the Court did not apply the judge-made surrogatum principle, simply because the “in lieu of” language of paragraph 212(1)(d) effectively constituted a statutory surrogatum rule, Justice Sharlow described the surrogatum principle as follows:


“… a judge-made rule, sometimes called the “surrogatum principle”, by which the tax treatment of a payment of damages or a settlement payment is considered to be the same as the tax treatment of whatever the payment is intended to replace. Thus, an amount paid as a settlement or as damages is income if it is paid as compensation for lost future rent … It is a capital receipt if it is compensation for a diminution of capital of the recipient: Westfair Foods Ltd v. Minister of National Revenue, [1991] 1 C.T.C. 146, 91 DTC 5073 (F.C.T.D.), affirmed [1991] 2 C.T.C. 343, 91 DTC 5625 (F.C.A.).”


“The surrogatum principle need not be considered in this case because the words “in lieu of” in paragraph 212(1)(d) of the Income Tax Act express a similar idea. The fact finding process that precedes the application of the surrogatum principle is similar to the fact finding process that must be undertaken to determine whether a payment has been made “in lieu of” a specified thing. Here, the fact finding exercise was completed when the Judge determined that the US$40 million payment was made as compensation for lost future rent.


More recently, the surrogatum principle was applied by the Tax Court of Canada in Bourgault Industries Ltd. v. The Queen, 2006 DTC 3420, where a settlement payment arising from an infringement of the taxpayer’s patents was held to be on account of lost profits and therefore included in the taxpayer’s income. The principle was also applied by the Tax Court in Bueti et al. v. The Queen, 2006 DTC 3047, where the taxpayer as landlord received a lump-sum payment upon th
e termination of a lease by the tenant. The payment was held to reflect foregone rent under the lease and therefore was included in the taxpayer’s income. Both the Bourgault and Bueti decisions were appealed to the Federal Court of Appeal. Those appeals had not been decided at the time of writing.”

[56]         It seems to me that this principle will apply to the payments made to the Appellant for the lost cigarettes (which would be lost inventory) and for the lost cash. The amount received for the cigarettes that were stolen is a payment for this lost inventory. If the Appellant would have sold these cigarettes, any amount received would have been revenue. The payment made by the insurance company is a payment to replace revenue that the Appellant would have received if the cigarettes would have been sold, even though the amount received may be less than the amount that the Appellant may have received on a retail sale of the cigarettes. There was no indication that the cash that was stolen (and for which the Appellant received payment from the insurance company) was cash that was on hand otherwise than from sales. Therefore it seems to me that the cash that was stolen would have been cash from the sale of items and therefore would have been revenue. The payment of the amount for the lost cash is a payment made to replace the lost revenue. Therefore the payment in relation to the loss of inventory and cash would be income to the Appellant.

[57]         However if any portion of the payment was for the lost cash register, it would be treated as proceeds of disposition of depreciable property of the same class of property as the cash register. Paragraph (c) of the definition of “proceeds of disposition” in subsection 13(21) of the Act provides that proceeds of disposition, for the purposes of determining the undepreciated capital cost of depreciable property, includes “any amount payable under a policy of insurance in respect of loss or destruction of property”.

[58]         The Appellant’s explanation of how he treated the amounts paid by the insurance company was as follows:

Q.        Where it says:

“The auditor adjusted the dollar net income as follows: Increase to gross revenues, insurance proceeds, 2002 and 2003.”  (As Read)

That was how the CRA handled the money from the insurance claim. It would indicate by what I’m reading that they increased your income by the amount of the insurance payout.

A.        I believe I remember    I may be wrong    I didn’t add that to income. I took it off of expenses when I was doing my income tax.

Q.        Can you explain why you wouldn’t add it to your income?

A.        It was just replacing smashed or stolen stuff.

Q.        Was that amount of money more than your loss?

A.        The amount the insurance paid?

Q.        Yes.

A.        That would be far less.

Q.        So you were in a net loss position.  Is that correct?

A.        Yes; because of the deductible and the insurance company is pretty stingy.

Q.        You didn’t see the money the insurance company paid you as a financial gain to be reported?

A.        No, I didn’t.  I don’t exactly recall.

…

A.        To the best of my recollection, I deducted the insurance from expenses. I had a lot of bills and so on go missing, but I can’t really remember what happened.  I know I grossly understated my losses.

[59]         In relation to the Appellant’s general ability to remember what occurred, he testified that:

Q.        Mr. Wiens, how would you define your ability to remember things today?

A.        I think I can remember some things. I did have chemotherapy, and I have a foggy condition.

…

Q.        …  What would you say that your mental faculty is now, and did it start getting better? If so, when?

A.        It did. I have good days sometimes, but I have blank spots in my memory. I can’t remember a lot of things like I used to be able to. Some days I can’t think of    I don’t know anything. There have been times when I don’t know even know who I am. All of a sudden I have this thing in my head. I don’t know what I’m doing, who I am or what is going on, but that’s rare. I’m smart enough to know I’m not as smart enough as most people.
In the following, one can clearly see how not being able to get all the documentation for the years in question continues to be problematic for the case.

[60]         The only evidence presented by the Appellant in relation to whether the amounts received from the insurance company were included in the Appellant’s income or deducted from expenses was the testimony of the Appellant. No financial statements of the Appellant were introduced. This evidence is not sufficient to support a finding that the Appellant had reduced expenses by the amount of the insurance. If the Appellant had taken the insurance into account in determining his income (either by including the amount in income as revenue or reducing his expenses by the same amount) then no adjustment would be made to his income for the insurance as it is the amount of his liability for taxes that is in dispute. If the Appellant had reduced expenses by the amount of the insurance received and if the insurance amount is added to his income, then the Appellant would be entitled to claim the additional expenses (that he had not previously claimed) and his net income would remain the same. However, the Appellant has failed to establish that it is more likely than not that he reduced his expenses by an amount that was equal to or more than the amount that he received from the insurance company. While he might have reduced his expenses by such an amount, this is not sufficient.

[61]         The Appellant has also failed to establish what part, if any, of the amount received from the insurance company was paid in relation to the loss of the cash register. If the claim for the cash register was less than $500, then because the deductible amount was $500, the full amount received could have been for the lost cigarettes and cash.

[62]         As a result, no adjustment will be made with respect to the amount included in the Appellant’s income for 2002 in relation to the balance of the amount paid in relation to the first claim ($3,739) and the amount paid in relation to the second claim ($3,633).

[63]         With respect to the reassessment of the Appellant’s tax liability for the 2003 taxation year, the reassessment of this taxation year was issued after the normal reassessment period and the Appellant did not sign a waiver in relation to the reassessment of this taxation year.

[64]         Then Chief Justice Bowman in Mensah v. The Queen, [2008] T.C.J. No. 302, 2008DTC 4358 stated that:
8     The fourth preliminary point is that the assessment for the 1993 taxation year is statute-barred. The onus is upon the Minister to establish the facts justifying the reassessment of the 1993 taxation year beyond the normal reassessment period. The provisions of the Income Tax Act permitting the Minister to open up statute-barred years have evolved and the evolution was summarized in 943372 Ontario Inc. v. R., 2007 D.T.C. 1051; [2007] 5 C.T.C. 2001 at paragraph 18:

18        The evolution of these provisions can be briefly summarized as follows: originally, subsection 152(4) permitted the Minister to open up a statute-barred year for all purposes if he could find any misrepresentation of the type described in subsection 152(4), however small, and reassess any items whether the subject of any type of misrepresentation or not. This obviously appeared somewhat unfair and the result was paragraph 152(5)(b) which was introduced in 1973-1974 with effect from 1972. This provision permitted the taxpayer to establish that the omission of an amount of Nonetheless it did cast on the taxpayer an onus. income was not the result of a misrepresentation that was attributable to neglect, carelessness, wilful default or fraud. Subsection 152(4.01) was therefore introduced and its effect, according to Mr. Kutkevicius, is to remove that onus from the taxpayer and put a two-fold onus on the Minister to establish:

(a)               that there was misrepresentation, and

(a)               that the misrepresentation was attributable to neglect, carelessness, wilful default or fraud.

I think this is the correct interpretation. If the onus that was imposed on the taxpayer under former paragraph 152(5)(b) survived the amendment to subsection 152(5) and the enactment of subsection 152(4.01), subsection (4.01) would have no purpose.

(emphasis added)

[65]         Therefore the onus was on the Respondent (CRA)  to not only establish that there was a misrepresentation with respect to the statements made by the Appellant in his tax return for 2003, but also that the “misrepresentation was attributable to neglect, carelessness, wilful default or fraud”.

[66]         In this case the alleged misrepresentations for 2003 are in relation to the amounts realized on the sale of houses in 2003 and the amount received in relation to insurance claims in 2003.

[67]         The real property transactions that have resulted in the reassessment of the Appellant for 2003 are the following:

Property    1581 Rothesay St.    Lot 2, SE ¼ 19-11-6E RMSpringfield    453 Phelan Road    165 Crestwood Crescent
Date purchased:    April 25, 2003    June 13, 2003    March 2003    November 2003
Date sold:    August 1, 2003    September 30, 2003    October 2003    December 2003
Total cost:    $44,023    $48,113    $33,886    $97,154
Net Proceeds of sale:    $74,295    $107,940    $114,000    $113,500
Gain:    $30,272    $59,827    $80,114    $16,346

[68]         There were four properties that were sold in 2003. Each of these properties was also acquired in 2003. The longest period of time that any of thee properties was held was approximately 7 months (453 Phelan Road was purchased in March and sold in October).

[69]         The property located at 1581 Rothesay Street was acquired in the name of the Appellant’s spouse. The Appellant stated that this property was acquired as a home for his second daughter. However she did not receive any of the proceeds from the sale of this property nor could she have occupied it for any significant period of time as it was sold a little more than three months after it was purchased.

[70]         There were two sources of funds identified in 2003. One was the personal line of credit with CIBC and the other was Tedhil Enterprises Ltd. As stated below, I find that the amount of approximately $40,000 that was borrowed from Tedhil Enterprises Ltd. was used to finance the purchase of the Springfield property. As a result, I find that the purchase of the Rothesay Street property was financed by the line of credit with CIBC. Both the Appellant and his spouse were liable to repay amounts borrowed under the line of credit. It also appears more likely than not that the proceeds from the sale of the house were also applied against the amount outstanding under the line of credit. Therefore both the Appellant and his spouse benefitted from the sale of this house as they each had their liability under the line of credit reduced by the proceeds of sale that were applied against the amount outstanding under the line of credit.

[71]         No statements from the line of credit for 2003 were introduced at the hearing but since the statement for July 10, 2002 indicates that, at that time, the Appellant and his spouse owed CIBC $108,761 under the line of credit and since the Appellant indicated that he incurred significant losses in operating the retail store that he opened around that time, it seems more likely than not that the Appellant and his spouse continued to owe amounts under the line of credit throughout 2003. As a result, I find that when the Rothesay Street property was sold, the proceeds would have reduced the liability of not only the Appellant’s spouse but also the Appellant under the line of credit. Although the Appellant had stated that only his spouse had received the money from the sale of this property, I find that both the Appellant and his spouse received the proceeds since the proceeds reduced their joint liability to CIBC. I find that the Appellant should have included one-half of the gain realized on the sale of the Rothesay Street property in determining his income for 2003.

[72]         With respect to whether the gain on the sale of the Rothesay Street property was a capital gain or an income gain, it seems to me that the lack of any other source of funds to pay the line of credit is relevant in determining the Appellant’s intention in purchasing the property. The Appellant submitted an excerpt from his 2003 tax return. The only sources and amounts of income identified in this excerpt are the following:

Item    Amount
Employment income:    $36,500
Taxable amount of dividends:    $1,250
Taxable capital gains:    $7,500
Business income:    ($29,654)
Total income:    $15,596

[73]         With only these sources of income (one of which arises from the sale of the real properties in 2003), how could the Appellant expect to repay the amount borrowed from CIBC to acquire the property unless the property was sold? It seems to me that “the possibility of resale, as an operating motivation for the purchase, must have been in the mind of the” Appellant when the property was acquired. The short holding period (approximately three months) confirms this intention. As well the number of similar transactions (six in 2002 and 2003[5]) is also relevant in determining the Appellant’s intention. The use of the line of credit to fund the purchase price is also relevant, as discussed above. As a result the Appellant’s gain on the sale of the property was an income gain.

[74]         The Appellant did not report any part of the gain realized on the sale of the property located at 1581 Rothesay Street in his tax return for 2003. The failure to report his share of the gain (which would be one-half of the gain) was a misrepresentation.

[75]         The Springfield property was purchased on June 13, 2003. The property was purchased in the name of the Appellant’s daughter (Jessalyn Wiens). It is not entirely clear whether the purchase of this property was financed with a loan that the Appellant had received from Tedhil Enterprises Ltd. or from amounts borrowed under the line of credit with CIBC. Tedhil Enterprises Ltd. is a private company in which the shares were held by the Appellant and other members of his family. The Appellant confirmed that he had borrowed approximately $40,000 from this company but he was not sure when he had borrowed this amount or how the funds were used. When counsel for the Respondent had suggested that the funds were used to finance the purchase of theSpringfield property, the Appellant indicated that he thought that it was for the Rothesay Street property but he was not certain. It is clear that the loan was repaid on October 17, 2003 as a cheque for $41,500 payable to Tedhil Enterprises Ltd. and drawn on the line of credit was introduced as an exhibit.

[76]         It seems to me that it was more likely than not that the funds were borrowed from this company to finance the purchase of the Springfield property. It seems clear that the preferred source of funds for the Appellant was the line of credit with CIBC. Therefore it seems to me that if the Appellant could have utilized the line of credit to finance the purchase of a property that he would have done so. The Rothesay Street property was purchased on April 25, 2003. Prior to that time the proceeds from the sales of the two properties in 2002 would have been used to reduce the amount outstanding under the line of credit. As well amounts would have been borrowed to finance the purchase of theRedonda Street property in September 2002 and the Phelan Road property in March 2003. Therefore the net affect of these four transactions (all of which occurred after July 10, 2002 – the date of the statement from the Personal Line of Credit that was introduced at the hearing) on the amount outstanding under the line of credit as of the time immediately before the Rothesay Street property was purchased was as follows:

Item    Increase / (Decrease) in the amount owing under the line of credit
Proceeds from sale ofPembroke Road property    ($122,319)
Purchase of the Redonda Street property    $81,486
Proceeds from sale ofRedonda Street property    ($83,725)
Purchase of Phelan Roadproperty    $33,886
Net result:    ($90,672)

[77]         Therefore the result of these transactions would have been a reduction in the amount owing under the line of credit of $90,672. Therefore it seems more likely than not that the line of credit would have been used to finance the purchase of the Rothesay Street property. When the Springfield property was acquired on June 13, 2003, both the properties located on Rothesay Street and Phelan Road had been purchased and neither one of these had been sold. As well the retail store would have still been operating and presumably continuing to incur losses. As a result, in June 2003 there would not have been as much credit available under the line of credit as there would have been in March or April and therefore June 2003 would have been the time when the Appellant would have needed an additional source of funds. As well, the Springfield property was sold on September 30, 2003 and the cheque to Tedhil Enterprises was dated October 17, 2003. As a result it seems to me that it was more likely than not that the funds were borrowed from Tedhil Enterprises Ltd. to finance the purchase of the Springfield property.

[78]         It is the position of the Appellant that the Springfield property was his daughter’s property and therefore that she should have reported the gain. During re-examination of the Appellant by his agent, the following exchange took place:

Q.        Would you borrow money from Tedhil to benefit your daughter?

A.        No.

Q.        You wouldn’t?

A.        If I borrowed money from the company I had to take responsibility to make sure it was repaid.  I don’t remember borrowing money on her behalf, and I would never do that.  I would have to make sure that money was repaid.  The way I understand it, you are not allowed loans from a company to go over a tax year.  Then you would get T 4′d for them.  I have to make sure that I’m reliable enough to    it is my responsibility from the company to make sure that everything was repaid properly and the books all balanced.

[79]         It seems to me that it was the Appellant who borrowed the money to finance the purchase of the Springfield property. It was his money that was used to purchase this property, not Jessalyn Wiens’ money. The proceeds from the sale of the property were, more likely than not, used to repay the indebtedness of the Appellant to Tedhil Enterprises Ltd. As a result I find that the Appellant was the sole beneficial owner of the Springfield property.


You can easily see here how liability is a strong indicator of who gets both the liability and the financial gain.

[80]         The Appellant clearly understood that if he borrowed money from Tedhil Enterprises Ltd. that he had a limited amount of time within which to repay the debt to avoid being taxed on the amount borrowed. His understanding of the time period results in a shorter time than is actually permitted by subsection 15(2.6) of the Income Tax Act [6]. However for the purposes of this appeal, the Appellant’s understanding of the requirement to repay loans from a company in which he is a shareholder indicates that the Appellant must have had the intention to sell the property at the time he acquired it. The only means available to the Appellant to repay the debt to Tedhil Enterprises Ltd. was from the proceeds that would be realized on a sale of the property. The short holding period (approximately 3.5 months) also confirms that the possibility of reselling the property must have been in his mind when the property was acquired and must have been an operating motivation for the purchase. As a result I find that the gain realized on the sale of the Springfield property should have been included in the income of the Appellant and that this gain was an income gain. The failure of the Appellant to include this gain in his tax return was a misrepresentation.

[81]         The properties located on Phelan Road and Crestwood Crescent were both acquired in the name of the Appellant. In filing his tax return for 2003 the Appellant only reported the gain realized on the sale of the Crestwood Crescent property and this gain was reported as a taxable capital gain. No explanation was provided for the failure of the Appellant to report any gain realized on the sale of the property located on Phelan Road in his 2003 income tax return. In the Reply it is noted that in reassessing the Appellant his income was reduced by $36,952 for taxable capital gains. Since he only reported a taxable capital gain of $7,500 in his 2003 tax return, the Appellant must have subsequently reported or been assessed (or reassessed) for a taxable capital gain of $29,452 presumably in relation to the sale of the Phelan Road property.

[82]         The purchase of these properties was financed by the line of credit. Since both the Appellant and his spouse were jointly liable to repay amounts borrowed from the line of credit, it seems reasonable to conclude that the Appellant and his spouse each beneficially acquired a one-half interest in these properties. Therefore each of the Appellant and his spouse should have reported one-half of the gain realized on the sale of these properties. As well, since there was no means to repay the amount borrowed under the line of credit to purchase these properties, other than from the proceeds that would be realized on a sale of these properties, they must have had an intention to sell the properties at the time that the properties were acquired. The short holding periods (approximately seven months and one month) confirm this intention as does the use of short term financing (the line of credit).

[83]         As a result the gain realized on the sale of these properties (Phelan Road andCrestwood Crescent) was an income gain. The failure of the Appellant to report any amount in his tax return for 2003 in relation to the gain realized on the sale of the Phelan Road property was a misrepresentation.

[84]         With respect to the disposition of the Crestwood Crescent property, the Appellant did report a taxable capital gain in relation to the disposition of this property (which would be one-half of the capital gain) in his tax return for 2003. The amount that he reported as a taxable capital gain was $7,500. As noted above, I find that he should have reported one-half of the gain realized on the sale of this property as an income gain. The agent for the Appellant at the commencement of the hearing indicated that the Appellant was not disputing any of the amounts as set out in the Reply and therefore the gain realized on the sale of this property was $16,346. The Appellant therefore should have reported the amount of $8,173 as an income gain. Since both taxable capital gains and income gains are included in determining the income of the Appellant for the purposes of the Act the net effect on his income for the purposes of the Act would be that his income should be increased by $673.

[85]         In Nesbitt v. The Queen, 96 DTC 6588, Justice Strayer, on behalf of the Federal Court of Appeal, stated that:

8     Even assuming that the letter of August 6, 1986, could be taken to prove the Minister’s knowledge by that date (two months prior to expiry of the four-year limitation period) of the true facts and that there had been a misrepresentation, I do not believe this assists the appellant. It appears to me that one purpose of subsection 152(4) is to promote careful and accurate completion of income tax returns. Whether or not there is misrepresentation through neglect or carelessness in the completion of a return is determinable at the time the return is filed. A misrepresentation has occurred if there is an incorrect statement on the return form, at least one that is material to the purposes of the return and to any future reassessment. …

(emphasis added)

[86]         The question is whether the incorrect statement made by the Appellant in his 2003 tax return in relation to the amount reported as a result of the disposition of the Crestwood Crescent property is material. The discrepancy in reported income ($673) in my opinion is not material. In many situations it would be material whether a particular amount is reported as a taxable capital gain or as an income gain since only one-half of capital gains are included in income. In this case because I have found that the Appellant only owned a one-half interest in the property, the quantum of the amount added to income is approximately the same whether, as he had filed his return, he was the sole owner of the property and realized a capital gain (and therefore would include one-half of the capital gain in his income as a taxable capital gain) or whether he owned a one-half interest and realized an income gain. However if the Appellant would have claimed allowable capital losses (which may be claimed against taxable capital gains but not income gains) or if the property would have been eligible and the Appellant would have claimed a capital gains deduction under section 110.6 of the Act or a reduction in the capital gain based on the property being his principal residence (as provided in subsection 40(2) of the Act), then it would have been material whether the amount was reported as a capital gain or an income gain. However there was no evidence that the Appellant had claimed any allowable capital losses or any deduction in relation to any capital gain that he claimed.
The above is an example of why it is so important to keep good records and get professional help when one does their taxes. Tax law is too complex for any normal person to understand.

[87]         As a result, in my opinion the Appellant did not make an incorrect statement that was material for the purposes of his 2003 income tax return in relation to the gain realized on the sale of the Crestwood Crescent property. Since the reassessment of his 2003 taxation year was issued after the normal reassessment period, the Respondent could not have reassessed the Appellant in relation to the gain realized on the sale of the Crestwood Crescent property.

[88]         It appears that the Respondent, (CRA) in reassessing the Appellant, also reduced his income by the amount of the taxable capital gain that he had claimed in his tax return in relation to the disposition of the Crestwood Crescent property ($7,500). The Minister cannot appeal his own assessment (Valdis v. The Queen, [2001] 1 C.T.C. 2827). However, in this case, it does not seem to me that if the amount claimed as a taxable capital gain were to be restored that this would be a situation where the Minister is appealing his own assessment. It is simply recognition that the Minister did not have the right to reassess the Appellant in relation to the gain realized on the sale of the Crestwood Crescent property and that the income of the Appellant should therefore be restored to what it was before the reassessment. As a result, the Appellant’s income is reduced by the amount added by the reassessment ($16,346 as income from an adventure in the nature of trade) and the taxable capital gain claimed by the Appellant ($7,500) is reinstated.

[89]         The next question is whether the misrepresentations arising as a result of the failure of the Appellant to report his share of the gains arising on the sale of the Rothesay Street property, the Springfield property, and the Phelan Road property (or any one or more of them) were attributable to neglect, carelessness, wilful default or fraud”.

[90]         In The Queen v. Regina Shoppers Mall Limited, [1991] 1 C.T.C. 297, 126 N.R. 141, 91 DTC 5101 the Federal Court of Appeal approved the following comments of Justice Addy:

7.   …Where a taxpayer thoughtfully, deliberately and carefully assesses the situation and files on what he believes bona fide to be the proper method there can be no misrepresentation as contemplated by section 152 (1056 Enterprises Ltd. v. Canada, [1989] 2 C.T.C. 1, 89 D.T.C. 5287). In Levy (J.) v. Minister of National Revenue, [1989] C.T.C. 151, 89 D.T.C. 5385 at 176 (D.T.C. 5403), Teitelbaum, J. quotes with approval the following statement by Muldoon, J. in the above case:

Subsection 152(4) protects such conduct, and perhaps only such conduct, where the taxpayer thoughtfully, deliberately and carefully assesses the situation as being one in which the law does not exact the reporting of that which the taxpayer bona fide believes does not exist.
Simple translation here is that if the taxpayer believed he was doing his taxes correctly, then there is no intended misrepresentation.

It has also been established that the care exercised must be that of a wise and prudent person and that the report must be made in a manner that the taxpayer truly believes to be correct. …

[91]         The purchases of the Rothesay Street property and the Phelan Road property were each funded by amounts borrowed under the line of credit, which would be short term and not long term financing. The Appellant was jointly liable with his spouse to repay amounts borrowed under this line of credit. The properties did not produce any income (other than income arising as a result of the sale of the properties) and, based on the income of the Appellant, the Appellant would only be able to repay his share of the amount borrowed to purchase these properties if these properties were sold. These properties were only held for approximately three months and seven months, respectively. When the Appellant filed his tax return for 2003 he would have known that each of these properties had been bought and sold in 2003 and also that the Crestwood Crescent property would have been bought and sold in 2003. He would also have known that two properties had been bought and sold in 2002.

[92]         As well, no amount was reported in the Appellant’s income tax return for 2003 in relation to the gain realized on the sale of the Phelan Road property. This was a property that was registered in the Appellant’s name and a significant gain ($80,114) was realized on the sale of this property.

[93]         As a result, I find that in this case the failure of the Appellant to include his share of the gain realized on the sale of these properties (the Rothesay Street property and the Phelan Road property) in his income as an income gain was not what a wise and prudent person would have done and that the Appellant could not have truly believed that this was correct. As a result the reassessment of the Appellant in relation to the inclusion in his income of one-half of the gain realized on the sale of these properties as an income gain is valid. The Appellant’s income as reassessed is reduced by one-half of the gain realized on the sale of these properties.

[94]         The Appellant alone borrowed the money from Tedhil Enterprises Ltd. to fund the purchase of the Springfield property. He knew that when he borrowed this money he had a limited period of time within which to repay the debt to Tedhil Enterprises Ltd. to avoid having the amount of the debt included in his income. This property did not produce any income (except as a result of the sale of this property) and the only source of funds that would have been available to repay the debt to Tedhil Enterprises Ltd. would have been the proceeds from a sale of this property. As a result, I find that in this case the failure of the Appellant to include the gain realized on the sale of this property in his income as an income gain was not what a wise and prudent person would have done and that the Appellant could not have truly believed that this was correct. As he was the sole beneficial owner of this property all of the gain from this property was his income. Therefore no adjustment to the income of the Appellant will be made in relation to the sale of this property.

Borrowing the money from Tedhil was very problematic for the appellant in this case. All the income was attributed to him, as his spouse was not a co borrower on this property.

[95]         The other item for 2003 is the amount included in the Appellant’s income for 2003 in relation to the amounts received as a result of the insurance claim filed by the Appellant. The amount added to his income for 2003 was $2,200.

[96]         As noted above, the Respondent has the onus of proof to establish that the Appellant made a misrepresentation and that the misrepresentation was attributable to neglect, carelessness or wilful default. The Appellant’s position is that he had greater losses from the operation of the retail store than he reported. In this case the amount of additional income that the Respondent has added to the Appellant’s income is $2,200. The additional unclaimed expenses might have been less than this amount, equal to this amount or greater than this amount.

[97]         The memo from the insurance company dated September 14, 2006 stated the following in relation to the insurance claim of June 23, 2003:

The Fourth claim of June 23, 2003; we paid $2,200. Unfortunately, I do not have further details on the conditions regarding this loss at this time.

[98]         In the memo from the insurance company dated September 1, 2003, the amount is stated to be $2,000 for this claim. No explanation was provided for this discrepancy. Therefore it is not clear whether the amount should be $2,000 or $2,200 or whether any of this amount was paid to contractors (as was a portion of the claims for 2002) or was for the loss of inventory or cash or for property damage. While the amount might have been for loss of inventory or loss of cash and, if included in the Appellant’s income, might have been material in determining his income for 2003, this is not sufficient to discharge the onus of proof. The Respondent (CRA) failed to establish that the Appellant made an incorrect statement in his tax return that would have been material to the amount of his income for 2003 from the retail store in relation to the amount paid by the insurance company in 2003. Therefore the Respondent could not reassess the Appellant to include this amount of $2,200 in his income for 2003 and his income for 2003 is reduced by this amount.


This time the onus was on the Minister, who failed to prove his assumptions, so the benefit of the doubt goes to the taxpayer.

[99]         As a result, the Appellant’s appeal is allowed, with costs, and the matter is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that:

(a)              in determining the income of the Appellant for 2002, the Appellant’s income shall be reduced by the following amounts:

Item    Amount
To adjust for the one-half interest of Kathryn Wiens in the property located at 22 Pembroke Road:    ($15,900)
To adjust for the one-half interest of Kathryn Wiens in the property located at 428 Redonda Street:    ($1,128)
To adjust for the amount paid by the insurance company to the contractors:    ($3,542)
Total adjustments (reduction in the income of the Appellant):    ($20,570)

(b)            in determining the liability of the Appellant under the Act for income taxes for 2003, the amount of taxes payable by the Appellant for 2003 shall be reduced by the lesser of:

(i)   the amount by which his liability for income taxes under the Act would be reduced if his income was adjusted by the following amounts:

Item    Amount
A reduction for the one-half interest of Kathryn Wiens in the property located at 1581 Rothesay Street:    ($15,136)
A reduction for the one-half interest of Kathryn Wiens in the property located at 453 Phelan Road:    ($40,057)
A reduction for the amount added as income from an adventure in nature of trade in relation to the sale of the property located at 165 Crestwood Crescent:    ($16,346)
An addition to restore the amount claimed as a taxable capital gain:    $7,500
A reduction for the amount paid by the insurance company:    ($2,200)
Total adjustments (reduction in the income of the Appellant):    ($66,239)

and

(ii)  $12,000.

Signed at Ottawa, Canada, this 15th day of March, 2011.

“Wyman W. Webb”
Webb, J.

CITATION:                                       2011TCC152

COURT FILE NO.:                           2010-2625(IT)I

STYLE OF CAUSE:                          JOHN WIENS AND HER MAJESTY THE QUEEN

PLACE OF HEARING:                     Toronto, Ontario

DATE OF HEARING:                       January 20, 2011

REASONS FOR JUDGMENT BY:   The Honourable Justice Wyman W. Webb

DATE OF JUDGMENT:                    March 15, 2011

APPEARANCES:

Agent for the Appellant:    Dan White
Counsel for the Respondent:    Samantha Hurst

COUNSEL OF RECORD:

For the Appellant:

Name:

Firm:

For the Respondent:                    Myles J. Kirvan
Deputy Attorney General of Canada
Ottawa, Canada

________________________________________
[1] In this case there was no suggestion that the Appellant was unduly pressured.

This point is to be remembered where a taxpayer signs a waiver because of pressure exerted by CRA, the waiver may be invalidated.

[2] In the Reply, the net proceeds are stated to be $83,724.72 (based on a selling price of $88,500 and costs of $4,190.68). However the difference between $88,500 and $4,190.68 is $84,309.32, not $83,724.72. The net cost is stated to be $81,486.09 and the net gain is stated to be $2,256.63. However, the difference between $83,724.72 and $81,486.09 is $2,238.63 and the difference between $84,309.32 and $81,486.09 is $2,823.23. Since no evidence was presented at the hearing with respect to the cost or proceeds, it is impossible to determine which amount is correct for the gain realized on the sale of the property. I assume that the amount stated to be the profit (which would be the amount that would have been added to the Appellant’s income) is correct.

[3] One of the assumptions that was made (and in relation to which the Appellant did not lead any evidence) is that:

24. yy)      in addition to the purchase and sale of The Properties, the appellant, his spouse and daughter purchased and sold another seventeen properties during the years 1988 to 2005;

Since there are 6 properties included in the definition of “The Properties”, this would mean that there was a total of 23 properties bought and sold over the 28 years from 1988 to 2005 (counting each of 1988 and 2005 as a full year). However, there is no indication (nor was there any evidence) of how many of these transactions occurred during the period from 1988 to 2002 and how many occurred during the period from 2003 to 2005. The year in question is 2002, not 2005. It does not seem to me that events that take place after the end of a taxation year (and in particular 2 or 3 years after the end of a year) should be taken into account in determining whether a particular gain realized during that taxation year is an income gain or a capital gain. Therefore this assumption is of little assistance in determining this matter.

[4] The Application for Leave to appeal this decision to the Supreme Court of Canada was dismissed ([2005] S.C.C.A. No. 235).

[5] Since the Respondent has the onus of proof in relation to whether the Appellant made a misrepresentation, the Respondent cannot rely on assumptions made in the Reply but must establish facts at the hearing. The facts referred to in paragraph 24. yy) of the Reply were not established during the hearing.

[6] The time within which a loan is to be repaid to avoid having the amount included in income is set out in subsection 15(2.6) of the Act. This subsection provides as follows:

(2.6) Subsection (2) does not apply to a loan or an indebtedness repaid within one year after the end of the taxation year of the lender or creditor in which the loan was made or the indebtedness arose, where it is established, by subsequent events or otherwise, that the repayment was not part of a series of loans or other transactions and repayments.

[7] The total gain realized on the sale of the Phelan Road property was $80,114. One-half of this amount would be $40,057, not $29,452. The agent for the Appellant indicated at the commencement of the hearing that the Appellant was not disputing any of the amounts as set out in the Reply and therefore the Appellant was accepting that the total gain realized in the sale of the Phelan Road property was $80,114. No explanation was provided to explain why only an additional taxable gain of $29,452 and not $40,057 was included in the income of the Appellant.

Modified date: 2011-03-21

Farming losses can now be taken against primary income.

February 17th, 2011

The following article is a good news story for business owners who also operate farms that may lose money.

In the following case of Craig versus the Queen,  the taxpayer wins his appeal at the Federal Court.
What this means is that taxpayers can now have both a farm and additional business without needing the farm to make the larger income in order to qualify for all the losses.

In a landmark ruling lawyer and horse owner John Craig has won his appeal to the Federal Court to deduct more than the $8,750 currently allowed under Section 31 of Canada’s Income Tax Act.

The Minister of National Revenue had appealed the Tax Court of Canada’s ruling in favour of Craig, claiming that (a) the lower court judge applied the wrong legal tests in determining whether his farm income could be combined with his legal income and (b) if he did not apply the wrong tests, the tests were not correctly applied to the facts.

The Federal Court did not agree. In the ruling, Justice John A. Evans stated that he was “not persuaded that the Judge made any error of law in applying the somewhat more flexible and generous test in Gunn for determining the circumstances in which section 31 permits farming and non-farming income to be combined so that farming is a taxpayer’s chief source of income.”

John Craig is a lawyer in Toronto whose primary income is from his law practice. Mr. Craig is also an enthusiastic standardbred owner with a business comprised of the buying, selling, breeding, and racing of standardbred horses. Mr. Craig deducted losses from that standardbred business in the taxation years 2000 and 2001 against his income generated as a lawyer.

The Minister of National Revenue (“Minister”) restricted the losses deducted by Mr. Craig to $8,750 for each year relying on Section 31(1) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), which maintains as follows:
31. (1) Where a taxpayer’s chief source of income for a taxation year is neither farming nor a combination of farming and some other source of income, for the purposes of sections 3 and 111 the taxpayer’s loss, if any, for the year from all farming businesses carried on by the taxpayer shall be deemed to be the total of
(a) the lesser of
(i) the amount by which the total of the taxpayer’s losses for the year, determined without reference to this section and before making any deduction under section 37 or 37.1, from all farming businesses carried on by the taxpayer exceeds the total of the taxpayer’s incomes for the year, so determined from all such businesses, and
(ii) $2,500 plus the lesser of
(A) 1/2 of the amount by which the amount determined under subparagraph 31(1)(a)(i) exceeds $2,500, and
(B) $6,250, and
(b) the amount, if any, by which
(i) the amount that would be determined under subparagraph 31(1)(a)(i) if it were read as though the words “and before making any deduction under section 37 or 37.1” were deleted,
exceeds
(ii) the amount determined under subparagraph 31(1)(a)(i).
It was agreed that Mr. Craig’s horse activities constitute “farming” for the purpose of section 31 and was a business and a source of income for tax purposes. It was also clear that the horse business was a much smaller source of income than his law practice. Because of this fact, the Minister argued that Mr. Craig was caught by Section 31.

The Minister relied on the seminal decision of the Supreme Court of Canada in Moldowan v. Canada, (1978) 1 S.C.R. 480 (“Moldowan”) which held that a taxpayer could only escape from the restrictive tax treatment in section 31 if the taxpayer’s chief source of income was a combination of farming income and some other subordinate source of income. Under this interpretation, Mr. Craig clearly would be caught by Section 31.

Moldowan, decided in 1978, has been criticized by later Courts. Moldowan was attempting to make sense of the apparent nonsensical provision in Section 31(1) that states, “Where a taxpayer’s chief source of income for a taxation year is neither farming nor a combination of farming and some other source of income”, the taxpayer’s farming losses would be caught by section 31. On its face, this would mean that the limitation of section 31 would never apply and in every case, the taxpayer could deduct the full amount of farming losses. Clearly, this was not the intent of the legislature.

In Moldowan, the Supreme Court decided to insert (read in) a word into this phrase in an effort to understand it. The Supreme Court inserted the word ‘subordinate’ so that it now read “Where a taxpayer’s chief source of income for a taxation year is neither farming nor a combination of farming and some other subordinate source of income”, the horse business would be caught by the restrictions in section 31.

This interpretation of section 31 by the Supreme Court created its own problems and for the last 40 years, farmers  have been hit by section 31 restrictive loss deduction limits. If a farm did not generate more income, or at least a similar amount of income, as the taxpayer’s other businesses, the farm business was unable to escape from section 31.

In 2006, Gunn v. Canada, 2006 FCA 281, [2007] 3 F.C.R. 57 (Gunn) moved away from the Moldowan interpretation of section 31 and stated that a taxpayer’s chief source of income for a taxation year could be a combination of income from farming and some other source of income even if the income from the farm operation was less than the income from the other business. In other words, Gunn removed the word “subordinate” inserted by the Supreme Court of Canada in Moldowan. As such, it no longer mattered whether or not the farm operation had the larger income.

Gunn looked at the amount of income generated as one of several factors to determine the application of section 31 such as the amount of capital invested in the business, the time spent, the taxpayer’s ordinary mode of living, farming history, and future intentions and expectations. These other factors were always considered in previous cases but their importance had been overriden by the income issue.

The Craig decision has taken Gunn and applied it squarely to a standardbred horse business. The Tax Court allowed Mr. Craig to avoid Section 31 by combining farming and non-farming income even when the farming income was much less than the income generated by the law practice. The Court considered other factors to indicate the importance of Mr. Craig’s horse business as a chief source of income, including the time spent, capital invested, and the prominence of this business in the taxpayer’s every day activities. The Tax Court also affirmed Gunn’s rejection of a city slicker/country farmer distinction when applying section 31 – all taxpayers are held to the same standard whether or not a taxpayer does the work or hires someone else to do it.

The Federal Court of Appeal upheld the Tax Court’s decision in Craig. This now opens the door for all farmers to claim full deduction of losses from their farming businesses against other income even where that other income is substantially greater than the horse business. They just have to qualify in the true sense of being a farmer.

Farmers still need to take care to structure themselves so as to not get caught by Section 31, which still exists and is a significant deterrent to all farming industries. In other words it has to be a real farm and not just a hobby or an investment.

For more information on Taxes go to www.taxauditsolutions.ca

Dan White

The CRA Audit Machine. Why you need the protection of audit ready books.

February 10th, 2011

Hi Folks.

We have a new youtube video up. This is an “Everyone in Canada” needs to watch video converstation about the dangers involved in a tax audit.

Enjoy and please feel free to comment.

Entitled; “Be smart, protect yourself from an audit.

http://taxauditsolutions.ca/cms/index.php/utube-tax-videos/

Thanks

Dan White

CRA trys to reinvent the meaning of the term “Principle Place of Business.”

February 6th, 2011

This was a long drawn out battle on behalf of the taxpayer, but in the end justice prevails and Tax Audit Solutions wins in Tax Court.

I offer the following disclaimer here. I know there are good and fair CRA auditors, it is just that no one ever comes to me complaining about the fair treatment they received. So I have the same level of bias that so many auditors have against business owners. I rarely meet the good auditors unless it is a situation where the client comes to us at the beginning of the audit … before the problems come up. In those cases we often do meet good auditors.

In this particular Tax Case it was a case of where is the the principle place of business located? CRA tries to be willfully blind to evidence and makes inappropriate assumptions, then hangs their hat on what they write in their own notes to file flying in the face of facts to the contrary or that the judges have already made it abundantly clear what constitutes a principle place of business.

What is appalling about this is that the courts have had enough cases that it leaves no doubt as to what is a principle place of business. CRA just chooses to ignore the law, appearing to think they are above the law.

When CRA claims that a taxpayer’s home office, is not his his principle place of business, one would think it would be an easy victory for the tax payer.  Not so as this taxpayer was to find out. That taxpayer who had at all times in the time in question, the same address. The address was clear in the following circumstances;  his registered business location, his GST license,  on the documents where he opened up a business bank account, he had his address preprinted on the cheques, and he put his address on his invoices.

To reinforce the principle place of business further it is noted that he can not provide his services without the tools in his office where his has all his own tools, including tools that his clients don’t have at their place of business, he stores his books and records in his home office, he keeps his office exclusively for business, he required a phone in his office to contact clients and co project worker…. even with all that evidence, CRA was hell bent to get the money that they just wanted regardless of right or wrong.

For CRA it is really quite annoying when a taxpayer wants to question their authority to come in and ramrod a tax bill to the taxpayer. One is led to the conclusion that CRA is biased in their thinking that all business owners are tax cheats.

Taking a CRA issue to court can be a long drawn out affair. One which very few people would ever look forward to. All too often the tax payer can not stand the pressure, or can not afford professional help and therefore they just gets slaughtered, they lose their homes, their marriages and eveything they have. When CRA is done with a small business all that is left is road kill. Another case of small furry animal versus a big Mack Truck.

W5 has a number of cases that they have featured of exactly this kind of thing happening. Check out  http://www.ctv.ca/CTVNews/WFive/20110204/w5-taxman-horrror-stories110205/

and

http://www.ctv.ca/CTVNews/WFive/20110204/w5-taxman-horrror-stories110205/

CRA abuse is a regular occurance and the following case is an example of how CRA conducts its afairs and how hard it is to stand up to them.
A couple of years ago we were retained by our client to deal with a CRA Tax Audit. This case took a long time but this past Friday we brought it to a good conclusion.

This case is in my opinion and experience, a case where CRA does their bully routine under the encouragement of the government of the day, with the Mantra of;  “The government is our client and Tax Payers are to do as they are told.”

Not only do they follow the mantra, they also set out to punish the taxpayer and their representative if they dare to try to stop the roller coaster. What the average taxpayer does not understand that the punishment for not standing up to them is greater than the punishment from standing up.

What Canadian Taxpayers need to know and understand is that if you don’t stand up to them, they know no limits as to what they can and will do. We see this all the time. Just check out those W5 documentaries noted above as well as all the other documentaries posted there and on the CBC site. Contrary to what many people may think,  CRA behaving in this abusive fashion is more the norm than the exception.

You need to know that CRA will violate your rights, to trick you into admitting things you don’t even understand and will try to get you to sign waivers you are not legally obligated to sign,  that will allow CRA to go for your financial jugular vein.

To think you have nothing to hide so nothing to fear is such a dangerous belief paramount to thinking a hungry lion will not eat you. You may think you have nothing to hide, but you do…. You need not have CRA find that you made mistakes. That will be really costly for you. You are much wiser to have a friendly tax representative find the mistakes and fix them in readiness for the audit than to have an auditor seize on that to terrorize you. Thinking you have nothing to fear is very foolish. You have a real need to fear the bullying tactics of CRA that could put you into bankruptcy.

If you think you have nothing to fear you are financially dead wrong. What you need to understand is that when the Tax Man is asking you questions, it is just their appetizer and they will visit you for the feast later. The fest will be a many course delight where they find things wrong, that you did not know that you did not know about.

It is a nasty situation, and in this case, the client awoke in time to smell the bacon frying and not the burned toast being scraped.
It is difficult to believe that this kind of atrocity goes on in our country. You don’t believe this could happen to you until it does and then you cannot believe that it happened to you. That is when you learn the ropes and start doing audit ready bookkeeping. Audit ready bookkeeping puts an end to short notice of an audit being a problem. The best defense is always an offense.  Audit Ready Bookkeeping is the best offense to protect yourself against a greedy tax man.

The books being audit ready, gets the audit over in a very short period of time, as CRA knows that very few taxpayers have audit ready bookkeeping and those with ordinary bookkeeping are the ones who are the low hanging fruit. If you can not say that you are completely ready for an audit, then your bookkeeping system is tantamount to a set up for you to lose legitimate business expenses for lack of the software having a place to enter the information and to create an audit trail.

We use audit ready bookkeeping software that is so good that one auditor said to us; “That is the best set of books I have seen in all my ten years of being an auditor.

CRA knows they have broad powers of ignoring their code of conduct and ethics, the taxpayer’s bill of rights and the charter of rights.” So long as the government of the day allows (if not plain old encourages tax extortion) this improper behavior to go unpunished, the Tax Man will continue to enjoy the power of fear over the taxpayers of this land. We the taxpayers need to understand this situation and when the Tax Man comes to call we need to fight like two cats with their tales tied together and hung over the clothes line.

The vast majority of taxpayers fold under the pressure of CRA… and CRA knows that is a fact and counts on it to sooner or later get their way to the taxpayer’s pocket books and the shirt off his back.

The case began with the client contacting us to represent him. Our first communications with the auditor was nothing short of an outraged auditor who insisted on getting the books and records before they were prepared in an audit ready fashion.

The auditor lied to the taxpayer stating that it was required for the tax payer to have an interview with the auditor and to turn over all his books and records to the auditor before she would deal with the representative.

The taxpayer checked with us and we confirmed that he had the right to appoint a Tax Representative to deal with all his tax matters.
The taxpayer informed the auditor of said facts. She was furious about the taxpayer exercising his legitimate legal rights.

The auditor would not even communicate with us at first; she simply ignored us as long as she could. However we don’t take to being ignored and forced the issue.

We informed the auditor that we would prepare a perfectly done set of books and it would take a lot longer than the ten days she was demanding.

The auditor refused to give us the time we needed. So we told her… fine… just go ahead and assess the taxpayer, we will file a notice of objection and then you will have to review the full set of books and records.

Being a bully and not liking to be blocked from getting her way, she decided on an outrageous tactic of writing in her notes to file information that would indicate that the client’s place of business was not his principle place of business.

The client has no understanding of where or how the auditor would get such information. The auditor then took that incorrect information to take the position that the taxpayers home was not his principle place of business.

Taking that position, she then narrowed the scope of the audit to just the income and disallowed all expenses.

From that point on, the auditor refused to look at the audit ready bookkeeping that supported the tax return as filed.

This ignoring continued to the appeals officer, who rubber stamped a confirmation of the original assessment.

We appealed to the Tax Court of Canada where the Department of Justice continued with the same vein. Only to be fair to the lawyer for the Department of Justice, who by the way was both competent and reasonable, she was sold a bill of goods by the auditor as to the correct facts of the case.

The auditor swore out an affidavit that her written notes to file were both accurate and confirmed.

So we took the matter to court. It was an all-day case in front of Justice Boyle. The judge was fair, factual, and very professional in terms of the everyday meaning of the word “professional” and in terms of how he conducted the hearing.

I opened the case with identifying the issues, and stating what my objectives were. The DOJ did likewise.

In court I explained to the judge that it seemed clear that the taxpayer and the auditor must have been speaking different languages. The taxpayer, who is an engineer has one way of communicating and an accountant has another way… they both have their own language, and it seems that in this case there was a failure to communicate. ( This is a polite way of saying “Your Honor, the auditor is either unable to communicate or fabricates things” because what she wrote was…  at best gross errors.)

Our witness was the taxpayer and the DOJ did not have a witness because the client is from Calgary and CRA would have had to pay to have the auditor at the hearing, so instead there was a sworn affidavit by the auditor.

I called the witness to the stand, (the taxpayer) where he spent most of the day answering questions. What we did was lead him through our one exhibit which was our 24 tabbed sections in a booklet called book of documents, and authorities relied on.

When we brought out that there seemed to be some unprofessional behavior on the part of the auditor, the judge called this “Bun Throwing” and would not affect his decision in any way. That is a great analogy because it describes a situation of a throwing of buns at each other in a fight that will not affect the outcome of the matter at hand in anyway, except it is cathartic rather than purgative. This is much better than describing it as a purgative pissing match, where after the fight; you both are wet and malodorous.

Past experience has taught us, that just because the issue seems simple and clear, you cannot count on wining unless you provide mountains of facts, evidence, case histories , legal arguments and then a bunch more of the same. I have learned that just making your points is not good enough; you have to hammer it home, over and over again in as many ways as possible.

It was gratifying to see that the DOJ used our book of documents to argue her case, as it was clearly better done than her own.
I am not a lawyer, so I have never had the luxury of formal training. Having been in court now for a reasonable number of times, I have learned on the go.

I find having my witness cross examined, rather irritating, but I have to accept that being hard and pressured is what the Respondent is supposed to do. At least as the Representative for the Appellant, I get to clarify anything that was misleading, or put words in the witness’s mouth.

We had all our records together, and our case was well put together. With each case, we get better and better.
Being prepared includes spending time with the taxpayer, on the day before, we spent all afternoon and up to 11PM that evening, reviewing the case and preparing the taxpayer on what to expect.

We don’t tell the taxpayer what to say, other than to say the truth, be very sure of what you are going to say and to not guess at things you don’t know for sure. We gave lots of examples of what he could expect to transpire during the day. I find that this goes a long way to distress the clients.

The DOJ put up a valiant fight but in the end the DOJ at the time for her summary, just admitted that we were right and that in fact the taxpayer’s home was clearly his principle place of business and his expenses should be allowed.

Naturally it was a high for us to have another win…. We are on a path of continuous improvement in every way we can. And Tax Court is a great classroom to learn how to improve how you keep books and records. It allows us to gain valuable insight into dealing with CRA before court regardless if it is informal or formal court. For the day in formal court we bring in a lawyer to represent the taxpayer.

The experience is incredibly useful for the continuous development of our audit ready bookkeeping software for doing audit ready books. We take this information and put it into the software help feature where it tells the user how to think about the huge variety of expenses and income.

It is really clear that under the government of the day, the CRA uses a myriad of ways to trip up unsuspecting taxpayers. More so if you are incorporated, but still very true for sole proprietors. The old days of take your books to an accountant and have your taxes done, send them in to CRA and don’t worry, are dead and gone.

Today if you are not always audit ready, and you get audited, you will learn a painful lesson. That lesson is get on board with audit ready bookkeeping now, or pay dearly for it later.

Without audit ready books, CRA’s computers and data mining, will trip you up and the Tax Man will come calling on you. When CRA calls, they don’t want to give you time to get audit ready, because they know full well audit ready books keeps more money for the taxpayer. So CRA likes to strike while the iron is hot. Shoe box accounting is a certain way to put a tax payer on the hot seat.

For more info on this topic go to www.taxauditsolutions.ca or click here.

Dan White

W5 exposes how CRA has disdain for even their own rules.

February 6th, 2011

 W5 has again brought more CRA abuse to light.

I don’t know what it is going to take to turn this around, but sooner or later, change will come. Our great hope is that by way of the internet, tweets and all… as in Tunisia, Jordon, Egypt, etc.,  and in Canada over the Canadian Radio and Television Commission ( CRTC ) backing off from limiting the amount of data we can download to what we can afford to pay.

Change will come… however in the mean time, we help Canadians, one at a time to fight the CRA injustice. We had another court win this past Friday. Our client’s case background was just as outrageous. My next blog will be on this.

To win against CRA is now small task… for the average Canadian to do this on their own, it is nothing short of a nightmare, just to get simple justice.

In the following two videos, you can see what every day Canadians are dealing with. This type of thing is pretty normal for them to do. We see it all the time, but so far the light in Canada has not gone off.

W5 The Audit.

Part one.

Tax season can be a frustrating time for most Canadians, but what happens if the taxman decides to conduct an audit? For Eli Humby, his audit turned into a long fight with the Canada Revenue Agency that compromised his business and personal life. W5′s Paula Todd reports.

 

http://www.ctv.ca/CTVNews/WFive/20110204/w5-taxman-horrror-stories110205/

W5 Part Two.

Retired Master Cpl. Chuck Martinello went to war with the CRA for more than two years on behalf of his wife, who was audited in 2008 for repairs to a rental property damaged by Hurricane Igor in 2004.


http://www.ctv.ca/CTVNews/WFive/20110204/w5-taxman-horror-stories110205/

Change to CRA will come but it is going to take an awakening of Canadians to realize that just because this has not happened to them, it does not mean that it won’t.

To learn more about batteling CRA go to our web site www.taxauditsolutions.ca       or       click here…………….. 

Dan White

There are more than 10 ways to avoid an audit!

January 31st, 2011

There are more than 10 ways to avoid an audit!

Are you afraid of a tax audit? If not, then you are either audit ready or have never been through the stress and huge cost of an audit.

In today’s Canadian small business world, if you are in business, it is not a matter of if you will get attract the attention of the TaxMan, it is more a question of how high have you put yourself on the list of “Businesses of Interest” to CRA, when you filed your tax returns, that will trigger that contact from a hungry auditor.


There is no such thing in Canada as a random audit. All audits are as a result of human behavior. You may have a legitimate transaction that attracts attention, or you may have done something that flags your file. In either case, you better have audit ready books.


Not being audited in the first CRA place is always the best idea, and we will give you some guidance here, but what is the most important thing you can do is keep your books audit ready right from the first data entry on.

The accounting system in Canada is a setup, either by accident or design for audits to be a costly event for the average small Business in Canada. Generally Accepted Accounting Principles.. or… as it is known… GAAP is in no way a guide to keeping records that will end an audit shortly after it begins.

Auditors know that the better the bookkeeping, the less booty there will be for the TaxMan.

So let’s start at the end goal of surviving an audit without any collateral damage to your bank account. That objective needs to relate the quality of the bookkeeping to the quality of the tax return submitted. Sloppy record keeping ends up with a dangerously bad tax return.

Being that you and not your accountant is responsible for the information on the tax return, you better make sure you have the correct records to give to your tax preparer.

Don’t do your own tax return, unless you are under the misguided belief that you have nothing to hide or fear.

Do a bad tax return and with your luck, you will get a bad auditor. There is no need to send a senior auditor to someone who does not even know how to do a tax return properly. Good auditors are like surgeons, they come in and do skilled cutting remove the gold that is theirs, if any, and move on to the next victim. Bad auditors make all kinds of dumb assumptions and take gold that is not theirs, much the same as the common thief. They take without guilt or conscience.

In order to reduce the chance of being audited you need to be further down the list of persons of interest. To achieve that goal, you need to consider the following tips:

Report everything you’re supposed to, no matter how small the amount. A lot of small amounts are in indicator of a detailed bookkeeper.

Make sure you include absolutely every form you receive…. without exception. This is the first thing to avoid being sloppy about at tax time. And don’t annoy your tax preparers at their busiest season by remembering a missing form… after your return is finished and printed.

The CRA automatically gets duplicate copies of all the forms that you receive … your income and benefits, interest, CPP etc… They cross-check all the forms they receive against your return. They match every detail. That 60 cents interest on some old bank account? You need to Report that too.

It’s not the amount that matters. It’s your failure to file a complete set of documents. The discrepancy, when discovered, will cause you to receive an automatic audit, in the form of a letter from the CRA asking you to explain. You don’t’ want to call attention to yourself. You want to pass through the system without a hiccup.

Whatever your spousal situation, child custody, support, alimony, exact addresses, etc.. You need to make sure that you have everything documented and is 100% accurate. All government agencies and departments have access to your information, and data mining is the term of the day.

Meet all your filing deadlines. File in the middle of the rush… before the final deadline. Don’t do anything to set yourself apart from the maddening crowds of taxpayers. You don’t want to do anything to suggest you’re being anything less than 100% complaint.

If you can not afford to pay your full amount of tax owing, it is a good idea to include a partial payment, it shows a good faith payment and is less likely to move into CRA collections. Once you are in the cross hairs of CRA collectors, all they see is a lying cheating tax evader. At that point, it is questionable in their biased minds as to if you should be allowed to live your life or not.

Don’t be a greedy. People have a tendency to be too aggressive in claiming their business expense deductions. Only deduct what you’re legally entitled to.

The statement that you have to pay some tax, is true only when you actually have a net income. Paying tax when you have a business loss is not only dumb but it makes you a person of interest. Somewhere in your tax return, it stops making sense. There is no room for dishonesty in audit ready books and the subsequent tax returns. Whatever it is … is what it is… no more and no less.

If you have a home office, make sure you understand the rules. There can not be any personal use of the space and your office needs to be your centre of operations.

Keeping good books is not something that you can do once a month or once a year. A shoe box is what a shoe box is; A container for keeping things you don’t use.

If you are going to avoid going to CRA Audit Hell, then you need to track absolutely ever penny that comes and goes in your business.

A big wake up call is that you also need to track your personal expenses. I can hear the wails of protest about this, why? You may ask. I’ll tell you why… It is because it is now standard policy for auditors to consider a lifestyle audit. If you can not prove how you paid for what you have and how you live, be prepared to receive a Lifestyle Audit. The other reason for tracking your own expenses is so that you can manage your personal finances.

You need to have every expense documented to prove that it relates to your business and so that it answers any question an auditor can ask and blocks them from assuming the expense is personal. In the absence of your statement of how the expense relates to your business, an auditor has the right to assume it is personal. In that case your business expenses are denied and are considered as personal expenses.

If you are in a start up business, especially converting a hobby into a business, you better make sure you set yourself up properly as a business in every possible way. Document that your venture has the potential to make money. Be able to show, that there are other people doing it for a profit; that you posses the necessary knowledge and experience; and that you are putting in the amount of time and energy necessary for it someday to succeed. You need to have the trappings of a real business; Business Number, Business Plan, Marketing Plan, Business Cards, Letterhead, a web site, a Budget, and a daily journal of activities. Your record keeping must be impeccable. At your third year of losses, you can expect an audit that could very well cost you all your deductions and end up giving you the shaft.

Choose your tax preparer carefully. Since you and not the preparer, are legally responsible for what’s submitted, you want to make sure the professional you use is ethical and skilled. Also make note that it is not in the tax preparers best interest to be aggressive, so you better keep good records, failing which your tax preparer will not want to include a considerable amount of expenses. Understand your tax preparer is subject to serious civil penalties for overly aggressive tax returns.

If you receive an unusually large payment that causes a spike in your income, make sure you have a complete audit trail to track the income and expenses related to it. Understand that just having this unusual payment is going to attract the attention of CRA. It is very important to have your paper ducks in order. Avoid anything that looks questionable or shaky.

In today’s world a business getting a cheque from a HST input tax credit, is paramount to asking for an audit. CRA will question any ITCs you request. If you want to avoid an audit, treat HST as a consumer tax and don’t ask for a refund. In this case pay some tax. Unless of course you have audit ready records and no secrets you don’t want the TaxMan to discover, in which case claim what is real for your input tax credits.

Avoid large Charitable donations that are out of sync with your ability to afford that amount of money.

Absolutely stay away from all tax shelters. They are such a cash cow for the TaxMan and you don’t need the bother. This is for sure a case of too good to be true is really too bad to be real. Getting a refund for more than you pay… loans or not…. is going to get you on the hot seat…. a very hot seat.

Don’t buy into the old husbands tale, of thinking that you have nothing to hide when it comes to an audit and if you have nothing to hide that you have nothing to fear. This is just plain uninformed head in the sand behavior. You owe it to yourself to do some research. The internet is full of horror stories. Check out the CBC documentaries and the news paper stories on how Canadians have been in the right but financially ruined anyway.

There are a number of red flags that may trigger CRA interest in your tax returns.

In general, the more complex the return and the more income from non-withholding, non-reporting sources, the higher the probability of an audit,

There are two categories that generate the highest probability of CRA interest: those who are self-employed, file a Business Activities Form and claim high deductions, and those who earn over a million dollars. Both cases will arouse the suspicion of the CRA.

To avoid an audit, stay within the industry standards. “The CRA has a table of national standards for every deduction based on income,”

Realize that CRA looks at your numbers, they use Bedford’s laws. Avoid rounding numbers when taking deductions. Don’t over inflate red flag deductions like automobile expense, meals, entertainment, travel and charitable contributions. Take your valid deduction and make sure you have plenty of substantiation in case of audit.

A great strategy to help avoid an audit is to essentially become “audit proof.” Consider having your Tax Representative conduct a “friendly audit.” Have them put on their TaxMan hat and act as if they actually are an auditor. They need to visit your place of business where they get the guide tour of the operations, conduct a review of your financial activities, bookkeeping and record keeping procedures, and accounting practices to uncover and correct sensitive areas before they are discovered in an CRA audit.

Whether the CRA interest is for a desk audit or a field audit, realize that just because they have contacted you does not mean you have done anything wrong. “Audit selections are generally made according to a computer model that selects returns based on how dissimilar they are from a national norm.

In cases of a desk audit, CRA is generally fishing to see if there should be a full blown field audit. If the documentation and explanation is exactly correct as per your tax returns, then often CRA is satisfied and the file is then closed.

If in the desk audit process it turns out that more information is needed, make sure you inquire about and understand the nature of the CRA inquiry and take notes during this process. Then immediately tell the agent that you’d like them to put their questions in writing and that you will to seek the advice from your tax representative, because bookkeeping and taxes is over your head. That you want to make sure that you both understand the question properly and answer the questions accurately. That you don’t think you should guess about anything. Once you make this request, you are under no obligation to answer any further questions and make sure you don’t get intimidated by anything the auditor says, they can be very intimidating.

In summary the glory days of hap hazard bookkeeping and aggressive tax returns is completely over. In today’s world, you need to be on top of your record keeping on a daily basis and you need to understand audit ready bookkeeping.

To find out more about CRA and tax problems requiring solutions, go to Tax Audit Solutions www.taxauditsolutions.ca or click here.

 

About dealing with CRA… sometimes there is justice.

January 12th, 2011

Yesterday, I was really steamed, as I reviewed the documents that we received from CRA under the access to information act. (ATIP) The auditor wrote that the working papers and audit notes were withheld because there is a current notice of objection in progress. That my friends … in my opinion … is an obstruction of justice.

ATIP does not stipulate that you can withhold any information… so I am going to protest. Withholding information on a matter that could go to court as according to the law – is an obstruction of justice.- and this current matter just may be going to court. …

This morning I read the following article, (included herein and below) which … while under a different act, shows that this kind of behavior is not seen as OK by the courts.

The following court ruling will also be very useful in dealing with CRA auditors who go to third parties and give out information damaging to the taxpayer.

Some days I do have hope for meaningful justice in this land, this is one of those days.

Yesterday I was in court, and experienced another form of justice from a tax judge and a different kind of justice for a lawyer representing CRA via the Department of Justice.

The behavior of the said lawyer who was so outrageous that his associate Lesley was visibly embarrassed. His verbal diatribe did little to leave a shred of respect to him. Our client was so angry at him that I am sure she had some unspeakable thoughts on the matter. The justice of the situation, was that I was right in my position in that the facts of the matter were confused and that the lawyer did not know what he was talking about, and had not read the file. His threat of going for costs… was shall we say … out of the mouths of idiots comes idiotic words, and it showed him as to what he really is. As Forest Gump said, “Stupid is as stupid does. It was a cool sort of natural justice to see that he made a fool of himself… I doubt that his client (CRA) would have been impressed.

On the other hand, the Judge was fair reasonable and honest. He gave us what we wanted in spite of the Department of Justice wanting Sine Die … (having the matter postponed indefinitely.) We get our access to justice in spite of the Department of Justice wanting to avoid it…. Interesting eh?

I don’t profess to be a lawyer, I am a Tax Representative who is interested in seeing that truth and justice applies for my clients. So when some lawyers drop their standards, it does little for the image of lawyers and creates images of charlatans. There are a lot of really good lawyers out there and I am sure they would not appreciate the discredit to their profession by the few really bad ones.

I confess, that I have my frustrations with CRA bureaucrats… and I am steamed over the obstruction of Justice in the matter of not giving us all the required documentation under the Access To Information Act.

Seeing the article today gives me renewed hope for change.

You can read more in the blog here and gain more insight from or on our web site… just click here.

Dan White

The price of inaccuracy: Federal Court awards first damages for PIPEDA breach

This week, the Federal Court of Canada made its first damage award ever under the 10 year old Personal Information Protection and Electronic Documents Act (PIPEDA), awarding damages to a businessman in connection with the provision of inaccurate credit information by a credit reporting agency — despite a failure to prove actual losses arising from the breach.

While the quantum of the damages awarded in Nammo v. Transunion of Canada Inc., was a modest $5,000 plus costs, the case establishes several important principles respecting the interpretation of PIPEDA and the availability of damages for humiliation stemming from a violation of the Act.

The case concerned a businessman who sought a bank loan in order to launch a trucking business with a partner. The loan was rejected by the bank based on an inaccurate credit profile for the applicant, which subsequently was discovered to include the credit history of another individual with a different name, date of birth, Social Insurance Number and address history.

The case marks the Court’s first consideration of Clause 4.6 of Schedule 1 to the legislation, which requires that personal information held by an organization must be “as accurate, complete and up-to-date as is necessary for the purposes for which it is to be used.” Justice Zinn rejected the respondent’s argument that there is no breach of “the Accuracy Principle” where an organization responds adequately to correct inaccurate information after it is brought to its attention, finding that while such rectification may be a factor to consider in determining an appropriate remedy, it cannot be used as “an escape hatch” to avoid a finding of a breach of the principle itself. Justice Zinn similarly found that neither prior notification of inaccuracy, nor industry standard practices, nor commercial efficiency were relevant to assessing whether the Accuracy Principle had been breached.

In the first Federal Court damage award under s. 16 of PIPEDA, Justice Zinn awarded damages for humiliation for violation of the Accuracy Principle of the Act, finding “a serious breach involving financial information of high personal and professional importance.” It is noteworthy that damages were awarded despite little apparent evidence in this regard, with the judge finding that a reasonable person would have been humiliated by having their loan application turned down, having to convey to their business partner that their credit was “bad” and living with the taint of uncreditworthiness before their bank, in addition to undergoing the process to have the error corrected.

On the question of jurisdiction, Justice Zinn found that, while the Federal Court, on conducting a hearing de novo pursuant to s. 14 of PIPEDA, does not have jurisdiction to consider matters that were not complained of to the Privacy Commissioner of Canada in the complaint on which the rehearing is based, the Court’s jurisdiction is constrained only by the factual issues raised before the Privacy Commissioner, not by the particular clauses of the legislation considered by the Commissioner or her legal characterization of the factual issues raised.

Canada Revenue Agency letter campaign

January 4th, 2011

Canada Revenue Agency letter campaign

CRA is sending out another 29,000 letters to Canadians in the next two months. One would want to wonder why would they be doing so. The information below is provided by CRA from their web site. However one needs to look at this behaviour as part of the bigger tax picture.

The first thing that comes to mind is that most of the letters will be for information purposes and promotes the Voluntary Disclosure Program (VDP). I can see where this makes sense for scaring those in the underground economy to come forward. And the letters of intent to audit does affect he ability to file a VDP.

I think the scaring is more about short term cash than long term tax collected. CRA has become so sophisticated that they are going to catch everyone sooner or later.

So the message to Canadians really reads: Pay me now or pay me later. CRA will get more later, but they need the money now, hence the scare letters.

Make no bones about this situation, it is serious. The days of being a tax evader are over. Yes… there will be some people who get away with it, either because they know how, or simply the luck of the draw on who CRA has time to go after.

CRA writes on their site in response to the question of why me?:     ” Letter recipients were chosen at random within your industry segment.” Frankly that is pretty hard to believe… why would they do random audits when their computers will tell them exactly who to target? My guess is that random is scarier than targeted audits.

The claim by CRA is that Canada’s tax system is based on self-assessment, which means that individuals are responsible for accurately completing and filing their tax returns on time. The Canada Revenue Agency (CRA) provides Canadians with the information they need to meet their income tax obligations. Mostly they just audit and use that as a means to teach taxpayers and of course to get more money that way.

In 2010, the CRA began a letter campaign which involved sending 37,000 letters to Canadians. These letters purportidly served two purposes: to educate taxpayers on specific claims they made on their income tax and benefit returns and to provide notice of the CRA’s intent to audit some taxpayers. It is well advised to note… that the letter of intent removes your possibility to file a VDP.

As part of the second year of its campaign, the CRA will send 29,000 letters similar to those described above to taxpayers in January and February 2011.

Educational letters and intent to audit letters will be mailed to those sectors where taxpayers or industry segments are at risk of misunderstanding their tax obligations or willfully avoiding paying their taxes.

If you are one of the Canadians who recently received a letter providing you with information about expenses that you deducted on your income tax and benefit returns, the following information may interest you.

Readers beware; the taxman will come to your door. The answer is found in being prepared ahead of time.

Dan White

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Frequently asked questions
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Forms and publications
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Related links

Frequently asked questions **** see answers by number below.

1.

I just received a letter from you. What is it all about? Did I do something wrong?
2.

I paid a professional tax preparer to do my tax returns. Did he or she do something wrong?
3.

What am I supposed to do as a result of this letter?
4.

Do I have to send any documents to the CRA? If so, when do I send them and where?
5.

What do I do if I find errors on my tax returns?
6.

How much tax will I have to pay if I file this adjustment? What happens if I cannot afford to pay the resulting tax liability right away?
7.

Your letter mentions that the CRA is considering conducting an audit of my business, rental, or professional activities. What are the chances that I will be audited, and when will the audit take place? What tax years will the CRA audit?
8.

Why is the CRA targeting specific sectors of activity? What is the rationale behind its selection criteria? Is this not discrimination?
9.

Is the CRA trying to intimidate taxpayers?
10.

Why have you sent me a letter and not my associates/partners?
11.

I received (or my associate or my spouse received) the same kind of letter from the CRA last year. Why is the CRA sending me another letter?
12.

How does the CRA define “potential risk” within the scope of this compliance letter campaign?
13.

Your letter mentions that there is a Voluntary Disclosures Program (VDP). What is the difference between a voluntary disclosure and a request for adjustment using Form T1-ADJ? Where can I find more information about the VDP?
14.

I would like more information on business, professional, or rental activities. Where can I find it?

1. I just received a letter from you. What is it all about? Did I do something wrong?

The CRA has sent you this letter to educate you about certain claims you made on your recent income tax and benefit returns. This letter also gives you the opportunity to request an adjustment if you find that you claimed some items incorrectly on past tax returns. Some of the letters that the CRA is sending will also notify taxpayers that the CRA may conduct audits in their industry sector.

This letter does not mean that the tax returns you filed in the past were incorrect. Like 90% of Canadians, you probably filed an error-free return and paid your taxes on time. You do not need to respond to this letter if your past tax return filings are correct.

The information in this letter will also be useful to you when you prepare to file your 2010 income tax and benefit return.
2. I paid a professional tax preparer to do my tax returns. Did he or she do something wrong?

Although a professional tax preparer completed your return, the CRA has sent this letter to you because you are most likely the person responsible for carrying on your rental and/or business activities. In most cases, tax preparers use information provided by taxpayers to prepare the taxpayers’ returns.

The CRA regularly identifies the most common errors on income tax and benefit returns in an effort to determine areas that require clarification. You have claimed deductions that often lead to common errors. This letter provides you with information about these errors.

This information will make it easier for you and your tax preparer to comply with Canada’s tax laws. It will also help you and your tax preparer to verify your most recent tax returns to ensure they were correct when you filed them.
3. What am I supposed to do as a result of this letter?

Please review your income tax and benefit returns and ensure that your income and deductions have been reported correctly. If you find any errors, you can correct your return(s) by requesting an adjustment.

If you determine that the claims you made on your return(s) are accurate, you do not need to take any action.
4. Do I have to send any documents to the CRA? If so, when do I send them and where?

If you determine that the claims you made on your income tax and benefit returns are accurate, you do not need to send any documents to the CRA.

If you would like to adjust one or more tax returns because you have found errors, you will need to submit a request for an adjustment. We recommend submitting your request within 30 days from the date of this letter to minimize the interest charged on any outstanding amounts.

If the CRA decides to audit you, we will not take any audit action before the 30 days have elapsed. If the CRA starts an audit before you file your adjustment, you will be invited to give the auditor all relevant information regarding the adjustment.

To request an adjustment, complete Form T1-ADJ. You can also request this form by calling 1-800-959-2221 or by ordering it online.

Instructions on how to complete Form T1-ADJ are on page 2 of the form, along with the CRA return mailing address. To access our electronic services and make changes to your return online, login to My Account and follow the steps given.

Do not send a completed Form T1-ADJ, or any other documents, to the author of the letter.
5. What do I do if I find errors on my tax returns?

Do I also have to correct my provincial return? (Quebec residents only)

If you would like to adjust your tax return because you have found errors, you will need to submit a request for an adjustment. You may want to submit your request within 30 days from the date of this letter to reduce the interest charges on any outstanding amounts. If the CRA decides to audit you, we will not take any audit action before the 30 days have elapsed.

If the CRA starts an audit before you file your adjustment, you will be invited to give the auditor all relevant information regarding the adjustment.

To request an adjustment, complete Form T1-ADJ. You can also request this form by calling 1-800-959-2221 or by ordering it online.

Instructions on how to complete Form T1-ADJ are on page 2 of the form, along with the CRA’s return mailing address. To access our electronic services and make changes to your return online, login to My Account and follow the steps given. Do not send a completed Form T1-ADJ, or any other documents, to the author of the letter.

Do not send a completed Form T1-ADJ, or any other documents, to the author of the letter.

If you are a resident of Quebec and you have questions related to your provincial tax return, please contact Revenu Québec directly.
6. How much tax will I have to pay if I file this adjustment? What happens if I cannot afford to pay the resulting tax liability right away?

The CRA cannot accurately estimate the amount of tax that you may have to pay as a result of your request for an adjustment. You will receive a notice of reassessment or a statement of account/remittance showing any amount owing as a result of your adjustment.

Any amount you owe must be paid in full once you receive your notice of assessment or reassessment to avoid paying additional interest.

If you cannot pay the total amount owing immediately, please call the telephone number on your notice of assessment or reassessment to discuss your options.

For information about payment options, go to Making payments or call the telephone number on your notice of assessment or reassessment.
7. Your letter mentions that the CRA is considering conducting an audit of my business, rental, or professional activities. What are the chances that I will be audited, and when will the audit take place? What tax years will the CRA audit?

Receiving this letter does not necessarily mean that you will be selected for an audit. The CRA is not in a position to indicate the likelihood of being selected for audit for a number of reasons. The CRA considers risk from a number of criteria before selecting files for audit.

If it is determined that an audit is required, it will commence only after the upcoming filing season, to give you an opportunity to self-assess your returns using the information provided in the letter.

However, the Income Tax Act allows the CRA to adjust tax returns:

1.

in the three years following the date on your notice of assessment

For example, if your 2009 tax return was filed on April 15, 2010, and your 2009 notice of assessment is dated May 28, 2010, the CRA can reassess your 2009 tax return until May 28, 2013 (May 28, 2010 + 3 years).
2.

for any years that the taxpayer or person filing the return has made any misrepresentation that is attributable to neglect, carelessness, or wilful default or has committed any fraud in filing a return or in supplying information under the Income Tax Act.

8. Why is the CRA targeting specific sectors of activity? What is the rationale behind its selection criteria? Is this not discrimination?

The CRA reviews groups of taxpayers to determine how many of them are paying their taxes in full and on time. If the review shows that there are many who are not compliant, the CRA may audit taxpayers within this segment.
9. Is the CRA trying to intimidate taxpayers?

The CRA wants to give you the opportunity to request an adjustment, which you can do if you find that, in any past tax return filings, items were incorrectly claimed.
10. Why have you sent me a letter and not my associates/partners?

Letter recipients were chosen at random within your industry segment.
11. I received (or my associate or my spouse received) the same kind of letter from the CRA last year. Why is the CRA sending me another letter?

Letter recipients were chosen at random within your industry segment.
12. How does the CRA define “potential risk” within the scope of this compliance letter campaign?

To direct letters to the taxpayer groups potentially at risk of non compliance, the CRA relies on risk-assessment systems to determine which taxpayers or industry sectors are at risk of misunderstanding their tax obligations or wilfully evading paying their taxes. This includes research to identify current and emerging risks to the tax base.
13. Your letter mentions that there is a Voluntary Disclosures Program (VDP). What is the difference between a voluntary disclosure and a request for adjustment using Form T1-ADJ? Where can I find more information about the VDP?

Generally, taxpayers make adjustments to previously filed tax returns using Form T1-ADJ, T1 Adjustment Request. This form allows you to modify any amounts claimed or income reported on any line of your tax return or schedules, and the modifications may result in either a refund or an amount owing.

To request an adjustment, complete Form T1-ADJ. You can also request this form by calling 1-800-959-2221 or by ordering it online.

You can use the VDP to correct inaccurate or incomplete tax information and/or to disclose information that was not previously reported to the CRA.

You will not be penalized or prosecuted if you make a valid disclosure before you become aware of any compliance action taken against you by the CRA. If you make a valid voluntary disclosure, you will only have to pay the taxes owing, plus interest. You will not be subject to prosecution or penalties. For more information about the VDP, or to find the appropriate tax services office, go to Voluntary Disclosures Program.
14. I would like more information on business, professional, or rental activities. Where can I find it?

If you need additional information, call the author of the letter. You can also call our Individual income tax inquiries line at 1-800-959-8281.

To learn more about how CRA operates, go to Canada’s definitive source of the behind the scenes scoop on CRA activity. Click Here

To learn more about how CRA operates, go to Canada’s definitive source of the behind the scenes scoop on CRA activity. Click Here

 

Reducing income tax is good for business and for total tax collected.

January 4th, 2011

 In the good old days, prior to world war II there was no income tax and there was a period of prosperity, however the government got hooked on the benefits of a war tax and continued to tighten the tacks on the backs of hard working Canadians. Now we are at the stage where bankruptcies are at an unprecedented high.

Apparently Manitoba understands the principles of reduced tax rates generates more total taxes, by way of increased employment. The ration is simple. More corporations going to Manitoba for tax breaks, means more jobs, more jobs means more employees, more employees means more income tax paid out in payroll.

I wonder if Ontario will wake up and try to keep as much business at home as possible.?

for more information on tax issues click here.

The following article written by Carol Sanders, is a reprint from the Winnipeg Free Press print edition January 3, 2011 A4

Starting Jan. 1, Manitoba has totally wiped out its general corporation capital tax.

The tax was eliminated July 1, 2008 for manufacturers and processors and, starting this year, other corporations don’t have to pay it, either. The change will save Manitoba businesses more than $119 million annually starting next year, Finance Minister Rosann Wowchuk said in a press release Friday.
The Manitoba Chambers of Commerce said the province jumped at a federal incentive to eliminate the tax and deserves credit for acting on it quickly.
“Each province had until 2011 to accommodate that removal,” president Graham Starmer said Friday. “The province was very proactive a couple of years ago in 2008 removing it from manufacturers and processors,” he said. Now it is following through and totally removing it. “I give the province credit for following through with their commitment,” Starmer said. “If only they could do that with the payroll tax, we’d be very happy.”
On Dec. 1, Manitoba became the first province in Canada to permanently eliminate the small business income tax rate.
But Manitoba is one of three provinces — including Ontario and Quebec — that still collect the payroll tax, he said. And Manitoba charges the largest percentage, taking $370 million a year from employers, said Starmer.
“It deters companies from expanding because it expands the tax they have to pay on payroll. That’s probably why some corporate head offices have moved to other locations.”
carol.sanders@freepress.mb.ca
Republished from the Winnipeg Free Press print edition January 3, 2011 A4

CRA Collections Department is the New Super Collection Agency

December 22nd, 2010

CRA Collections Department is the New Super Collection Agency

 

CRA has new training programs and videos teaching collections officers how to collect the maximum amount of money possible.

 

CRA’s mandate is The governments are our clients. Taxpayers do as they are told.

 

Our inside sources tell us the stressed out collections officers question is “what do we collect next? Parking Tickets?

 

This overly aggressive behaviour comes directly from the government of the day. Our governments drive for money is has turned CRA into a collections machine never seen before in Canada.

 

It does not matter who has their life ruined or who dies of stress. Money has no feeling, no concience and has no friends. CRA is under huge pressure from above to collect and collect quickly.

 

So make sure that you keep audit ready books or you just may find yourself looking down the double barrel shot gun and if you don’t have great records you are dead.

 

Our new Audit Ready Bookkeeping software version 1 will launch in January 2011.

 

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

Regarding CRA Collections: What are they really like? A realistic view.

Firstly I need to acknowledge that there are lots of good people who work for CRA collections, but no one ever complains about the good guys and girls. It is the hard asses that make life horrible for the average taxpayer who gets in default of paying their taxes.

When someone is having financial problems, and they are in arrears with CRA, That is when trouble really begins. If is imporant to deal with tax debt in a proactive mode. It is a lot less problematic before CRA Collections comes calling. Even worse is if your account goes to Collections.

If CRA first line collections is not paid to their satisfaction the account goes to Aged Collections. That is where things get nasty. Very nasty! Once someone is in aged collections, that means the gloves are off and it is a case of Big Mack Truck versus a small furry animal. At this point CRA senses that you are in financial trouble and comes in for the kill.

This is where life gets simple. One either has the assets to pay and you better liquidate them and get CRA Collections satisfied or have your life ruined. It is as simple as that. Kevin Oleary from the TV show “Dragon’s Den says money has no feelings and no emotion. People care about money, but money does not care about people. CRA Collections is the same as money, they don’t care about people. It is a matter of “Show Me The Money!”

If the tax bill cannot be paid, then it is a simple case of taxpayer insolvency. In which case this needs to be acted on promptly.

Someone in this position needs to get good consulting and quickly. We recommend talking to us before meeting a Trustee. We work with Trustees and we can make this process a lot less intimidating and stressful.

In aged collections, CRA sometimes even puts in writing; “There are no restrictions under the ITA or ETA as to what they can do.

What they are legally allowed to do and what they sometimes do is quite different. An additional CRA collections bonus, so to speak.

 

CRA knows full well most people cannot defend themselves when they are already in financial trouble. Therefore there are lots of times people pay up or go bankrupt when they really did not owe any money to CRA.

 

Here are some examples of what CRA can to when the gloves come off and they go for the kill.

The Requirement To Pay on any sources of income.

Freezing any and all bank accounts.

Go after spouses corporation using relatedness arguments.

Harassment phone calls and visits,

Sending brown letters with… a bunch of “sometimes known as;s”

Embarrassment at the banks

Do hard credit cheques at the credit boroughs.

Send legal warning letters.

Stop spouses tax credits.

Do home drop ins… two collections officers in black leather jackets.

Harassment of spouse.

Talking to neighbors, suppliers and tenants.

Issuing of Requirements to pay to taxpayers customers.

Drop in for a visit at work.

Ruin his health.

Kill him from Stress.

Once CRA has certified the debt, they can harass an estate even after the death of the taxpayer.

 Just be aware: CRA Collections is worse than anyone realizes. It is where things get very dirty and terrifying….. that is why fixing tax problems is more expensive once the debt goes to collections. Unless you get a decent collections officer, you are going to be in one hell of a fight.

 For those of us who go to battle with CRA to get what is right, we fight a very hard battle. There is no way one can deal with CRA and not take a whole load of stress home at the end of the day.

The tax business services offered to clients by some accounting and legal firms is a joke… There are other top guns out there, and you need to make sure that you hire a seasoned professional with a track record of success. Most professionals are afraid for themselves and with good cause, therefore they often won’t take the fight far enough to get what is right.

To learn more about CRA and CRA collections go to www.taxauditsolutions.ca or click here.

Festivus for the rest of us

December 22nd, 2010

Well we are near Christmas and it is the festivities time of the season. All the parties are happening, the presents are bought or are soon to be … there are always those last minute things to buy.
This year I have decided to endorce the concept of Festivus. Festivus is a great idea for those of us who want to celebrate the holidays with all our friends and family and not just with Christians.
For years the subject of Christmas has become more and more a polically sensitive topic as to issues such as Christmas being exclusive of other faiths.
By endorcing Festivus, it solves all those political problems and does not stop me from having my personal relationship with Christmas. I can now celebrate the holidays with all my friends and family and religion is in or out of the picture depending who believes what.
To find out more about Festivus, be sure to go to www.whatisfestivus.info And if you are having a tax issue this holiday season, make sure you click on the information about the Grinch who stole Festivus.
Happy Festivus Everyone.
Dan White

CRA is the biggest reason for the huge drop in charitable giving

December 3rd, 2010

CRA’s relentless attach on donors, looking for reasons to disallow taxpayers tax credits from charitable donations is backfiring. When taxpayers stop donating, the poor suffer and the load on social welfare increases.

It was not to hard to figure out that if Canadians are going to have to fight CRA just because they want to help the needy and benefit from a tax credit to offset the amount donated, then the obvious answer is that they just don’t donate. With CRA out to disallow your tax credits, why set yourself up for abuse?

CRA is sucking and blowing at the same time. They say donate, but then they look to disallow the tax benefits that rightfully apply.

I am not saying this from hearsay, my business is helping abused taxpayers. As a result of what I see first hand, I have a very negative attitude towards CRA and their approach to taxpayers. To them unless you are a T4 salaried employee than you are assumed to be a tax cheat. CRA gets to be the way they are because Canadians have a distorted concept of the true CRA reality. The majority of Canadians are salaried, so most of them don’t get to see the dark side of CRA. Ask anyone who has been audited and you start to get the picture.

As far as I can see, CRA has put the nail in the coffin. I for one will now only help the needy by dealing directly with them, and I sure as hell won’t be submitting any charitable donations slips. I don’t need the aggravation, if CRA wants to disallow my donations, then they can have it… If I do happen to donate, I won’t use a charitable donation receipt for any tax savings.

To learn more about tax problems and tax audit solutions, go to www.taxauditsolutions.ca or click here.

 Dan White

………..

Charities see alarming trends as donors become older, fewer
PAUL WALDIE
From Friday’s Globe and Mail
Published Thursday, Dec. 02, 2010 8:13PM EST
Last updated Friday, Dec. 03, 2010 7:12AM EST
391 comments
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Canada’s long tradition of supporting charities is showing signs of erosion.
The number of Canadians making charitable donations is falling sharply and the total amount donated has dropped by nearly $1-billion over the last two years. Meanwhile, the average age of donors has risen to 53, leaving many charities wondering where future funding will come from.

The trend is “troubling,” said Cathy Barr, vice-president of operations at Imagine Canada, an umbrella group for Canadian charities. She added that there is real concern that “the donor base is shrinking and that’s very worrisome.”

Figures released by Statistics Canada last week highlight a disconcerting trend for charities. The report showed that 5.6 million people donated money last year. That was down from 5.8 million in 2008 and was the lowest number of donors since 2002, when 5.5 million people gave money. In dollar terms, total donations dropped to $7.75-billion in 2009 from $8.19-billion in 2008 and $8.65-billion in 2007.

The participation rate – a measure of the percentage of tax filers reporting a donation – is even more troubling. Last year, 23.1 per cent of taxpayers claimed a deduction for making a charitable donation. That was down from 24.1 per cent in 2008 and marks a 30-year low. Not that long ago, nearly one-third of taxpayers reported a donation; now the percentage is less than one-quarter.

The recession and a crackdown on illegal tax shelters by the Canada Revenue Agency accounts for some of the downturn, but not all of it. In fact, the number of donors increased between 2007 and 2008 for the first time in years, an indication that Canadians are prepared to dig into their pockets during times of financial distress. And Imagine Canada estimates that even when the CRA’s move to revoke several tax shelters is taken into account, donations are still down.

“You begin to worry at a certain point, is this the hollowing out of the middle class? Is this the lack of social connection?” asked Malcolm Burrows, who heads philanthropic advisory services at the Bank of Nova Scotia. “It’s one thing for dollars to go up and down with the economy. It’s another thing for this long-term trend of donors disappearing. That is worrying.”

He and others say the trend indicates a growing gap between wealthy Canadians, who have largely continued to make donations, and the middle class, which has found giving difficult during tough times. Statistics Canada figures show that over the last decade the number of donors has fallen, but the median gift has increased from $190 to $250. That means fewer people are giving more money.

The average age of donors has also slowly moved upward, rising from 51 earlier this decade to 53 last year. Ms. Barr said that likely reflects tougher economic times for young people, many of whom are still struggling with the recession and the high cost of essentials like housing. But a bigger concern is that young people don’t seem to be getting into the habit of donating. “That is particularly troubling,” Ms. Barr said.

Targeting younger donors has been critical for charities like United Way Toronto, the largest United Way in Canada. The organization launched a GenNext campaign about four years ago aimed at people between the ages of 20 and 30. Julia Gorman, vice-president of resource development at the charity, said young people volunteer more and also want more information about where their donations go. This year the organization has held more than 1,000 presentations with donors and agencies supported by United Way to explain how donations are spent. “We’ve never done that before,” she said.

Ms. Gorman said the overall fundraising climate is difficult and United Way Toronto’s annual campaign is about one-third short of its $113-million goal with less than a month remaining.

Marvi Ricker, managing director of philanthropic services at Bank of Montreal, said the financial squeeze on the middle class is hurting many smaller charities. “I think that’s where the donations to smaller organizations, more grassroots types, are really going down,” she said.

But she remains optimistic, citing a recent study by the bank that indicates aging Canadians plan to give well into their retirement. And she takes heart from various efforts by teachers to get students interested in philanthropy. “More people are taking a different approach to giving,” she said. “They are doing philanthropy not just writing cheques.”

Phantom Income Strikes Again on Exercising Stock Options.

November 30th, 2010

In the never ending attack on the wealth of Canaians, now CRA wants witholding tax based on employees exercising their stock options.

What this means is that by exercising your options, you will need to come up with the cash to pay  the tax liability on your phantom income.

So if you have an existing stock option, you should do some serious tax planing before January 1, 2011.

For more information on tax challenges, go to www.taxauditsolutions.ca or click here. 

Dan White

______

Phantom Income Strikes Again on Exercising Stock Options.
Tax withholding on stock option benefits: will you be ready on January 1, 2011?
Stikeman Elliott LLP
Andrea Boctor and Ramandeep K. Grewal
Canada
November 23 2010
Beginning January 1, 2011, virtually every stock option exercise by an employee or director will trigger employer tax withholding and remittance requirements. Stemming from the March 2010 Federal Budget, new rules were introduced into the Canadian Income Tax Act earlier this fall which “clarify” that, effective as of the new year, source deduction requirements apply to stock option benefits. These and other proposed amendments relating to taxation of stock options are summarized in detail in our related Tax Update. The change in policy in respect of withholding and remittance for stock options brings the Canadian tax regime essentially in line with the regimes of other countries, including the U.S. and U.K.
These developments impact both employers and those receiving stock options or similar compensation. Every corporation and every mutual fund trust that sponsors stock option plans to which these rules apply should review the existing terms of its plans, and related administrative procedures, to determine whether tax withholding and remittance can be accommodated in accordance with Canada Revenue Agency (CRA) rules. For public companies, existing stock option plans and agreements should also be carefully reviewed to determine whether shareholder approval is required for any necessary amendments.
The following series of questions and answers reviews these and other common issues that employers may face in dealing with these changes.
Do the new rules apply to our company?
The new rules generally apply to all Canadian employers, including non-Canadian employers who make stock options available to Canadian employees, subject to specified exceptions.The main exception covers Canadian-controlled private corporations (CCPCs) as defined in the Canadian Income Tax Act.
When will the new rules apply?
Withholding will be generally required for non-CCPC options exercised in 2011 or after, regardless of when the option was granted.
Are there any exceptions?
There is an exception for options granted before March 4, 2010 at 4:00 PM EST, where the options included a written condition to the effect that the optioned shares must be retained by the optionee for a period of time after exercise. Another exception also exists where the optionee donates the optioned shares to a registered charity within a short period of time after exercise.
What are the withholding rates applicable to stock option benefits?
The tax rates applicable to withholding on stock option benefits are the same as for regular employment income. Where an option is eligible for the one-half income deduction on the option spread on exercise, only one-half of the spread will be considered for purposes of determining the amount to be withheld.
Our stock option plan does not currently specifically address withholding or sale of shares on the employees’ behalf. What should we do?
Stock option plans or agreements may include general terms that permit withholding and remittance as required by law or may include specific terms governing how withholding and remittance requirements may be satisfied. Such specific terms may, among other things, either permit the sale by the employer on the employee’s behalf of a sufficient number of issued shares to satisfy the tax liability or require that the employee pay an amount to the employer equal to the withholding obligation as a condition of exercise. The viability of available alternatives depends on a number of factors, including implementation from an administrative perspective (as discussed below) and the ability of optionees to fund their portion of the withholding obligation. Plan or agreement provisions should be carefully reviewed to determine if the appropriate alternatives are sufficiently covered, otherwise an amendment may be necessary. For public companies, such amendments would generally trigger shareholder approval requirements under stock exchange rules if not permitted under the existing amendment provisions of the company’s plan or agreement. In this regard, the TSX has confirmed in its Staff Notice 2010-0002, dated November 12, 2010, that it will generally consider amendments to option plans and agreements resulting from these rules to be of a “housekeeping” nature. This acknowledgement means tax-related amendments, where necessary, may generally be made under existing provisions that allow the board or a board committee to make amendments to plans or agreements of a “housekeeping” nature without shareholder approval. The Staff Notice further clarifies that if the plan does not contain such amendment provisions, the TSX will still allow companies to amend their plans and option agreements to comply with these rules provided that: (i) the amendments are limited to compliance with the Income Tax Act, (ii) the company adopts proper amendment procedures in its plan; and (iii) the amendments are submitted for security holder approval at the company’s next meeting. Public companies are also reminded that in either case, option amendments will still be subject Section 613 of the TSX Manual, which includes pre-clearance by the TSX and disclosure in proxy circulars.
How do we arrange for shares to be sold in the market to cover the optionee’s tax liability
Depending on your particular circumstances, the alternatives include arranging with a broker to sell the shares on the employee’s behalf or arranging with a third party service provider (such as a trustee or transfer agent) to administer the plan. Implementation of necessary procedures will need to be tailored to meet your specific needs and those of your optionees. In any case, discussions with all third parties should be initiated in advance to prepare for the January 1, 2011 deadline.
Instead of issuing all of the shares under option and then selling a sufficient number to raise cash to remit to Canada Revenue Agency in respect of the withholding obligation, can the corporation simply issue fewer shares to the employee and remit cash to CRA?
Satisfying the withholding obligation in this fashion may jeopardize the tax characterization of the option award, including the timing of taxation of the option award and the availability of the one-half income deduction on the option spread on exercise. We do not generally recommend this as a method of satisfying the withholding obligation. If the more common alternatives discussed above are not viable for your company you should speak with a tax advisor to consider other alternatives.
Do the new rules apply to directors of Canadian corporations who are not resident in Canada?
Although an individual’s tax situation will depend on a number of factors and can turn on specific facts, generally, the new rules will apply to non-Canadian resident directors who rendered services to the corporation in Canada at any time during the period from the date of grant to the date of exercise. The withholding amount will generally be determined based on the portion of the option benefit that is taxable in Canada.

Offshore Spousal Trust folds in tax court.

November 26th, 2010

In another in a series of articles about Trusts: The times they are a changing. The concept of using offshore as a way to legally avoid taxes is an open invitation to a journey of fighting CRA and then going to tax court.
We all like to save on taxes. However one should be a good risk manager before considering going down that road.
Just remember one fundamental truth. If you need to go offshore for the sole purpose of saving taxes, you are just asking for problems. In the end you not only pay more taxes, but you incur substantial costs of fighting plus tax penalties and interest.
For more information on tax issues go to www.taxauditsolutions.ca or click here.
Dan White

>>>>>>>>>>>>>

Antle v. The Queen – Appeal Dismissed by the Federal Court of Appeal
Antle v. The Queen – Appeal Dismissed by the Federal Court of Appeal
Posted on November 26, 2010 by Hull and Hull LLP
The case of Antle v The Queen, 2009 TCC 465, 2010 FCA 280 (Can LII) (“Antle”) has been a much talked about decision. The appeal to the Federal Court of Appeal was dismissed just recently, on October 21, 2010.

Antle deals with the legality of a “capital property step-up strategy” whereby capital property with an accumulated gain (shares in a company) was shifted from the husband to a Barbados spousal trust. The trust sold the property to the beneficiary wife in exchange for a promissory note. The wife then sold the property to a third party purchaser and used the proceeds to pay off the promissory note. The trust distributed the funds to the wife as beneficiary, after which the trust was dissolved.

This scheme was apparently designed to result in no tax because there was no capital gain taxable in Canada, as there would have been had the husband sold the capital property directly to the third party. The capital gain arose in the trust in Barbados where there was no tax on capital gains.

While one might say that the case deals with the residency of the trust, the penultimate issue was whether a trust was created at all in the circumstances.

In order for a trust to be valid, there must be three certainties, namely, certainty of intention to create a trust, certainty in the subject matter of the trust, and certainty in the objects of the trust.

In this case, the Minister focused on the lack of certainty of intention to create the trust and the lack of certainty in the subject matter of the trust. The decision of the Minister was appealed to the Tax Court of Canada (“Tax Court Judge”). The decision of the Tax Court Judge was then appealed to the Federal Court of Appeal.

The Tax Court Judge found that there was no certainty of intention. The husband never intended to lose control of the shares or the money resulting from the sale and never intended to create a trust. The Tax Court Judge found that the husband’s actions and the surrounding circumstances could not support a conclusion that signing the Trust Deed reflected any true intention to settle shares in a discretionary trust, no matter how clear the language in the Trust Deed itself.  It simply did not reflect his intentions.

The Tax Court Judge also found that there was no certainty of subject matter. The shares purportedly settled on the trust were in the possession of an unrelated party who claimed a beneficial interest in them. The unrelated party was paid out an amount of money on the final sale to the third party purchaser. The husband later successfully sued the unrelated party and recouped $1.38 million. The husband thereby retained an interest in the shares purportedly settled on the trust. If the husband transferred anything to the trustee, the Court found that it was not his full interest in the shares because there was an element of his ownership in the shares that did not pass. This created a lack of certainty of subject matter.

The Tax Court Judge also found that the trust was never constituted. It never came into existence because the shares were never transferred to the trust and were never in possession of the trustee. The shares remained in Canada throughout and no money ever reached the trustee. The timing and execution were such that the intended steps were not carried out sequentially so as to properly constitute the trust.

Notwithstanding the above findings, the Tax Court Judge determined that the above circumstance was not a sham, as also alleged by the Minister, as the transactions themselves were not disguised.

In an interesting twist, the Federal Court of Appeal concluded “that the Tax Court judge was bound to hold that the Trust was a sham based on the findings that he made”, and dismissed the appeal.

Enjoy the weekend,

Craig
Tags: Estate & Trust, Trusts, blogs, estates

Trusts are not trustworthy as a tax strategy.

November 25th, 2010

For those of you who still think offshore, Trusts, IBC.s and Hybred Corporations are where it is at and is the place to be, it may be prudent to recognize that losses over there may not be usable as a tax strategy in Canada. But even more importantly is to realize that really good offshore advice is not taught in University and is not part of a regular education. Therefore if the advice you are given means that your tax savings blow up in your face, just remember buyer beware.
The one take away here is: Your primory purpose is what is going to be judged in the long run and if the taxman can see through what you have done as just a tax avoidence scheme, then he will come fighting for the tax you saved, plus penalties and interest on top.
So long as the offshore entity is there for your benefit and you are a Canadian resident, and your mind and management happens here in Canada, then all you have is a big headache followed by a huge tax bill.
I have been there, done that and as far as I am concerned your best shore is on shore.
For more information, go to www.taxauditsolutions.ca or click here.
Dan White

Trust Residency – Garron Judgment Upheld
By: John Sorensen of Gowlings Law Firm
On November 17, 2010, the Federal Court of Appeal (“FCA”) released its reasons for judgment in the St. Michael Trust Corp.1 appeal, upholding the judgment of Woods J. of the Tax Court of Canada (“TCC”) in the Garron Family Trust2 case.  For ease of reference, the trial and appeal judgments will be referred to as “Garron”.  The Garron case is highly significant as it has established new principles for determining trust residency for Canadian income tax purposes.
Prior to the TCC judgment in Garron, the leading case dealing with trust residency was Thibodeau Family Trust v. The Queen.3 Thibodeau had previously been viewed as authority for the proposition that a trust is resident in the jurisdiction where the majority of its trustees reside.  In Garron, the TCC rejected that notion, holding instead that the test for trust residence should turn on the location of a trust’s central management and control.
The essential facts in Garron are as follows:
prior to a reorganization in 1998, the shares of PMPL Holdings Inc. were held by Andrew Dunin and another holding company owned by Myron and Berna Garron and the Garron Family Trust;
in 1998, pursuant to a reorganization of PMPL, two trusts with Canadian beneficiaries were settled by a friend of the Garrons who resided in St. Vincent, with the sole trustee being a Barbadian corporation, namely, St. Michael Trust Corp. (“St. Michael”);
the owners of the common shares of PMPL converted their shares to fixed value preference shares;
the trusts subscribed for shares of newly incorporated Canadian corporations who in turn subscribed for shares of PMPL, all of which took place for nominal consideration;
in 2000, the trusts sold the majority of their shares pursuant to the sale of PMPL, and realized capital gains of over $450,000,000;
tax was withheld and remitted pursuant to s. 116 of the Income Tax Act (Canada) (“Act”); and
the trusts sought a return of the withholdings pursuant to an exemption under the Canada-Barbados Tax Treaty on the basis that the trusts were resident in Barbados.
The Minister of National Revenue (“Minister”) took the position that the treaty exemption was inapplicable, leading to the taxpayer’s appeal to the TCC.  The Minister’s primary argument was that the treaty exemption did not apply because although the corporate trustee was resident in Barbados, the trusts were resident in Canada because their central management and control was exercised in Canada.  As noted, Woods J. accepted the Minister’s argument, and held that the central management and control of the trusts was exercised in Canada and consequently, the trusts were resident in Canada.
In her reasons for judgment, Woods J. considered evidence which established that:  the trustee’s powers were more limited than provided for in the trust instruments; the trustee exercised limited powers; the trustee may not have had the necessary expertise to manage trust assets; and the beneficiaries of the trusts were able to control and direct the trust’s investment activities, tax planning and distributions.  Ultimately, Woods J. held that the management and control of the trusts was exercised by persons residing in Canada, namely, controlling shareholders and principals of PMPL and not by St. Michael.
On appeal, the issue before the FCA was whether Woods J. erred by applying a central management and control test. The FCA agreed with Woods J. that the case law does not establish a single test for trust residence and held that Woods J. was correct to conclude that “the judge-made test of residence that has been established for corporations should also apply to trusts, with such modifications as are appropriate”.  In confirming and upholding Woods J.’s reasoning, the FCA stated that although a trust is a “legal relationship” without a separate personality as a matter of law, the Act treats trusts as through they were persons.  Consequently, it is consistent with that “statutory fiction” to conclude that a trust’s residence may not always be determined by the residence of its trustees.
Alternative arguments which were not determinative at trial were also raised on appeal and for the most part the FCA agreed with Woods J.’s reasoning.  However, on the potential application of the deeming provision in ss. 94(1) of the Act, the FCA disagreed with the trial judgment and stated that the necessary test had been met and that the provision would apply to deem the trusts to be resident in Canada even if the central management and control test was not determinative.
As a result of Garron, it is clear that Canadians may not rely on passive and compliant foreign trustees to structure offshore trusts with a high degree of certainty or comfort.  Consequently, it is strongly advised that trustees be invested with, and actually exercise real decision making power, in order to help ensure that the trust’s residency status would not be redetermined pursuant to the central management and control test.
It is worth noting that throughout its judgment, the FCA states that a trust is resident in the country where the central management and control is exercised.  This is distinguishable from a test based on where the “managers and controllers” reside.  Consequently, it may be advisable for anyone who is being consulted on trust decisions to have their meetings in the jurisdiction where the trustees reside.  This “belt and suspenders” approach may further ensure that the trust is not held to be resident in Canada by virtue of a finding that management and control powers have been exercised in Canada.
It is not yet known if the appellants will appeal further to the Supreme Court of Canada, so the final chapter of Garron may not yet be written.

Facebook Profiles Now Being Subpoenaed In Tax Court Cases

November 25th, 2010

If you think you are so very cool with what you post on Facebook, think again. CRA (Big Brother) is watching you. What you publish on Facebook can and will be used against you by CRA and in Court. To learn more about things that CRA does, go to www.taxauditsolutions.ca or click here.

Dan White

Facebook Profiles Now Being Subpoenaed In Court Cases

  • Monday Nov 15,2010 07:00 PM
  • By admin

Facebook postings continue to get subpoenaed in ever more novel ways. Now a very humorous legal precedent came down, of all places, in the Tax Court of Canada.

Someone got nailed for underpayment of taxes after lying in court about whether he posted the truth on Facebook.

Like many tax-related lawsuits, the details get pretty complex, so we’ll quote judiciously. The Honorable Judge Patrick J. Boyle might have stifled at least one chuckle while writing his judgment on an appeal called Shonn’s Makeovers & Spa, Appellant, versus the Minister of National Revenue, Respondent:

Both surprisingly, and perhaps as a true sign of our times, this ends up turning on his Facebook status. Unfortunately, such is the sad state of affairs of this file as presented by all parties and witnesses.

Lie to tax authorities at your own peril, especially when you lack documentation, because computers compare everybody’s tax filings to one another. If you say you’re employed by a company that says you’re a contractor, the computer cranks out letters to both parties, asking you for proof.

Once Ottawa hairdresser William Hall received the first such letter from Canada’s tax authority — it usually takes a series of communiques before a dispute like this gets into a court room — that should have been his clue to do at least one, but preferably all, of the following:

1. Show the letter to an accountant and ask for advice.

2. Have a chat with the proprietors of the salon he worked at, and if that conversation doesn’t go smoothly start looking for vacant seats at other beauty parlors.

3. Re-evaluate the content of his Facebook profile, and self-censor accordingly.

4. Adjust the privacy settings on his Facebook profile so that the salon owners, tax authorities and other members of the legal community couldn’t see the description of his employment.

5. Get wise to the fact that courts and law enforcement can subpoena the right to access even those things that we designate as privacy protected.

This lawsuit would never have happened if he did item one. Two could have minimized the damage, and motivated him to do number three. Four and five are things I wish everyone on Facebook would do. Like Judge Boyle states:

The appellant included a printout dated April 2009 of Mr. Hall’s Facebook info page.

Hall’s Facebook profile contained honest and accurate information about himself, including the nature of his employment. Then he told the court room that the bit being self-employed was a lie. You don’t need a law degree to red flag that!

Then Hall said that people lie on Facebook all the time. Unfortunately, there’s some truth to that. But the kinds of lies that show up on profiles tend to follow certain patterns. Like a singleton’s photo might not have a caption saying that the picture isn’t current. Or a player might not have filled out the relationship status field. Or someone might exaggerate about his own brawn, brains or bucks.

Hall’s lame excuse was that he lied about self-employment out of concern for his privacy. He should have just clicked on the upper right-hand corner of his Facebook screen.

If people don’t learn to use the privacy settings responsibly, will there come a day when all lawsuits include Facebook postings as evidence? What can the social network do to make privacy settings more user friendly and get everyone to use them?

CRA includes usury in its bag of abusive tricks

November 25th, 2010

It amazes me that our government agency, CRA, that is supposed to be part of a government of the people, for the people, has become so outrageously evil and there is not a public outcry of rage. Why is it that our population is not waking up to the reality that bad things happen to good people and anyone could become the next victim of a government agency completely ruining their lives?

How does it make sense for CRA to take a situation where someone can not pay the taxes they owe and charge criminal interest rates that ensure one thing. That one thing is INSOLVENCY and it is happening to an ever increasing number of Canadians.

How is it that a self appointed credit agency that proclaims they are not a lender, charges such a rate of interest and yet will not give Canadians a reasonable rate of interest.

If there was any iota of compassion in the CRA, they would consider common sense and reason when a taxpayer cannot pay their taxes. Common sense would be if a taxpayer can not pay and cannot borrow the money, the taxpayer would apply for a payment plan based on what they can afford. Then there would be a reasonable rate of interest such as 1 percent more than a bank would charge a good customer.

Applying common sense would allow CRA to get paid and the taxpayer to avoid going bankrupt and as a result having the taxpayer base getting nothing. To force someone into bankruptcy with criminal rates of interest and collection tactics that are terrifying to the taxpayer in trouble.

CRA is out of control and as a result, marriages are breaking up, people develop stress related health problems,  and taxpayers are losing everything they own.

Since when is it that making a bad decision or through no fault of your own, should cost you a lifetime of work, or even your life? It is a sad shame for our country that in proven circumstances, CRA thinks they are above the law, common sense, reason,  compassion and fairness. What is even worse…. many Canadians feel good about what CRA is doing. They assume as CRA does that all small business are tax cheats and deserve whatever cruel and harsh treatment CRA dishes out.

We deal the results of this kind of goings on every day, as more and more taxpayers find out that they can obtain help. Check out www.taxauditsolutions.ca for more information on getting protection from CRA abuse.

Click here.

 D Cayo of the Vancouver Sun hits the nail on the head.

CRA includes usury in its bag of abusive tricks

Two car loan companies I wrote about last month threaten interest rates of up to one per cent a day in agreements with poor schmucks who borrow from them, but both say they don’t actually try to collect that much.

 

By The Vancouver Sun November 5, 2008

 

Two car loan companies I wrote about last month threaten interest rates of up to one per cent a day in agreements with poor schmucks who borrow from them, but both say they don’t actually try to collect that much.

Indeed, one company admits the contract isn’t enforceable (although, as I have noted, the Criminal Code forbids not only collecting interest over 60 per cent a year, but also putting it in a contract).

So if even high-cost lending companies don’t have the gall to try to gouge customers this badly, guess who does? Who actually squeezes one per cent a day — more than six times the Criminal Code maximum — out of unfortunate debtors?

None other than Canada Revenue Agency. It is thumbing its nose at fairness and the law by nailing any employer who is late remitting tax money withheld from employee pay with interest so high the rest of us would land in jail if we tried to impose it on people who owe us.

The CRA isn’t usurious across-the-board, but it’s website states explicitly that for these late remittances the charge will be “3% if the amount is one to three days late, 5% if it is four or five days late, 7% if it is six or seven days late, and 10% if it is more than seven days late.”

CRA is also on thin ice with assessments for late income tax filers. If they owe money, late filers must pay five per cent initially, plus one per cent for each month until the return is filed. According to my math, this adds up to a usurious interest rate on filings that are one to 30 days late, although the rate falls below the legal maximum for filings that are more than a month late.

Most governments assess hefty levies — and so they should — for chicanery or playing deliberate games with the taxman. But these usurious rates aren’t aimed at law-breakers or game-players – just people who pay late.

Indeed, the reader who told me about the issue was hit with one-per-cent-a-day interest when, unbeknownst to him, CRA changed the due date for his remittances. In a normal business relationship, this would result in a quiet word, not punishment.

And if CRA wants these usurious rates to punish, then they aren’t just ethically appalling, they’re also dumb. It works out to three per cent a day for people who are just one day late, and just one per cent a day for people who are three days late. And it’s capped at 10 per cent — as I read CRA’s information, if you’re 100 days late it costs only 10 per cent, or 0.1 per cent a day. So the incentive to pay promptly diminishes the longer you’re late.

This latest example of the kind of taxpayer abuse I’ve been writing about for more than a year is right up there with the preposterous assumptions, the arbitrary demands, the habit of penalizing taxpayers for CRA’s own mistakes, and more.

It reflects the uncaring mindset that produced a 10-per-cent fine — now rescinded since it drew scornful media attention — for paying bills at a CRA office rather than at a bank. The attitude seems to be that if people inconvenience the bureaucracy, no matter how innocently or trivially, they’ll be hit with a bazooka.

But the point is that parliamentarians who enacted the Criminal Code thought charging such high rates is an act so vile that people who do it belong in jail. And now a branch of government is defying the spirit, if not the letter, of that law.

As they say in Parliament, too often with cause: Shame, shame!

dcayo@vancouversun.com

Visit my blogs, one on taxation and one on globablization, at www.vancouversun.com/blogs

CRA gets fined $200,000 for inappropriate demand for information.

November 11th, 2010

As time goes on, more and more judges are slamming CRA for bad behaviour.Looks good to me.

I don’t think much of gangs, but I suppose you could call CRA a gang?

For more information on CRA,,, click here.

Dan White

Taxman ordered to pay UN gang $200,000

Canada Revenue Agency fined for probing gang members’ earnings

Kim Bolan, Vancouver Sun: Thursday, August 12, 2010

 

The Canada Revenue Agency has been ordered to pay more than $200,000 to the United Nations gang after a judge scolded the taxman for demanding information about the earnings of some UN members and associates.

VANCOUVER — The Canada Revenue Agency has been ordered to pay more than $200,000 to the United Nations gang after a judge scolded the taxman for demanding information about the earnings of some UN members and associates.

Federal Court Judge Michael Phelan awarded $200,000 for legal fees to a group of 15 people linked to the notorious B.C. gang and an additional $17,486.92 for other court costs.

The motion seeking the cash was heard by Phelan in April, but the ruling was posted just this week on the Federal Court’s website.

Phelan said the size of the award corresponded to the misconduct of CRA officials who worked closely with police in sending out letters called RFIS or “requirements for information” demanding details of assets and incomes of those targeted.

“There was an air of disregard for the citizen’s legal rights, including confidentiality obligations imposed on CRA officials, which elevate the unlawful conduct to one deserving of some reprobation,” Phelan said in his latest ruling.

The UN associates asked for more than $250,000 in costs, while the CRA had offered to settle for about $102,000.

Last December, Phelan sided with the UN in its legal challenge of the letters and general conduct of CRA investigators who teamed up with Gang Task Force members to deliver the letters to gang members’ homes.

“Police presence was clear and visible and highly obtrusive. The service of the documents was generally carried out late at night, with multiple police cruisers present, lights on and with all the paraphernalia of a police raid,” Phelan said, adding that the actions were “obtrusive, invasive and unjustified.”

Phelan also said that the CRA treated the UN members differently than other citizens and outside the mandate of the agency.

“It is a central tenet of the rule of law that everyone is required to obey the law and all are entitled to the protections of the law, even those litigants who may be deserving of little sympathy. In that latter category would be members of gangs reputed to be engaged in some of the most serious of illegal misconduct in the Lower Mainland of British Columbia,” he said.

UN founder Clay Roueche, who was not targeted in the CRA probe, is appealing a 30-year U.S. sentence handed to him for being the head of a major cross-border drug-smuggling ring. A Seattle judge found the gang moved about $500,000 a week from Seattle to Los Angeles from drug sales.

UN-linked Daryl Johnson is one of the challengers who’ll share the court award. He is also awaiting trial in B.C. Supreme Court with two others on charges of conspiracy to import cocaine. Several other UN gang members and associates are also awaiting trial.

Phelan noted that two of the challengers — Duane (D. W.) Meyer and Elliott (Taco) Castaneda — were executed in gangland hits after the CRA delivered the RFIs.

“It is not necessary or even within the scope of this inquiry to determine whether the applicants are members of the UN Gang,” Phelan said. “However, the history of this litigation, involving change of the lead litigant due to ‘hits’ on other members and other steps taken by the applicants to protect personal information usually available in litigation due to the fear of harm from unknown persons, is consistent with membership in illegal gangs.”

Jeopardy Case, CRA loses

November 11th, 2010

Below is a case CRA lost.

They lost because this time they got caught in a bald faced XXX or should we say misleading information given to the judge?

CRA does this kind of thing so often, that they don’t consider themselves subject to ethics or the law. It is just what they regularly do. However this time they got caught.

I would like to see this on W5

And it could happen :-)

The minister loses on jeopardy

The minister loses on jeopardy

The Federal Court of Canada’s recent judgment in Minister of National Revenue v. Robarts,1 addresses the limitations in the Minister of National Revenue’s (“Minister”) ability to take aggressive steps to collect assessed tax in situations where a taxpayer is otherwise shielded from collection actions. In Robarts, the Court took a dim view of the Minister’s failure to provide complete and accurate facts and fair interpretations of the relevant legal principles and therefore ultimately halted the collections actions.

General Principles

The Minister generally has broad powers to collect assessed tax, subject to certain limitations. However, those limitations may not apply in situations where the Minister is satisfied that there are reasonable grounds to believe that collection of an amount assessed would be jeopardized by any delay. In those circumstances, the Minister can seek to take immediate collection actions against a taxpayer by obtaining a so-called “jeopardy order”. Jeopardy orders are obtained by an application to the Federal Court, without any notice to the taxpayer. When the Minister obtains a jeopardy order, the taxpayer can later apply to the Federal Court to review and reconsider the order.

Facts in Robarts

Mr. Robarts was a businessman from Kelowna, B.C. He was assessed for his 2005, 2006 and 2008 taxation years by notices of reassessment dated February 1, 2010. On April 6, 2010, the Minister applied for a jeopardy order to collect the assessed amount, based on an affidavit (“Affidavit”) by the Canada Revenue Agency (“CRA”) officer assigned to Mr. Robarts’ collection file. That Affidavit asserted that:

  • funds in Mr. Robarts’ bank accounts were his only significant asset;

  • he was in a position to withdraw those funds before the CRA could take collection actions;

  • he had under-reported his income for the taxation years in issue and failed to report income in the past;

  • he had conducted his tax affairs in an unorthodox way and had dissipated assets after being notified of the reassessments against him; and

  • collection actions were not possible by law because of the 90-day statutory stay on collection which follows an assessment or reassessment.

Relying on the Affidavit, the Federal Court granted a jeopardy order to enable the CRA to deploy immediate collections actions against Mr. Robarts. Mr. Robarts then brought an application to have the jeopardy order reviewed.

In his application, Mr. Robarts stated that his bank accounts included long-term investments which were not readily dissipated. Moreover, one of the substantial amounts that had been withdrawn from his bank account after he was reassessed had been returned to the account six weeks later. Further, the allegation that he had under-reported his income was a matter in dispute, and was the issue which the CRA appeals division and potentially the Tax Court of Canada would be called upon to determine. In Mr. Robarts’ submission, he did not conduct his affairs in an unorthodox way, and he alleged that the Minister did not provide all of the relevant evidence with respect to his finances when the Minister applied for the jeopardy order.

Legal Principles on a Court’s Review of a Jeopardy Order

In reviewing and reconsidering the jeopardy order against Mr. Robarts, the Federal Court relied on the following two-step test.

First, the taxpayer must establish that there are reasonable grounds to doubt that collection of assessed tax would be jeopardized by delaying collection. However, even if the taxpayer is not able to establish that position, a judge may set aside the jeopardy order where the Minister has not met his obligation to make full and frank disclosure of all relevant facts and law to the Court on the initial application for the jeopardy order.

Second, if the taxpayer establishes that collection is not in jeopardy, the onus shifts back to the Minister to prove that the jeopardy order is justified. At this point, the Court reviews all of the evidence and considers whether, on the whole, there are reasonable grounds to believe that collection of an assessed amount would be jeopardized by delay.

The Court Applies the Legal Principles to the Facts in Robarts

The Court held that the Minister failed in his obligation to provide full and frank disclosure to the Court. The Court explained that the Minister has the duty to exercise utmost good faith and to ensure full and frank disclosure of all relevant facts, even those facts which are unhelpful or inconvenient or which demonstrate weaknesses in his own case. This is because a jeopardy order is granted without notice to or representations from the taxpayer. The Court found that the Minister omitted relevant facts from the Affidavit. For example, although the Affidavit alleged that $109,000 was withdrawn from Mr. Robarts’ bank account after he was reassessed, the Affidavit omitted to state that the amount was re-deposited about six weeks later. In the Court’s view, this was the single most important fact in the Affidavit. The Court further held that the Minister’s representative had failed to seek and obtain the necessary information that would have properly informed the Affidavit.

The Court also held that the Minister did not make full and frank disclosure of the factual and legal elements of the case law he relied on in his submissions to obtain the jeopardy order. Moreover, the Court stated that although good faith on the Minister’s part must be presumed, the Minister’s representations left “a sour taste” and “important omissions on relevant case law from the Minister’s written submissions are certainly not compliant with the spirit of these extraordinary [jeopardy order] procedures”.

Consequently, the jeopardy order was based on misleading, incomplete or incorrect facts and law, and had to be vacated.

The Court further considered whether the Minister had, in the first place, demonstrated that there were reasonable grounds to be believe that the collection of assessed tax would be jeopardized by delay. On this question, the Court found that the Affidavit contained factual allegations that went beyond the reassessments that were in issue, “in an effort to taint the taxpayer’s character and form the basis for the issuance of the Order”. The Court held that it would be wrong to draw a negative inference regarding Mr. Robarts’ management of his tax affairs, since the issues were litigious questions that were not yet settled.

Conclusion

The Robarts decision should provide useful guidance for both the CRA and taxpayers. For the CRA, it is hoped that the decision will serve as a reminder of the strict and vigorous standards to be applied when seeking jeopardy orders. For taxpayers, it could certainly be used as further support to challenge any jeopardy orders that may be obtained based on incomplete or wrong facts and/or statements of law.

Always check out our main site for the latest and best information on CRA and Taxes… click here.  

Offshore Tax Evader Advisors, get Government Protection, if they have friends in high places.

November 6th, 2010

The Offshore Onion is getting peeled and our politicians who try to fluff off the truth, thinking that Canadians are dumb, really dumb!… are in themselves being pretty dumb. When you are caught admit it….then move on.

One layer of privacy at a time, those who were offshore tax avoiders and tax evaders are getting nailed and those who advised and helped them, get exposed.

It would make sense that the politicians who just may have been in the offshore tax evasion stew pot, need to protect those who advised them, in order to protect themselves from being exposed to having gotten into the pot. Now comes the kettle… and the fire… things will get hot now.

It was cool in  the good old glory days of offshore banking, prior to 911 to have an offshore bank account. A rainy day nest egg. In those days  Offshore was an option for people who had reasons to keep their money private, regardless of being associated with taxes or not, they could have privacy.

That fateful day of the planes crashing, made me realize that the gig was up and that having money offshore even for legal non tax reasons, would no longer be private. If your offshore bank account is not private, that means anyone who really wants to, can find out about it.

Those who did not immediately take precautions against being caught doing hanky panky,  have opened themselves up to being looked at sooner or later. The question is not “if”… the question is “when.”

When it comes to offshore, I have seen it all, been there done that. I moved on… Money offshore is not safe from the prying eyes of the governments. If you need to  have offshore money, be well advised to report it on your tax returns because normally CRA does not make that knowledge public. You still get the advantage of offshore privacy laws to protect you from prying eyes and offshore business, you just better not think you can use it to avoid paying taxes on your world wide income.

CBC… our investigative reporters exposed Andrew Saxton, a former banker and now an MP for North Vancouver is now looked at. While politicians are supposed to eat their own, sometimes Metaphorically speaking, (and.. I am not calling or suggesting Andrew a pig) a stuck pig squeals. So naturally the politicians will want to protect Andrew. The only reason I can think of for Baird to try protecting Saxton, is because Saxton knows too much about too many people, who do not need Saxton to squeal on them.

Pierre Poilievre, parliamentary secretary to the prime minister, said Saxton “has done his work with integrity; he has spoken out about tax evasion.” Hmmmm… so if a bank robber goes public and says that bank robbing is wrong, that would mean that  the robber stole the money with integrity? Give me a break! Please! The likelihood – reality is that Saxton learned after the fact, that offshore tax evasion is a really bad idea.

I noted in the following article “comments” that Paul Martin was mentioned. What is important to note is… Yes… Paul Martin was offshore. However it is important to note that he was running a legitimate business and paying tax on his world wide income. It makes complete sense to have your corporation offshore rather than in Canada, “IF” it is a legitimate International business.

Hiding your income and Moving your money offshore to avoid taxes, because you think privacy will protect you from paying tax on your world wide income,  is called “OffshoreTax Evasion 101.”

The whole onion of offshore banking is highly complex and how to do tax evasion is not something taught in university. It is only something learned from those who do it. In today’s world, those who advise and those who do -  will get caught. Sooner or later.

The problem now is…. what you did in the past can catch up to you as in the case of Andrew Saxton.

Read on and also check out our web site at www.taxauditsolutions.ca

Tories defend MP named in offshore tax probe

Last Updated: Friday, November 5, 2010

CBC News

Andrew Saxton, a former banker who is the Conservative MP for North Vancouver, is entangled in a political controversy over a tax-evasion investigation. (Courtesy andrewsaxton.ca)

The Conservative government is rejecting opposition demands for the removal of a Tory MP whose name appears in an offshore tax probe.

During question period Friday, NDP finance critic Thomas Mulcair said MP Andrew Saxton “simply cannot continue in his role” as parliamentary secretary to the president of the treasury board during the investigation and “has to step aside.”

Government House leader John Baird dismissed Mulcair’s demand, calling it “a drive-by smear” and adding: “I regret that the member would come to this place and ask that kind of question.”

Saxton, during his previous career as a banker, approved a transfer of funds on behalf of a Canadian taxpayer to an account in Switzerland that the taxpayer set up to help evade taxes, CBC News and the Globe and Mail learned.

The investigation uncovered court documents that show Saxton, now the Conservative MP from North Vancouver, instructing the transfer of $199,975 into a Swiss bank account in 1994 on behalf of a Canadian client of RBC Dominion Securities in Victoria.

Saxton was the head of private banking for the Vancouver branch of Credit Suisse Canada from 1992 until 1994, when he left for a series of HSBC banking posts across Asia. He has been the Treasury Board parliamentary secretary since he was elected to Parliament in 2008.

Later in question period, Bloc Québécois MP Serge Cardin demanded that Prime Minister Stephen Harper fire Saxton, in view of the “very serious” information uncovered in the joint investigation by CBC News and the Globe and Mail.

Pierre Poilievre, parliamentary secretary to the prime minister, said Saxton “has done his work with integrity; he has spoken out about tax evasion.”

CRA is getting tougher on Sole Proprietor Audits

November 2nd, 2010

CRA is getting tougher on Sole Proprietor Audits

 

The Canada Revenue Agency is getting aggressive about taking additional steps to check on whether sole proprietors are hiding sources of income during field audits.

 

Our current audit experience has found that CRA field auditors are generally effective in checking for unreported income during field audits of sole proprietors. Further, we see that CRA has increased pressure on auditors to do net worth audits. As a minimum the auditors have to fill out a report at the audit’s end explaining why a net worth audit was not necessary.

 

I guess another way of looking at this is that small businesses are seen as tax cheaters unless proven otherwise.

 

While CRA auditors generally check for unreported income, we find that CRA is doing a close look at the lifestyle of the entrepreneur for determining that the taxpayer must be earning more than they claimed on their tax returns.

 

Auditors take a close look at personal-living-expense data. The preliminary cash transaction analysis involves little or no taxpayer burden, but uses tax return and personal expense data are used to determine whether the sole proprietor’s income and expenses are roughly equal. If the auditor determines that the lifestyle suggests a higher income than reported, there will be a life style assessment levied.

 

In lifestyle audits, CRA does not have a credible test, instead looks to the auditor to do serious assumptions that do not require verification by the auditors.

 

CRA really needs to read their code of ethics and code of conduct, then they need to revisit the subject of net worth assessments.

for more information on audit ready bookkeeping, please go to www.taxauditsoluitons.ca or directly by clicking here.

 

Watch Out! The CRA Wants All Your QuickBooks Files.

October 28th, 2010

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

Bankruptcy, Insurance, beneifciaries and taxes.

October 28th, 2010

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.”

CRA is agressive in collecting money but negligent in paying out.

October 14th, 2010

 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.

CRA reinvents the meaning of the word “travel.”

October 12th, 2010

 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

CRA has double standards on independent contractors

October 12th, 2010

 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.”

SR&D Scientific Research and Development Tax Credit can create tax problems if you are not audit ready.

October 6th, 2010

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

Businesses are required by law to verify that a supplier’s GST number is valid.

September 22nd, 2010

Businesses are required by law to verify that a supplier’s GST number is valid.

It may be unfair to a business that pays the GST and in good faith relies on an invoice. However, the courts conclude that the legislative scheme dictates that the unsuspecting business, rather than the government, bears the risk of supplier identity theft and other wrong doings in GST collection and remittance matters.

The courts also stated that businesses must implement risk management systems when dealing with new and continuing suppliers, to verify supplier information is accurate and complete.

Receipts are required to have the name of the supplier, the GST number and an identifiable list by item of what was provided.
It does not count to simply have a supplier GST number that was valid; it has to be current at the time in question. If a receipt does not have a GST Registrant’s number on it, you are required to obtain it for your records.

The directors are fully liable for the GST, and any subsequent penalties, fines and interest.

The director due diligence defense only applies if all GST numbers have had a reasonable attempt to verify that the number was correct.
The due diligence defense requires that the error be reasonable, namely, an error which a reasonable person would have made in the same circumstances. The due diligence defense, which requires a reasonable but erroneous belief in a situation of fact, is thus a higher standard than that of good faith, which only requires an honest, but equally erroneous, belief.

A person relying on a reasonable mistake of fact must meet a twofold test: subjective and objective. It will not be sufficient to say that a reasonable person would have made the same mistake in the circumstances. The person must first establish that he or she was mistaken as to the factual situation: that is the subjective test. Clearly, the defense fails if there is no evidence that the person relying on it was in fact misled and that this mistake led to the act committed. He or she must then establish that the mistake was reasonable in the circumstances: that is the objective test.

As soon as the defense of due diligence accepted for strict liability offences is raised, the question arises of whether the defense of error of law could also be relied on to avoid imposition of a penalty. That question does not arise only in connection with strict liability offences, although with the growth in regulations and the multiplication of statutory offences the field of strict liability has proven to be the most fertile for the emergence of this defense.

While the Courts recognize that no online GST registration verification system existed until recently, however there was an ability to verify registration numbers with the Canada Revenue Agency by telephone, so the argument that there was no way to verify numbers in the past won’t stand.

A supplier’s GST registration may now be verified at the following site:http://www.cra-arc.gc.ca/esrvc-srvce/tx/bsnss/gsthstrgstry/menu-eng.html.

I would think… that the small invoices a company pays might survive an argument that it would be too onerous a task to justify the verification of all GST numbers… I can only guess at a threshold, but if I did guess, I would imagine that invoices under a hundred dollars from a random supplier may survive the argument. However technically under the laws and regulations, “ALL” GST registration numbers have to be verified for a business to claim the input tax credit (ITC).

The accountants who prepared the tax returns is also vulnerable to third party penalties of 50% unless they did due diligence in the matter as well. Further to the 50% civil penalty there is a risk of needing to pay the GST, the penalties and the interest as well.

Being that the above issue has been before the Federal Court of Appeal, Judges are bound to enforce these laws and regulations, so don’t think that this is an issue of fairness. It is an issue of law and business better get prepared to defend their ITC’s and not just their ABC’s.

So what does this all mean? What it means that you better make sure that your bookkeeping is audit ready. Making sure that you have the GST registration number in place is just one of the many areas a CRA auditor looks for in his search for tax booty.
And most of all remember that if you are a Director of a Corporation, you personally are on the line when it comes to collecting GST.

For more information on GST Tax Problems and other tax solutions, click here.

Dan White

Accountants who were also promoters of the Mislead Charitable Donation schemes may now be in serious financial trouble.

September 21st, 2010

If you are an accountant, it is now double jeopardy. You are liable for a civil penalty by CRA for 50% of the tax amount the inflated donations generated, you may also be required to refund 100% of the inflated donations, plus the amount of penalties, plus the amount of interest, plus the amount you received in commissions. In other works a tax savings of a thousand dollars to a client could cost you about $4,100 required to pay to the donors.

In the case of Lemberg v Perris (2010 ONSC 3690), the judge ruled the accountant being the one who prepared their tax returns had a fiduciary duty to look after the best interests of his clients and not to put themselves into a conflict of interest situation.
On June 30th, 2010, the Ontario Superior Court of Justice released a completely understandable decision this case.
In Lemberg v Perris (2010 ONSC 3690), husband and wife participants in an art donation program sued their accountant for promoting the plan to them. They not only sued, but they won.
The art donation program in this case was appealed to the Tax Court and then the Federal Court of Appeal in a group of cases known generally as the Klotz cases.

The simple in a nutshell version of what happened was, the donors buy art, then donated it to a related charity. They receive a receipt for about 4 times the value of the donation. The Court found that the valuations used on the receipts were very inflated and only allowed the donors a receipt for the amount that they were actually out of pocket.
The insanity of all this is, that by getting an inflated value receipt it triggers a capital gain. 50% of the capital gain gets added to the donor’s income. So if you look at the math. A $1,000 donation gives you a tax refund of about $500, so you are still $500 out of pocket. So if you get a receipt for $4,000 then you have a capital gain of $3,000 of which $1,500 is added to your income and you will pay up to $750 in income tax on that. So your net out of pocket on the deal is $1,250. The refund you will receive will be about $1,500. So based on these rough numbers it is not hard to see that it is no great deal at best, being that your real savings is about $250 and at worst it is going to generate a tax bill of about $9,000 when CRA gets done with you.

Now naturally most people did not know that they had to claim the capital gains at tax time, so they unknowingly entered into a risky deal.
While precedence is no guarantee that a new case will get the same results, it does carry considerable weight in future court cases. However the calculation of the damages has far more precedential value.
The parties agreed that the Lemberg’s were financially worse off by the amount they paid for the artwork less the amount of the tax credit allowed. Further … the Civil Court added the amount of commission that Mr. Perris had received of $7,500., and ordered Mr. Perris to pay the amount to the Lembergs.

This case serves as a warning, not just to accountants but also to any advisors that receive commissions paid by promoters to avoid potentially conflicting situations regardless of their own confidence in the tax shelter.
I have been against these plans from the beginning, so at least, I can state that there is a huge amount of people out there know that if they decided to not heed my advice, then they are much more accountable to themselves for the trouble they are in. Hopefully there is a large number of people who did not donate because of my messages. I have to tell you that I had a lot of people mad at me over my stance on this.

To read more on how to solve these kinds of tax problems, please click here.

Dan White

CRA Code of Ethics and Conduct

September 13th, 2010

CRA Code of Ethics and Conduct

The following document is what CRA is supposed to follow. It outlines what they would like to be. The problem is that due to pressure to collect taxes from upper management, there is little relationship between what they write/say and what they do.

An important note here is that there are good staff at CRA, however they are not the ones we are hired to fight.

Where we are at as far as to CRA behaviour, they can pretty much do whatever they want because very few dare to hold them accountable or to really fight with them. There is tough talk, but often there is more smoke and mirrors than there is action in fighting hard with the agency.

We know exactly what is going on out there from our own experience in fighting CRA. We find that the agency is usually shocked when we get tough with them.

In the beginning actions, when we start the battle, CRA circles the wagons and sees no wrong with what the auditor or collections staff have done. At least that is what they communicate to us. Inside CRA starts the escalation of resistance, they know that few can afford the time, stress or huge costs of the fight. There is experience is that they can wear down the opposition with passive resistance alone.

The fighting often turns to hostilities before we get their attention that we mean business and we will not be brushed off with artificial “fluff.”

As Canadians, we can not allow CRA to publish a code of conduct and ethics, a taxpayers bill of rights and then just ignore it all.

We need to hold CRA accountable to follow their code, the taxpayer’s bill of rights and the charter of rights, or… we need them to acknowledge that they don’t care about these things and believe they can do whatever they want. We need to know just where CRA stands on their position of do they follow the code of ethics and conduct or not.

When you read the following article, look at this in relationship to what you are experience. If things are out of whack, fill in the help form on this page, and we will get right back to you.

Canada Revenue Agence du revenu

Code of Ethics and Conduct

Revised: June 11,2009 Resolution number: 2009/2010-05
This document replaces the previous version of the Code (Board of Management Reference: 01.03 HRC)
A Message From the Commissioner
The Canada Revenue Agency (CRA) is recognized and respected for delivering its tax, benefit, and other programs with integrity and professionalism. The millions of transactions we undertake every day affect Canadians in all walks of life, their expectations, and their opinions of all of us. Our success is in large part due to the exemplary standard of conduct and professional diligence of our employees.

The work of CRA employees touches the lives of all Canadians. Through the administration of our tax, benefit, and other programs, governments are able to provide the programs and services that improve the quality of life of Canadians. That is why it is essential that we continue to carry out our work with the integrity that Canadians deserve and expect. As the Agency evolves, we must continue to be absolutely scrupulous with respect to the protection and security of taxpayer/confidential information.

We must ensure that any access and disclosure of this information is only for purposes authorized under legislation.

The Code of Ethics and Conduct was designed to guide and support you in your work. It sets out the conduct that is expected of you when you carry out compliance activities, provide taxpayer services, respond to appeals, provide service to other employees, manage programs and resources, or carry out other important aspects of the CRA’s mission. The Code reinforces our commitment to serve the public according to our corporate values -integrity, professionalism, respect and cooperation -and to support a work environment in which people are respected.

If you are new to the CRA, you must sign the Confirmation of Receipt form to certify that you have read and agree to abide by the standards set out in the Code. All employees are also asked to review their obligations under the Code on an annual basis.

I ask that you read the Code carefully and be guided by the standard of conduct that has made the CRA an organization of which we can all be proud.

William V. Baker Commissioner

Table of Contents
Page
1. Your accountability as an employee …
2. Our mission, vision, and values …
3. Your expected standard of conduct …
a) Appearance …
b) Care and use of government property or valuables. and taxpayer
property held by the CRA …
c) Care and use of Agency information (confidentiality) …
d) Conflict of interest. …
e) Consumption of intoxicants and smoking …
f) Contact with the public -sensitivity and responsiveness …
g) Electronic networks access and use …
h) Financial management and fraud …
i) Fundraising …
j) Gifts. hospitality. and other benefits …
k) Hours of work and attendance …
I) Off-duty conduct …
m) Political activity …
n) Publicly commenting for the CRA …
0) Public criticism of the CRA …
p) Resolving workplace issues …
q) Safety and security …
r) Terms and conditions of employment and collective agreements …
s) Unions and similar employee associations …
4. Failure to comply and consequences …
Employee Assistance Program …

5. Leadership role of managers …

Appendix A -List of sources and authorities …
Appendix B -Confirmation of Receipt (form) …

1. YOUR ACCOUNTABILITY AS AN EMPLOYEE

CRA employees are required, under the Code of Ethics and Conduct (the Code), to behave at all times in a way that upholds the CRA values (see page 2) and our excellent reputation. The Code applies to all employees, including term employees and students.

As an employee, there are times when you are faced with questions of what is right or wrong, and of how to conduct yourself.
• What are my responsibilities to protect taxpayer/confidential information?

• What are my obligations to safeguard CRA security, funds, and property?

• What should I do if I witness a breach of conduct such as misusei of taxpayer information, harassment, misuse of electronic networks, etc.?

• Could my personal affairs potentially put me in a conflict of interest?

• Should I accept hospitality or gifts from clients?

• Can I publicly criticize or complain about the CRA?

The Code was developed to answer these types of questions and for you to use as a guide when determining an appropriate course of action.

It is your responsibility to become familiar with the contents of the Code, to abide by the Code, and to conduct yourself in a way that reflects the overall spirit of the Code and the CRA’s values.

Although this Code prescribes standards of conduct for all employees of the CRA, they are not all-inclusive. The absence of a specific standard of behaviour does not mean that an action is condoned. It may still attract disciplinary action.

At some point, you may find yourself in an ethical dilemma or have a question about what you should do or how you should act. You do not have to tackle such situations on your own, help is available. The laws and the CRA policies referred to in this document are hyperlinked for your reference.

If you are ever unsure how to act, discuss the matter with your manager. Also available are advisors (human resources, finance and administration, and security), and other resources, including, if required, a Continuing Committee on the Conflict of Interest. Non­compliance with the Code could attract disciplinary measures up to and including termination of employment (See Section 4).

As a new employee, to acknowledge receipt of the Code, and to signify that you have read and agree to abide by the Code, you must sign the Confirmation of receipt (last page of the Code) and return it to your manager. All employees are reminded annually of their obligation to re-read and to adhere to the Code.

2. OUR MISSION, VISION, AND VALUES

CRA mission Our mission is to administer tax, benefits and related programs and to ensure compliance on behalf of governments across Canada, thereby contributing to the ongoing economic and social well-being of Canadians.

CRA vision The CRA is the model for trusted tax and benefit administration, providing unparalleled service and value to its clients, and offering its employees outstanding career opportunities.
Our values We have four enduring values that guide our organization:
• Integrity is the foundation of our administration. It means treating people fairly and applying the law fairly.

• Professionalism is the key to success in achieving our mission. It means being committed to the highest standards of achievement.

• Respect is the basis for our dealings with employees, colleagues, and clients. It means being sensitive and responsive to the rights of individuals.

• Co-operation is the foundation for meeting the challenges of the future. It means building partnerships and working together toward common goals.

When contributing your part to our mission, please keep in mind that the key to ethical decision-making and good conduct is to abide by the CRA’s values, Code of Ethics and Conduct, the policies and guidelines referenced in this Code, as well as laws affecting the CRA (such as the Income Tax Act, Excise Tax Act and Canadian Human Rights Act).

You are responsible for behaving ethically and with good conduct when acting in your professional capacity on behalf of the CRA, whether dealing with internal or external clients. Your manager and other advisors are there to guide you.

3. YOUR EXPECTED STANDARD OF CONDUCT

Please read this section on expected conduct carefully. Ask yourself how you will contribute, through your own good conduct, to the tradition of the CRA as a public institution marked by integrity, professionalism, respect and cooperation.

As an employee of the CRA, you are accountable to your employer and to the public for the way you conduct yourself. You are expected to carry out your assigned duties conscientiously and in accordance with instructions and with CRA policies and guidelines.

Your conduct also involves thinking through the possible impact of your actions and decisions on all interested parties -the public and clients you serve, co-workers, subordinates, and others -in terms of what is right or wrong, even when legal and regulatory decisions do not require it.
When considering how to act in a difficult situation, it may help to ask:

• If I were the taxpayer, what would I consider fair treatment to be?

• Would I be upset or embarrassed if my actions were known to my manager or colleagues or reported in the media? .

• Could my actions have a negative impact on the CRA if brought to the attention of the public?

When faced with a difficult situation, you should first consider seeking advice from your manager.

You have a duty to report any violations of this Code or of any CRA policies. You must not conceal or condone misconduct.

Misconduct must be reported in accordance with the Discipline Policy and the Internal Investigation into Alleged or Suspected Employee Misconduct Policy.
Wrongdoing, defined in the Public Servants Disclosure Protection Act (PSDPA), should be reported to your supervisor or manager, or, if that is not possible, to the CRA’s Senior Officer for Internal Disclosures, at 1-866-451-2792 or via email at NAT-Internal Disclosures Office-Bureau de la divulgations internes. Wrongdoing, as defined in the PSDPA, could also be reported to the Public Service Integrity Commissioner.

Before disclosing wrongdoing, please refer to the Internal Disclosures Policy. and Procedures, located on the Internal Disclosures Office site. This site can guide you through appropriate protocols, such as respecting the confidentiality rules associated with disclosure of wrongdoing.

When you are on approved leave, with or without pay, you are still an employee of the CRA and you remain bound by this Code.

a)     Appearance
Your appearance and dress should be appropriate for your duties at all times. It
must not be detrimental to health and safety, your work performance or that of
others, or to the image of the CRA. You are expected to be neat, clean, and well
groomed. When you meet the public at your workplace or at a taxpayer’s place of
business, your appearance should reflect the CRA’s business image. It should, at
a minimum, reflect your professional image as a representative of the CRA and be
in keeping with appropriate business attire in your local community.

b)     Care and use of government property or valuables, and taxpayer property held by the CRA.

You are expected to protect and are responsible for any government property, or valuables, and taxpayer property that you possess or control. If any items are lost, stolen or damaged, immediately report what happened to your manager.
Property  This includes, but is not restricted to, computers (including laptops), software, electronic and paper files, documents, and data, office equipment and supplies, video equipment, telecommunications devices, ID, vehicles and physical premises.

Valuables  This includes, but is not restricted to, taxi chits, government credit
cards (including those used for travel) and telephone calling cards. This includes, but is not restricted to, property, books and records, and financial instruments.

You may only use government owned or leased property, or valuables, for official purposes, unless you have pre-authorization for personal use.

Use of CRA identification You cannot use your job title or any official identification to influence or obtain any privilege or favour for yourself or others, or to do anything that is illegal, improper or against the best interests of the CRA.

You may use your CRA identification to get a standard corporate discount offered to government employees, as noted in the Gifts. Hospitality and Other Benefits Policy, when there is no expectation of a direct return on the part of the business (for example -at a fitness centre, Costco, hotel chains, and car rental services). Employees must never represent themselves as being on official government business when on personal business.

Travel cards (AM EX) When you accept a CRA AMEX card, you sign an agreement stating that you will only use the card for Government of Canada authorized business travel-related expenses and hospitality. You are responsible for its use and for paying the balance on time.

Government-owned or government-leased vehicles. You may only transport authorized passengers in government-owned or government-leased vehicles, as defined in the CRA Fleet Management Policy.

Intellectual property
You cannot market or sell any CRA property, for example, software, computer
devices, work methods, forms, manuals, policies, procedures, or evaluation
systems. Doing so, either while employed by the CRA, or post-employment, is
against the law and could result in legal action, even if you worked on, improved,
or modified the item outside of working hours.

For further details, see section 72 of the Canada Revenue Agency Act, section 12 of the Copyright Act, and section 3 of the Public Servants Inventions Act.

Returning CRA property and valuables when leaving the job. You must return all government property and valuables issued to you in your job when you leave your position, are transferred or reassigned, or when a request to do so is made by a proper authority. When you leave the CRA, you cannot take any CRA documents with you, including manuals, policy or procedural texts or anything that is not in the public domain, nor can you communicate any information or share any proprietary knowledge that you obtained while on the job, and that has not been made public by the CRA.

c) Care and use of Agency information (confidentiality)
Protecting privacy rights is central to the integrity of the CRA. All personal or
proprietary information of taxpayers, other clients, third-party providers (for
example, contractors and suppliers) and CRA employees, that you have or use,
must be protected and kept in strictest confidence. You swore or affirmed you
would do so when you were first hired as a federal public servant and took your
Oath or Solemn Affirmation.

In swearing or affirming your Oath or Solemn Affirmation, you agreed that you would not disclose any information you might become aware of while doing your job. This includes information about policies, programs, practices and procedures of the CRA to which the public does not have official access.

It is important to remember that the obligation to keep both CRA and taxpayer information confidential continues even after you leave the CRA.

You are not permitted to serve friends, acquaintances, family members, or
co-workers as clients (for example, as taxpayers, contractors, or organizational
representatives). Should this occasion arise, you must first notify your manager,
who will ensure that someone else serves them. In cases where that may not be
possible, your manager must first provide you with authorization, and then you
must follow standard procedures.

You may only use, process, store, or handle personal or proprietary information for work-related purposes (for example, to conduct an audit, take a collections action, or manage a staffing process) and in the way specified by the CRA (for example, respecting the security designation on the file such as “confidential”, or “protected”).

You may not remove, hide, change, mutilate, copy, destroy, or make public any official information, record, or document without express authorization from your manager. Such information may only be disclosed to the client or their designated representative.

If you have any questions about how to treat any CRA information, you are expected to consult your manager.

Under no circumstances are you authorized to:
•   access any information that is not part of your officially assigned workload;

•  disclose any CRA information that has not been made public; or

•  use official CRA information for personal use, gain or financial
benefit for yourself, your relatives or anyone else.

To do so would compromise the integrity of the tax system and the protection of taxpayer information. It could also place you in a serious conflict of interest situation, which could attract a severe disciplinary measure including termination of employment, and could lead to criminal charges.

You may only use, process, store, or handle personal or proprietary information for work-related purposes (for example, to conduct an audit, take a collections action, or manage a staffing process) and in the way specified by the CRA (for example, respecting the security designation on the file such as “confidential”, or “protected”).

You may not remove, hide, change, mutilate, copy, destroy, or make public any official information, record, or document without express authorization from your manager. Such information may only be disclosed to the client or their designated representative.

If you have any questions about how to treat any CRA information, you are expected to consult your manager.

Under no circumstances are you authorized to:

• access any information that is not part of your officially assigned workload;

• disclose any CRA information that has not been made public; or

•  use official CRA information for personal use, gain or financial
benefit for yourself, your relatives or anyone else.

To do so would compromise the integrity of the tax system and the protection of taxpayer information. It could also place you in a serious conflict of interest situation, which could attract a severe disciplinary measure including termination of employment, and could lead to criminal charges.

Providing testimony or information You are obliged to co-operate and help with the conduct of an investigation by providing information to an investigator and offering access to CRA information systems, documents and records, to the extent such access is legally permitted. This also includes the requirement to support the Crown’s case by giving testimony in court.

You must not ignore a subpoena, court order, or other legal document. If you receive such a document, advise your manager immediately. Your manager will alert either the Legal Services Branch at Headquarters or the appropriate Department of Justice Canada office for your region and will guide you through the process.

Use of tax information for human resources management Legislation also permits authorized managers to access tax information for the purposes of supervising, evaluating or disciplining an employee. An employee may also use tax information to challenge a performance evaluation or a disciplinary action. Your access is strictly limited to those parts of the information that are relevant to the purpose.
For full information and rules, see Guidelines for Managers. Also, see Section 241 of the Income Tax Act and Section 295 of the Excise Tax Act).

Complying with official requests for CRA information The public has the right to ask for and obtain copies of CRA documents (through an “ATIP” request). This right is governed by the Access to Information Act and the Privacy Act, which;

• strictly control how the federal government collects, uses, stores,
discloses, and disposes of any personal information;

• give Canadian citizens and permanent residents the right to access their personal information held by the federal government;

• protect against unauthorized disclosure of personal information; and

• give Canadian citizens and permanent residents access to information in federal government records, except for information that could cause harm or be contrary to Canadian law.

Any notes that you attach to any CRA document, whether handwritten electronic, become part of an official record and subject to access information and privacy (ATIP) requests. CRA documents, including messages transmitted by devices like  cell phones and  BlackBerries TM are also subject to ATIP requests.  or phones

If documents are requested as part of an ATIP request, destroying, altering, falsifying or concealing a record, or directing anyone to do so, with the intent of obstructing the right of access, carries penalties, including fines and imprisonment (Section 67.1 of the Access to Information Act). For more information, please see the Access to Information Act and the ATIP Handbook.

d) Conflict of interest
As an employee, a conflict of interest arises whenever your personal interests,
relationships or outside assets impair, or could be perceived to impair, your ability
to make decisions with integrity and honesty in the best interests of the CRA and
the Public Service of Canada. You must always act in a way that is not damaging
or potentially damaging to the CRA.

Where a conflict of interest does arise between your personal interests and your official duties, it will be resolved in favour of the public interest.

It is your responsibility, and a condition of your employment, to avoid situations that could lead to a potential, apparent, or real conflict of interest. Even if you do not consider something to be a conflict of interest, others observing the situation may. You are strongly encouraged to consult the Conflict of Interest Policy and Guidelines, and to consult with your manager or other adviser to ensure that you
have not inadvertently placed yourself in an apparent conflict of interest situation.

You must not use your position to influence or bypass legislation, CRA policies or procedures, nor use official CRA information for personal use, gain, financial or other benefit of your family, friends, colleagues or anyone else.

For example, if you:

• become aware through your role at the CRA of a potential business investment opportunity, and this information is not public, you must not take advantage of that opportunity nor facilitate or encourage anyone else to do so;

• are involved in auditing activities under the Income Tax Act, or Excise Tax Act, file a Confidential Report with your delegated manager before you do any form of bookkeeping or accounting for another person or company;

•  are involved in procurement, and you have personal ties to a bidder (such as family, friend, colleague, acquaintance, or business associate), a real, potential, or apparent conflict of interest may arise. Discuss the matter with your manager, since it may be necessary for you to withdraw from participation in that procurement process; or

• become aware of any pending legislative changes before they are made public, you must not use that knowledge in any way for your own benefit, or that of a friend, family member, or associate, and you must not facilitate or encourage anyone else to do so.

Code of Ethics and Conduct

If you find yourself in a possible conflict of interest situation, ask yourself:

•    Have’ contravened CRA policy?

•     Do’ stand to gain personally from my actions (for example -an audit or investing in a company based on Insider knowledge obtained during ar audit)?

•  Does someone else stand to gain from my actions?

•     Will my actions help a relative, friend, or co-worker receive service, information, or other benefits not available to all Canadians?

•     Am I using CRA assets and time for unauthorized personal use?

•     Would I be uneasy discussing this with my manager or colleagues? \

If the answer is yes to any of the above questions, or if there is any question, you
are expected to consult with your manager. You could be in a potential, apparent
or real conflict of interest situation.
To avoid conflict of interest situations, please be guided by the CRA’s Conflict of
Interest Policy and Guidelines. To ensure ongoing compliance, you must assess
your situation:

•  annually

•  each time your job changes

• immediately, if your situation changes, and results in potential conflict of interest.

Submitting a confidential report If you have non-exempt assets or liabilities, such as, but not limited to, publicly traded securities, or interests in partnerships and family businesses, you must submit a Confidential Report to your delegated manager.

For more information see page 2 of the Confidential Report form. Your delegated manager will provide the advice you need. If you have or are seeking a paid or volunteer job outside the CRA, you should speak to your manager about whether you should file a Confidential Report to enable your delegated manager to determine whether or not you are, or might be perceived to be, in a conflict of interest situation.

For more information, see the Conflict of Interest Policy and Guidelines.

Consumption of intoxicants and smoking

The CRA does not permit the consumption of alcohol, illegal drugs, or other intoxicants while on duty or while on any premises where the CRA conducts its business. The only exception could be where a senior manager has authorized the limited, controlled consumption of alcohol, for a special event in an area not open to the public. On these occasions, you are expected to behave in a way that does not bring discredit to the CRA.

You must never report for work under the influence of alcohol, drugs or other
intoxicants. Under the influence means that a reasonable person would consider
your effectiveness impaired to the extent that it could pose a hazard or
embarrassment to you, to the CRA, to others or to property; or it means that you
cannot perform your duties properly.

You are not to operate an official vehicle after having consumed alcohol or drugs or if your performance is impaired in any way.

Smoking
The CRA supports a safe and healthy working environment and does not permit smoking in any indoor or enclosed space, under the CRA’s control, in which employees perform the duties of their employment. The CRA encourages smokers to exercise goodwill and mutual respect by refraining from smoking near building entrances and air intake ducts. You must also comply with any applicable laws, bylaws, or restrictions imposed by building owners, concerning smoking in the workplace or in public spaces.

Contact with the public -sensitivity and responsiveness
The importance of courteous, prompt, sensitive, and professional service to the
public cannot be over-emphasized. In the eyes of the public, you represent not
only the CRA but also the entire Public Service of Canada. Taxpayers expect to
receive service as indicated in the Taxpayer Bill of Rights.

Sensitivity to the needs of the public involves being polite, even under difficult
conditions, in times of personal stress, and in the face of provocation that does
not involve a violation of the law. You must not make any abusive, derisive,
threatening, insulting, offensive, or provocative statements or gestures to, or
about, another person.

If your role requires that you sometimes overcome an obstinate lack of
cooperation on the part of a taxpayer (for example -if you act as a tax officer
responsible for enforcement), a persistent, yet professional, approach will be necessary.

The actions of persons from outside the CRA may sometimes be abusive or
threatening or even result in personal assault. The CRA will provide you with
protection, support, and help. You must promptly report full details of any incident
to your manager and co-operate in any subsequent investigation. Threats,
stalking, or assault must be reported by telephone to 1-866-362-0192. More
information can be found in the CRA’s policy on Abuse, Threats, Stalking and
Assaults Against Employees.

Electronic networks access and use
You must only use the CRA’s primary computer systems and databases, such as
Rapid and Corporate Administration System (CAS), for authorized business
purposes, that is, for carrying out tasks that form part of your assigned workload.

If you access or use CRA computer systems or electronic networks, you must
make every effort to protect the CRA from threats to their security. You must
guard against:

•  accidental or deliberate destruction of equipment and data;

•  disclosure of sensitive information;

•  loss of removable media containing CRA files (for example -CDs or USB keys. See Security for the Computing Environment);

•  theft and corruption; and

•  exposure to viruses.

Report any breach of computer security, policies, or standards to your manager.
Please remember that you must never disclose your password for any CRA system to anyone, including your manager.

You are reminded, each time you sign on, that CRA computer systems and electronic networks are for authorized business purposes only, except for the very limited personal use provided for, under certain conditions, in the Monitoring of the Electronic Networks’ Usage Policy.

Examples of acceptable limited personal use, when permitted after hours or during an authorized break, include reading or writing a brief email message to/from a family member or friend. Limited personal use must comply with all related legislation, policies and guidelines, and must not interfere with users’ performance and productivity, nor impose a performance or storage burden on the Agency’s electronic networks.

Misconduct related to using CRA computers and electronic networks, CRA computers and databases:

• unauthorized access or disclosure of tax or other confidential information, including your own Self-service portal:

• falsely registering attendance or time reporting, including overtime CRA electronic networks:

• viewing or sharing non-work-related images or chain letters;

• signing up for non-work-related email subscriptions (for example Air Canada Web Saver or Stock Alerts);

• engaging in private business, or political activities ,

• sending classified or designated information, without using the prpper encryption mechanisms; and .

• downloading, filing, or distributing such things as music (audio) files, unauthorized software, or games, and thereby potentially harming the CRA’s electronic networks .

Downloading, possessing, viewing, or distributing erotic or pornographic images or material is strictly prohibited.

Records are created and stored by every email received, sent or filed (including those that are subsequently deleted) using the CRA’s email system, and records are created of every Web page visited, as well as every download initiated. Records are also created and stored for every access of taxpayer information.
Employees must be aware that all information obtained, stored, sent, or received using the CRA electronic networks is subject to routine monitoring, and will be reviewed when there are reasonable grounds to do so. To learn more, see the Monitoring of the Electronic Networks Policy.

Financial management and fraud
As an employee, you may be responsible for collecting, receiving, managing or disbursing public money. These are serious responsibilities and you must comply with the following legal provisions to ensure responsible financial management and to prevent fraud: Financial Administration Act sections 38(2), 78 and 80(1) b), c), d) and e), 80(2) and 81, and the Criminal Code, section 122.

Care of money (including instruments of financial security) You may be entrusted with large amounts of money. You must be extremely diligent in accounting for, safeguarding, and disposing of any government money in your possession or control, and must do so according to established procedures and reasonable standards of care. If money in your care is misplaced, lost or stolen, you are to immediately report the matter to your manager, who will notify the appropriate management representative.

Borrowing, lending, or soliciting money You must not:
•  borrow money from a client, or present a personal cheque to be cashed by a client; or

•   ask any employee who you supervise to sign a financial instrument, as an endorser or co-maker, to secure an amount of money being lent or borrowed.

Soliciting money from co-workers is restricted to collecting voluntary contributions toward gifts for marriage, retirement, bereavement, and the like; or for authorized charitable purposes for organizations that provide aid or a place of safety, such as shelters for the homeless, victims of abuse, or other community services.

Fraud Fraud can be defined as an intentional act or concealment from which a person derives a personal benefit. In the employment context, using your job for personal enrichment, or that of a friend, family member, or associate, through the deliberate misuse or misapplication of the organization’s resources or assets may constitute fraud.

Examples of activities that are considered fraudulent include:

•  attempting to obtain leave to which you are not entitled;

•  falsely reporting overtime, travel time, expense accounts, or taxi expenses;

•  using your CRA acquisition card for personal purchases;

•  failing to report any violation or fraud concerning the Financial Administration Act and its regulations, or any other revenue law; or

•  conspiring or colluding to defraud the Crown, or providing the opportunity for someone else to do so.

The CRA:

•  will recover any monetary advance paid to you that you do not repay or account for, and will recover any amounts paid to you in error (for example -overpaid salaries or benefits); and

•  can recover from you any public money lost through any negligence or misconduct on your part.

Penalties for fraud You will be subject to disciplinary action up to and including termination of employment if you:

• commit a fraud;

•  fail to report a fraud or any violation of the Financial Administration Act and its regulations or any other revenue law; or

•  provide an opportunity or permit another person to defraud the Crown.

Some cases of fraud against the Crown are indictable offenses that may lead to criminal charges and carry penalties that include fines and imprisonment.

Fund raising
CRA employees have an exemplary record of holding fund raising activities to
raise money for worthy causes such as charity, employee recreational
organizations, and employee social events.

For information on fund raising activities, please see the Fund raising Guidelines on Info Zone.

Solicitation
Donations for items to be used as prizes or gifts cannot be solicited or accepted from external individuals or organizations. CRA employees may donate items (including goods, merchandise, or non-work-related services).

Gambling on CRA premises

Whether on or off duty, any participation in a gambling activity (including sports pools) on CRA premises, is strictly prohibited.

Gifts, hospitality, and other benefits

It is your responsibility to decline any gift, hospitality, or other benefit that could influence your judgment, or call into question your integrity or that of the CRA.

You are responsible for adhering to the Gifts, Hospitality, and Other Benefits Policy and to consult that policy for details on accepting or refusing gifts, including the strict conditions and limitations that apply when accepting gifts.

You may usually accept incidental gifts such as:

• mugs, pens, or similar items (under $25 value);

• normal CRA-related business hospitality (for example -coffee or light lunch valued under $50); and

• nominal benefits such as a speaker’s honorarium or a gift from a delegation of foreign visitors (under $50).

You may not accept:

• cash or cash equivalents (for example -gift cards or cheques);

• tickets to major entertainment or sporting events (for example -theater, ballet, NHL, NBA); or

• cigarettes, alcohol, related goods, or anything prohibited by Canadian law.

Remember that soliciting any gifts that would be used as personal benefits by employees, for example -prizes for golf tournaments and the like, is prohibited under the Gifts, Hospitality, and Other Benefits Policy.

It is a serious matter to accept a gift, hospitality, or other benefit that does not meet the criteria, including the dollar limits. If you do, you must : immediately advise your manager in writing who will inform the delegated manager who in tum will advise you on how to proceed.
Hours of work and attendance
As a CRA employee, you are expected to adhere to your scheduled hours of work
and to follow established processes for the approval of leave, as allowed under
your collective agreement and/or terms and conditions of employment. In this
way, you can contribute to the efficient operation of your work unit.

Off-duty conduct
Your off-duty conduct is usually a private matter. However, please be careful that
it does not affect your image and performance as a CRA employee. Laws,
including the Income Tax Act and Excise Tax Act, govern many of the services
that you and your colleagues provide. Your own compliance with these laws (for
example -reporting all your taxable income) is essential to preserve your own
integrity and the integrity of the CRA.

Off-duty conduct that may attract disciplinary action up to, and including, termination of employment includes conduct that:

•  is harmful to the employer’s reputation (for example -personal violations of the laws that the CRA administers);

•  renders you unable to perform your duties in a satisfactory manner;

• is a violation of the Criminal Code or is injurious to the general reputation of the CRA and its employees; or

• makes it difficult for the employer to manage its operations efficiently and to direct its workforce.

You must report the situation to your manager without delay if:

• you are charged under any Canadian laws, regulations, or federal statutes, related to your official duties (including traffic violations ,f you are driving a CRA vehicle); or

• you are arrested, detained, or charged with a violation of the Criminal Code, when the violation could impact or be perceived to impact your official duties. .

Q: I am a regular user of the Web sites “Facebook” and “MySpace” and I am an active “blogger”. If I identify myself as a CRA employee, could this behaviour go against the CRA Code of Ethics and Conduct and result in administrative or disciplinary action being taken against me?

A: Yes, it could. For example, if you identify yourself or your colleagues on these Web sites as CRA employees, or disclose any proprietary information in your blog, your public comments could jeopardize the Agency’s reputation or programs. See Public Criticism of the CRA.

m) Political activity

Important Reminder: If you want to seek nomination or run as a candidate in a territorial, provincial, or federal election, before or during the election period, you must apply in advance to the Public Service Commission (PSG) for permission and approval for leave without pay (LWOP). LWOP mayor may not be needed if you want to seek nomination or run as a candidate in a municipal election. The legal requirement is found in subsections 114( 1) and 115( 1) of the Public Service Employment Act.

More information about this process and the potential effect on your employment at the GRA is available on the PSG Web site at http://www.psc-cfp.gc.ca/plac-acpl/index-eng.htm.

As a citizen, you are entitled to express yourself freely and to participate in political activities, but as a public servant, you must use discretion and judgment in doing so. For instance, when taking part in political activities, you must:

• remain loyal to your employer, the Government of Canada; and

• exercise restraint, relative to your position and visibility, so as not to jeopardize the tradition of the Public Service as politically neutral.

Under the Public Service Employment Act (PSEA), you have important rights and obligations related to your involvement in political activities. If you are considering getting involved in any political activity, the PSC and management at the CRA will support you in understanding more about your rights and obligations, and about how to act appropriately.

As a public servant, you may engage in any political activity as long as it does
not impair or is not perceived as impairing your ability to perform your
duties in a politically impartial manner.

Under the PSEA, the legal definition of a political activity is:

•  any activity in support of, within, or in opposition to a political party;

•  any activity in support of or in opposition to a candidate before or during an election period; or

•  seeking nomination or standing as a candidate in a municipal, provincial, territorial, or federal election before or during the election period.

Publicly commenting for the CRA
Only designated and authorized spokespersons can make statements or
comments to the media about the CRA (CRA Media Relations Policy). If you
receive a call from the media, you must refer it to an authorized spokesperson.
Employees in the regions should refer any media calls to the office of the director
of communications in their region. Employees at Headquarters should refer any
media calls to the Media Relations Section of the Public Affairs Branch.
A list of all employees who are authorized to speak to the media is available on the CRA’s Web site at http://www.cra-arc.gc.ca/nwsrm/md-eng.html.

Public criticism of the CRA
As a CRA employee, you must make sure that your public statements or actions
do not impair your ability to carry out your duties or call into question your
impartiality in carrying out those duties. You should use internal means to bring
any criticisms you may have to the attention of CRA management.

You are to refrain from making, through any public medium (such as radio, television, newspaper, blog, or Facebook), either directly or through a third party, any pronouncement critical of CRA policies, programs, or officials, or on matters
of current political controversy where the statements or actions might create a
conflict with the duties of your position or CRA programs.

Although you are expected to conduct yourself at all times in a way that brings
credit to the CRA, you have an added responsibility to conduct yourself in a way
that is, in the eyes of the general public, obviously above reproach.
You must make sure that anything you say about the CRA and its operations is
truthful and honest, does not deliberately or negligently misstate facts, and does
not impair your employment relationship.

Resolving workplace issues
The CRA promotes a respectful work environment where diversity is valued. You
are responsible for contributing to a workplace free from discrimination and harassment.

Workplace issues and conflicts that arise can severely damage the work
environment. The CRA’s policy is that these issues should be dealt with before
they escalate. The goal is to ensure on-going positive working relationships by resolving conflicts promptly and cooperatively. The use of an interest-based
approach and informal conflict resolution mechanisms such as coaching,
facilitation and mediation can, in many instances, help to resolve the issue and
prevent a situation from escalating to the point where initiating a process such as
a grievance or a harassment complaint may be necessary. Most workplace
conflicts can be resolved cooperatively to the satisfaction of all parties. Confidential services are available from Conflict Resolution Advisers at Headquarters and in each region of the Agency.

Discrimination means treating people differently, negatively or adversely because of their race, age, religion, sex, sexual orientation, national or ethnic origin, colour, marital status, family status, disability, or conviction for which a pardon was granted. As used in human rights laws, discrimination means making a distinction between certain individuals or groups based on a prohibited ground of discrimination. See the Canadian Human Rights Act.

Harassment is a form of employee misconduct/improper behaviour that is directed at, and is offensive, to another employee, and which the harassing employee knew or ought reasonably to have known would be unwelcome and cause offense or harm. It includes objectionable conduct, comment, or display that demeans, belittles, or causes personal humiliation or embarrassment, and any act(s) of intimidation or threat(s), that detrimentally affects individual well-being or the work environment.

More details regarding harassment can be found in the CRA’s Preventing and Resolving Harassment Policy.

A few common questions on the subject of workplace issues and harassment:

Q: A co-worker told a racially themed joke which upset several of us. What should I have done?

A:     You should speak up in such a case and point out to your co-worker that such jokes are not acceptable, or raise the matter with your manager if you are not comfortable addressing your co-worker directly. :

Q:     My manager is always after me about my work. He does not make, the same demands of my colleagues. Is that harassment? What should I do about it?

A:     Managers are expected to allocate work to members of their team, and comment on employees’ performance. It is important that open lines of communication exist between you and your manager. You should speak to your manager or other adviser about how you feel.

Q:     Could the posting of pictures of scantily clad people be considered harassment?

A: At the very least, it is not appropriate and is disrespectful toward one’s colleagues. Any employee or manager becoming aware of such a posting should speak to the employee who did the posting and request that it be removed immediately.

The Employee Assistance Program (EAP) is also available for employees.
Although the EAP is not part of the conflict resolution process, EAP counselors and referral agents are available if employees want to talk things over in a confidential, neutral setting.

Safety and security
Your safety and security as an employee of the CRA are very important to the Agency. While on the job, you must observe safety and security standards, rules, and procedures established for your work site. You are to promptly report to your manager any work-related accident or injury to yourself or other employees, or any unsafe or hazardous condition at work. See form T4009. Hazardous Occurrence Investigation Report. For more information, see the CRA’s Occupational Health and Safety Policy.

If you experience or become aware of any security infraction (threats, stalking, assault, or verbal abuse) or negligent or criminal act, you must report this to your manager or a security officer immediately, who will then complete a Security Incident Report. See Abuse. Threats. Stalking and Assaults Against Employees
Policy.

Terms and conditions of employment and collective agreements. You are responsible for respecting the terms and conditions set out in the collective agreements (PSAC -Union of Taxation Employees, or PIPSC
agreements) and/or your applicable terms and conditions of employment:

• Public Service Terms and Conditions of Employment Policy

• Terms and Conditions of Employment Policy for the Human Resources Occupational Group

• Human Resources Policy Framework for the Executive Cadre, 14.0 Terms and Conditions of Employment

• Terms and Conditions of Employment for Students

Unions and similar employee associations.

The Public Service Labour Relations Act sets out procedures for employee participation in employee organizations. The Act also contains provisions that prohibit:

• intimidation of employees in the creation or administration of employee organizations;

• the restraining of employees from becoming members of an employee organization; or

• discrimination against a member of an employee organization (for example -in regard to employment or to any condition of employment).

4. FAILURE TO COMPLY AND CONSEQUENCES

A great deal of trust is placed on you in the performance of your duties. We expect that you will adhere to the Code of Ethics and Conduct, and to the principles, CRA values, and CRA policies that underlie it.

If you suspect or discover that you do not comply with this Code or its underlying elements, consult with your manager. Depending on the circumstances, your manager may need to determine whether the breach of the Code warrants action. Procedures are in place to make sure that all cases of employee misconduct or wrongdoing are handled fairly.

Despite preventative measures by the CRA and its employees, a few employees will contravene the Code of Ethics and Conduct, either explicitly or implicitly, and will engage in misconduct up to and including criminal activity. This could seriously disrupt public confidence in the integrity of the CRA and its employees, and the Public Service of Canada. Misconduct will not be tolerated.

Please see the CRA’s Discipline Policy and Guidelines, which provide examples of misconduct and potential disciplinary measures.
Serious misconduct would be individual or group misconduct such as:

•  access of and/or use of unauthorized information for personal gain or the benefit of someone else;

• submitting or approving false claims for a refund of duty, taxes,or benefits; and.

• intentionally violating the legislation that the CRA enforces.

If you contravene the CRA’s Code of Ethics and Conduct, or any of its underlying laws, policies or policy instruments, you could be subject to disciplinary action up to, and including, termination of employment. Any disciplinary measure taken against you would be in accordance with the CRA’s Discipline Policy and Guidelines.

Employee Assistance Program
It is possible that as an employee, you may find yourself in a challenging personal situation, which could affect your professional relationships and performance at work, for example -difficulty managing your time and health issues.

If this should occur, it is important for you to accept responsibility for what is happening and to speak to your manager or other adviser. You also have access to the CRA’s Employee Assistance Program.

As a CRA employee, you are ultimately responsible for adhering to the expected standard of conduct as articulated in this Code.

Reminder:
Although this Code prescribes standards of conduct for all employees of the CRA, they are not all-inclusive. The absence of a specific standard of behaviour does not mean that an action is condoned. It may still be subject to disciplinary action.

Do not assume -particularly in conflict of interest situations such as outside employment, business activities, investments, or volunteer work -that your interpretation of the situation is the only one. Consult with your manager, and file a Confidential Report to your delegated manager.

LEADERSHIP ROLE OF MANAGERS

The personal example of all CRA managers, including team leaders, speaks louder than any written code.

As a manager, you are expected to demonstrate leadership in respecting the Code of Ethics and Conduct and its underlying policies and, in particular, to:

• provide effective, responsible and fair service;

• exemplify our corporate values of integrity, professionalism, respect, and co-operation;

• maintain open, positive communications and working relationships;

• respect equity and diversity in all their dimensions; and

• recognize excellence, and encourage personal and professional development in a learning environment.

As a manager, you are a visible role model for the employees you supervise. Every manager shall make sure that all new employees under their responsibility are given a copy of, or have electronic access to, the Code of Ethics and Conduct, and that a signed Confirmation of Receipt form is placed in their personnel file.

Managers are also required to remind all employees annually of their obligations under the Code of Ethics and Conduct, as well as the Conflict of Interest Policy and Guidelines, and to remind employees to file a new Confidential Report when required.

Appendix A

List of Sources and Authorities

Charters and laws

• Access to Information Act

• Canada Revenue Agency Act

• Canadian Human Rights Act

• Criminal Code

• Copyright Act

• Excise Tax Act

• Federal Accountability Act

• Financial Administration Act

• Income Tax Act

• Privacy Act

• Public Servants Inventions Act

• Public Service Employment Act

• Public Service Labour Relations Act

• Public Servants Disclosure Protection Act

Policies and other documents

•  Abuse, Threats. Stalking and Assaults Against Employees

•  Collective agreements

•  Conflict of Interest Policy

•  Conflict Resolution Policy

•  CRA Trust and Integrity Site

•  CRA Media Relations Policy

•  Delegation of Human Resources Authorities

•  Discipline Policy

•  Employees’ Access to their Own Tax Information and that of their Relatives and Acquaintances

• Gifts. Hospitality and Other Benefits Policy

• Information Management Policy

• Internal Disclosures Policy and Procedures

• Internal Investigations into Alleged or Suspected Employee Misconduct

• Monitoring of the Electronic Networks’ Usage Policy

• Oath or Solemn Affirmation

• Occupational Health and Safety Policy

• Preventing and Resolving Harassment Policy

• Reporting of Security Incidents

• Sustainable Development Policy

• Taxpayer Bill of Rights

Appendix B

Confirmation of Receipt Form

I acknowledge that I have received my copy of the Code of Ethics and Conduct for the Canada Revenue Agency.

I have read the above-mentioned Code and agree to abide by the standards set out for the duration of my employment with the Canada Revenue Agency.

Employee’s signature Manager’s signature
Employee’s name Manager’s name (print) (print)
Date

Note: Original signed copy to be returned to your manager, who will forward it to the Regional Workplace Relations Centre of Expertise for inclusion in your personnel file.
This document is uncontrolled when printed.
(end of copy of CRA publication)

I know that this article on this area of the web site is very long and complex. It was scanned as a pdf and converted to text. Please understand that is a very valuable article for you to review and compare what is happening to you versus what this code of ethics and conduct says CRA should conduct itself when dealing with taxpayer matters.

I struggled with should I post this article or not. Being that you can not find this anywhere else on the internet (that I am aware of), I felt a sense of wanting to protect one of my sources of information and that CRA could take umbridge about me posting this. However I remembered the intent of this site which is to help the Canadian taxpayers, and decided it was more ethical to publish it than it was to keep it private.

Here are some TAS Links to Tax Topics

For more information click here www.taxauditsolutions.ca

   
   
   
   
   

CRA Always on the lookout to grab taxes where you least expect it.

September 11th, 2010

This article by Jamie Golombek, shows how CRA can create tax problems for students. What a nice way to introduce our young people to our government. Read on,

Dan White

Read more at www.taxauditsolutions.ca

Free tuition doesn’t mean free from taxes

 

 

 

 

With students now firmly ensconced in their studies, the issue of how to pay for that education is top of mind, both for students and their parents, who may be footing the bill.

A technical interpretation released by the Canada Revenue Agency last week was in response to a question posed by a parent alarmed that her son was assessed and taxed on the free tuition assistance he received, finding it to be “either incorrect or inappropriate.”

Her son received an amount under the Ontario Ministry of Health and Long-Term Care’s “Free Tuition Program for Physicians.” This program offers medical students in their final year, medical residents and newly graduated physicians grants equal to the medical school tuition paid, up to a maximum amount, in exchange for agreeing to work full-time in an underserviced or undersupplied community upon graduation for three or four years. Failure to live up to the terms of the agreement can result not only in the return of monies received, plus interest, but an administration fee of $5,000.

If the medical school tuition costs do not reach the maximum grant allowable, an additional amount, known as the Location Incentive Fund Grant, is available to bridge the difference between the main program grant and the maximum amount.

Under the Income Tax Act, beginning in 2006, most scholarships, fellowships or bursaries are tax-free. CRA defines scholarships and bursaries as “amounts paid or benefits given to students to enable them to pursue their education …. Normally, a student is not expected to do specific work for the payer in exchange for a scholarship or bursary.”

The CRA felt that the amount that the medical student received cannot be considered to have been received to “enable” him to pursue his education. Rather, the amount was received as an encouragement to practice in an underserviced or undersupplied community.

The CRA concluded that the amount received does not qualify as a scholarship, fellowship or bursary and is therefore fully taxable, either as employment income or as government assistance.

This is further supported by the fact that a top-up Location Incentive Fund Grant is available to the student to ensure that he still gets the maximum amount allowable.

Sometimes “free” isn’t always free.

jamie.golombek@cibc.com

Read more: http://www.montrealgazette.com/news/Free+tuition+doesn+mean+free+from+taxes/3509252/story.html#ixzz0zDiGoUlS

Corporations are not entitled to refunds if they file 3 years or more late.

September 8th, 2010

Here is a great article by my favorite writer on taxes.

What you can take from this, is being an incorporated small business requires a huge amount of legal and tax knowledge. Generally speaking, unless you have a bonified reason to incorporate, and are prepared to go down a complex path fraught with perils, do not incorporate.

The following is just one of hundreds of pitfalls of incorporations.

To learn more about how to deal with complex tax problems, go to www.taxauditsolutions.ca

Dan White

It does not pay to be late by Jamie Golombek, Financial Post Magazine · Tuesday, Sept. 7, 2010

If your business is incorporated and it’s owed a tax refund, you better be sure that your corporate tax return is filed on time. If it isn’t, you risk permanently forfeiting your money. That was the harsh lesson learned in Tax Court earlier this year in a case involving numbered company 3735851 Canada Inc.

Under the Income Tax Act, if a corporation has not filed a tax return within three years of the end of its taxation year, it is precluded from claiming a tax refund for that year. Why would a company file late? Sometimes, it’s due to simple oversight. Other times, it may be based on an assumption that no tax return was required if a refund was expected.

In the case of numbered company 3735851 Canada Inc., the firm successfully objected to a CRA assessment in court and was issued a “Notice of Reassessment,” resulting in a corporate tax refund of more than $25,000. Yet the CRA refused to process this refund because the company’s tax return for that year was not filed within three years of the deadline.

In an effort to get its refund, the company took the CRA to Tax Court, but the judge ruled that the court has no jurisdiction over refund issues since its mandate, under the Tax Act, is limited to considering the correctness of an assessment or reassessment. Since the company was successful in objecting to the original assessment, it had nothing to dispute. Therefore, the judge concluded that the court had no jurisdiction to order the CRA to issue the refund.

This recent case is not the first time that a taxpayer has been precluded by the CRA from collecting a refund by the three-year rule. In 1991, the Chief Justice of the Tax Court, who heard a similar case, was so frustrated by having to deny a taxpayer a refund due to this rule that he wrote: “I find it difficult to justify the fact that… in a so-called democratic society which purports to protect the civil liberties of its people a provision (such as this three-year rule) is still in force.”

As a result, the Act was amended shortly thereafter to allow individuals 10 years to request a refund. Yet the three-year rule still exists for corporations. In 1993, however, corporations were granted the option of applying a refund to an amount owing for a previous or subsequent year.

But if no amount is owing, then the refund may hang in limbo indefinitely, making this recent case an important reminder to corporate taxpayers to file on time.

Jamie Golombek is managing director, tax & estate planning at CIBC Private Wealth Management. E-mail: Jamie.Golombek@cibc.ca

The Critical Info on Statute Barred Years

August 31st, 2010

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

Flat Tax or Simplified Tax?

August 26th, 2010

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/

Avoid the transferring of property tax trap.

August 24th, 2010

 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.

“CRA versus the People of Canada.”

August 16th, 2010

“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

Charge against pro-lifer stayed

August 11th, 2010

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

Royal Bank Teams Up With CRA Collections.

August 6th, 2010

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

• •

Help, What to do about; CRA Collections is ruining Canadian Businesses!

June 29th, 2010

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

CRA Behaviour is under attack… Canadians are getting outraged.

June 21st, 2010

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.

Defense against Tax Penalties using due diligence under common law.

June 18th, 2010

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.

Rental Expenses, paying your children.

June 16th, 2010

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

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

June 11th, 2010

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

Home Reno Tax Credit and Networth Assessment Results are a Tax Problem

May 13th, 2010

Here is a really good article regarding the home tax credit and what CRA is really up to, which of course is simply generating tax debts which result in tax problems, such as net worth assessments. Net Worth Assessments is a hot item with CRA at the moment and they are going crazy doing this across the country.

Every week we get calls from taxpayers who are finding out how an audit can turn into a net worth assessment. This is very bad for small business but very good for our business of protecting Canadians.

To find out more about net worth Assessments go to www.taxauditsolutions.ca

Dan White

Wednesday, May 12, 2010
The Short Happy Life of the Home Renovation Tax Credit, by Ryan Green.
This April, Canadians across the country will claim the Home Renovation Tax Credit in their tax returns. This will be the only year in which the popular tax credit can be claimed, as the Federal Government recently announced that it will not be renewed for 2010.

Announced as part of the Federal Government’s “Economic Action Plan”, the Home Renovation Tax Credit is generally understood as an incentive to encourage spending in the home renovation sector during bleak economic times. It is less appreciated that the tax credit is also a tax collection measure designed to identify businesses that fail to remit tax as required.

Transactions in the home renovation sector are frequently paid in cash without a written contract or invoice. Relying on the fact that such transactions are more difficult to trace, some contractors do not fully report their income and forgo collecting GST.

Customers take a significant risk when they participate in undocumented transactions. If a dispute ever arises with a contractor, the lack of a written contract means there is no evidence of the work for which the contractor was retained, the agreed price, or the warranties provided. Despite this risk, some customers agree to undocumented transactions as a means of avoiding GST on their home renovations.

The Home Renovation Tax Credit targets tax avoidance in the home renovation sector by removing the incentive for customers to participate in undocumented transactions and encouraging them to report their home renovations to the Canada Revenue Agency (the “CRA”).

The credit equals 15% of eligible home renovation expenses between $1,000 and $10,000. The maximum allowable credit of $1,350 represents 13.5% of a taxpayer’s first $10,000 in home renovation expenses. It is no coincidence that in provinces currently imposing HST (a combination of GST and provincial sales tax), the HST rate is 13%.

To obtain the tax credit, taxpayers must report certain information in Schedule 12 of their 2009 tax return, including the name and GST number (if applicable) of their supplier or contractor. If requested, taxpayers must also provide the CRA with copies of their invoices.

The information provided by taxpayers claiming the tax credit will provide the CRA with a snapshot of the contractors and suppliers in Canada’s home renovation sector. Ingeniously, this valuable information will only cost the Federal Government a one-year tax break for Canadian homeowners equal to slightly more than the sales tax owed on their home renovations – much of which would not have been remitted in the absence of the tax credit.

By examining its snapshot of the home renovation sector, the CRA will be able to target businesses for audit. Once a business is in the CRA’s sights, reliance on undocumented transactions will provide no protection from reassessment.

During an audit, a CRA auditor reviews all deposits into a business’ bank accounts. To the extent that deposits cannot be explained, they are deemed to be sales income. Based on this analysis, the CRA will issue reassessments for unremitted income tax and uncollected GST.

Keeping cash outside of a bank account does not prevent reassessment. CRA auditors will examine a target’s standard of living to determine if it fits with reported income. Where this is not the case, the auditor will calculate the target’s income based on annual expenses and asset growth.

Where the CRA suspects that a person has intentionally under-remitted tax, it will generally impose a penalty equal to 50% of the tax avoided. In particularly egregious cases, the CRA will recommend criminal sanctions for tax evasion.

If you are a contractor or supplier who complies with your tax obligations, you have nothing to fear this tax season. For you, the Home Renovation Tax Credit likely provided a boost to business in a difficult economic period. However, if you have not complied with your tax obligations, the tax credit’s legacy may not be a brief boost to business but instead a costly reassessment.

- Ryan Green

Visit the Dwyer Tax Lawyers web site for information about
our services and lawyers’ profiles.  www.dwyertaxlaw.com

The above article provides general commentary of an educational nature. It does not constitute advice for any specific person or any specific set of circumstances. Because circumstances vary, readers should consult professional advisers in order to obtain advice that is applicable to their specific circumstances.

Net Worth Audits

May 7th, 2010

We have a serious concern about this new mandate by CRA to focus on Net Worth Audits. This is a serious game they are playing. It is now part of a regular audit to fill out a form at the end of a normal audit where an auditor has to state why no Net Worth Assessment was made.

If CRA has any question as to how you were able to live on such a low net income, you will be subjected to a NIGHTMARE of paperwork. They will ask questions that you have no need to answer. They will give you a form to fill out that could end up causing you to pay taxes on absurd assumptions.

At the first indication of an Auditor’s interest in this direction, do not answer any further questions and then get professional help and do it immediately.

As a result of this new vendetta by CRA we are no longer allowing home visits by CRA auditors. We used to allow them if the taxpayer was not home and then only to have them verify business use of home.

Now due to this new aggressive tax grabbing behavior by CRA,  we will work with diagrams, sketches, written overviews and photographs.

CRA auditors often are surprised to learn that if the taxpayer has a Tax Representative, they don’t need to have an interview with the auditor and the auditor has no right to enter a principle residence without a court order, which is not easy to get.

We here at TAS are shoring up our arsenal to confront this tax grab head on. There are lots of ways to put a stop to this and we will exercise all of them. It is unfair, unwarranted and it is clearly abusive. CRA better back of this with our clients. It is outrageous.

Simply stated; “I am dumbfounded that CRA would go to such levels to increase their cash flow.” This kind of behaviour by CRA is what is going to create even greater Canadian ire against CRA tax audit abuse.

As a result of this new agression, we are modifying our audit ready bookkeeping system, to stop Net Worth Audits before they get started. We are also building in HST automated calculations across the categories and the tax jurisdictions in Canada.

Be sure to check out the TAS website for more information. www.taxauditsolutions.ca

Dan White

CRA Auditor Interview. Critical to watch for all Canadians

May 7th, 2010

You just have to watch this candid interview with a CRA Auditor.  This is the interview that every business person in Canada needs to watch and understand. CRA is no joke. We can laugh at this insanity, but we need to understand what kind of entity we are dealing with.  We need to know what kind of people work for CRA.
This may be a hilarious insight into the insanity of the Canada Revenue Agency, but it is very real and they are very dangerous if not handled properly.
If you want to understand what an audit is all about you really need to watch this video.
If you think you can handle an audit without professional help, you will find out just how costly that will be. CRA can and will trip you up.
Enjoy the 4 videos, it will take you ten minutes each, so go get a coffee and a valium, or better yet a double scotch, straight up. Please be sure to comment on the videos.
http://taxauditsolutions.ca/cms/index.php/cra-info/inter/
Thanks
Dan White

HST explained and get your books audit ready.

April 28th, 2010

The Comox Valey Record posted a good article on the HST yesterday.
I like the article because it gives a good unbiased take on HST.
My recommendation is to accept HST as a good thing, and avoid potential tax problems by turning to audit ready bookkeeping.
Now more than ever, taxpayers need to keep good records.
To learn more about audit ready bookkeeping, go to www.taxauditsolutions.ca and click on ‘audit ready bookkeeping.’
Dan White

HST – facts about the tax

Comox Valley Record

Vancouver Island North

Published: April 27, 2010 3:00 PM

A caller to the Record newsroom made an interesting point about the effects of the harmonized sales tax.

He’s talked to some people who signed the FightHST petition being circulated around the province who believe the HST will result in taxes on absolutely every purchase made by British Columbians.

The HST is a 12-per-cent federal tax that combines the five-per-cent goods and services tax (GST) and the seven-per-cent provincial sales tax (PST), which the B.C. government is legislating out of existence.

While it seems like the GST applies to everything, some items are not taxed.

According to the Canada Revenue Agency, they include basic groceries such as milk, bread and vegetables; prescription drugs and drug-dispensing fees; medical devices such as hearing aids and artificial teeth; used residential housing; residential condo fees; most health, medical and dental services performed by licensed physicians or dentists for medical reasons; and child-care services for children 14 and younger.

Of course, the list of things the GST applies to is much, much longer.

Foes of the HST oppose it because 70 things exempt under the PST would be subject to a seven-per-cent tax, often on top of the five-per-cent GST.

That list includes restaurant meals, cable TV, new homes, non-prescription medications, telephone, some groceries, haircuts, used vehicles, magazines/newspapers, accommodation rentals, taxi fares, airline tickets and insurance.

In a total cart-before-the-horse move, the B.C. government is mounting a campaign to explain the HST, its benefits and how businesses benefiting from it will trickle their savings down to common folk.

Of course, these are the same BC Liberals who denied before the 2009 election that they were considering the HST before springing it on us soon after they were re-elected.

Death and Taxes.

April 22nd, 2010

Death and Taxes.

I find it interesting that CRA sees itself as a fair and reasonable entity. Yet more and more silliness shows up via the internet.
Just as in China, web cams have changed the face and behavior of government workers, here in Canada the Internet does the job.
Keep reading as we are now going to increase our coverage of CRA goof ups.
For more info on tax problems and solutions got to www.taxauditsolutions.ca

The following case illustrates that CRA can and does make silly mistakes.

Dan White

N.S. man in a life-and-death struggle to convince taxman he’s alive

Ken MacKay may be angry and losing patience, but he’s definitely not dead.

Global News and Canwest News ServiceApril 21, 2010

Ken MacKay may be angry and losing patience, but he’s definitely not dead.

Ken MacKay may be angry and losing patience, but he’s definitely not dead.
Photograph by: Photodisc, Photodisc

HALIFAX Ken MacKay may be angry and losing patience, but he’s definitely not dead.

So imagine his surprise when he opened a letter from the Canada Revenue Agency declaring him officially deceased. It’s happened not once, but twice.

In January MacKay received a first letter from the tax agency telling him that he was no longer eligible for a GST rebate because he was dead.

“I was shocked, like I just couldn’t believe how anybody could make a mistake like that,” he said, adding he asked if the agency hadn’t mixed him up with his wife of 34 years, who died in October from a lung ailment.

“They told me no, that that didn’t happen, but indeed I’ve come to find out afterwards that that’s exactly what happened.”

He said he was later given the runaround, being passed from one government department to another.

When he told the bureaucrats he was alive and well, he was assured the matter would be straightened out. However he is still listed as dead on paper.

“It was pretty hard to take, especially the second time around,” he said of an April 1 followup letter from CRA again asserting his non-living status.

Mackay said he’s claiming on his income tax phone bills and other expenses he incurred while trying to prove he’s alive.

“If it happens a third time, then somebody will be held accountable,” he said.

It isn’t the first time this has happened in the province. Theresa Fraser, 76, who lives in Nova Scotia’s Pictou County, asked for an apology earlier this year after the federal government stopped delivering her cheques following a mix-up involving her name. She too, it turned out, had been mistaken for dead twice by the government.

Read more: http://www.montrealgazette.com/news/canada/life+death+struggle+convince+taxman+alive/2935250/story.html#ixzz0lrerOCZi

Capital Losses or Business Losses? Business Income or Capital Gain?

April 22nd, 2010

Capital or Business, Pre-planning is Critical.

For those of you who do investing, you need to consider if you should be in the business as an active trader or as an investor, you need to consider all elements, including that the statistics point out that more people lose money investing than who makes money.

If you have an audit tax problem, regarding your investments, check out audits at www.taxauditsolutions.com

Read on and see what Tim Cestnick of the Globe and Mail has to say.

Dan White

Tax Matters
The tie goes to the taxpayer

Tim Cestnick

Published on Thursday, Apr. 22, 2010 6:55AM EDT Last updated on Thursday, Apr. 22, 2010 6:59AM EDT

Last year my son, Win, played organized baseball for the first time. He’s a good athlete who played on the select team for the town of Huntsville in Muskoka, Ont. We’re not from Huntsville, but our kids spend much of their time in that neck of the woods in the summer. Hunstville Minor Baseball is always looking for kids who may be spending time there in the summer and who may be interested in playing competitive baseball for a brief season.

Win learned a lot about the game last year. He even learned that there’s a rule in the game that a “tie goes to the runner.” You gotta love being the runner in those situations.

So, what are the chances that there’s an equivalent rule in the land of tax law that says a tie goes to the taxpayer? Not very good. Until now.

Some recent court decisions could work in your favour when it comes to claiming losses from your investment portfolio. Let me explain.

The Issue

Let me start with a question: When you report your losses from your portfolio, are you going to report them on your tax return as capital losses, or business losses? There’s a big difference. Capital losses in a particular tax year can be applied to reduce any capital gains you might have in that same year. If you haven’t got capital gains, the capital losses can be carried back up to three years to apply against capital gains in the past, or carried forward indefinitely until you generate capital gains to offset the losses.

That’s all well and good, but business losses offer more flexibility. You see, business losses (otherwise referred to as losses from an “adventure in the nature of trade”) can be applied to reduce capital gains or any other type of income. So, these losses could, for example, reduce your taxable employment income or other investment income.

The real issue is this: Are your investment losses going be treated on “capital account” (as capital losses) or “income account” (as business losses). You’ll likely prefer losses on income account due to that flexibility of applying the losses against any type of income.

The Cases

Now, the courts have established principles that the Canada Revenue Agency (CRA) is obligated to consider when looking at your investment transactions and determining whether your losses should be capital losses or business losses. Good thing, because our tax law isn’t clear on this issue. The factors to be considered include: (1) the number of transactions; (2) the intention of the purchaser when buying the securities (did you intend to buy and hold them to earn income, or simply flip them for a profit?); (3) the length of time that the securities are held; (4) the quality of the securities; (5) the time devoted to stock market transactions (is this your full-time job or a hobby?); (6) the extent of borrowing; and (7) the taxpayer’s expertise or special knowledge in the securities market.

There’s no one factor that will decide the matter. The courts, and CRA, should look to your whole course of conduct if they are going to challenge what you’ve filed on your tax return.

So, what about the recent court decisions? In the cases 1338664 Ontario Limited (2008 TCC 350) and Empire Paving Limited (2008 TCC 355), the judge applied a “tie goes to the taxpayer” principle. That is to say, where it’s not clear whether your trading activity should be on capital account or income account, because there are factors that could suggest either treatment, CRA should side with your chosen tax filing position.

The Tax Court judge was referencing a statement made by Mr. Justice James Estey of the Supreme Court of Canada in the case Johns-Manville Canada Inc. (85 DTC 5373 (SCC)) where he said: “Such a determination is, furthermore, consistent with another basic concept in tax law that where the taxing statute is not explicit, reasonable uncertainty or factual ambiguity resulting from lack of explicitness in the statute should be resolved in favour of the taxpayer.” You gotta love being the taxpayer.

The Moral

Don’t be reckless here. If you want to claim your losses on income account (as business losses), be sure to consider the factors I’ve mentioned and try to weigh them in your favour. And be consistent. Don’t try to claim your losses as business losses and profits as capital gains. That won’t fly. CRA will want to treat your gains on account of income (not capital gains) as well in that case. And be consistent from one year to the next.

Hilarious CRA Behavior

April 15th, 2010

 Here is a funny CRA case. It reminds me of a case where CRA refused to issue a refund due to “Missing Information.” They could not tell me what information was missing, and could not issue the refund due to the file to memo that stated that there was information missing.

After me convincing them that they had no choice, I finally got my cheque.

Sometimes bureaucracy can be hilarious, frustrating, and perplexing.

To learn more about CRA behavior and what to do about it to solve your tax problems,

go to  CRA Tax Audits    http://taxauditsolutions.ca/cms/index.php/cra-tax-audits/

Dan White

Revenue Canada Strikes Again! By Scooter Clark

This situation would be rather funny if I hadn’t just spent four hours trying to document and resolve it.

I was speaking to the Canada Revenue Agency earlier today, and they told me that they owed me $362.91 because I had paid them too much a few months ago. I was quite pleased to hear that, of course. However, the guy on the phone then went on to say, “but we aren’t able to give it back to you unless you’re able to explain why you gave it to us in the first place.”

WTF?? I thought he was joking at first. He wasn’t. Actually, once I talked to him some more, it made sense – it was the “current source deductions” department, which handles money that employers have to contribute into the EI and CPP programs, and since the funds are held in trust they can’t just arbitrarily issue a refund cheque without detailed corroborating evidence.

So anyway, the long and short of the story is that I’ve spent the past four hours trying to properly document my answer, which essentially COULD have been reduced to this short paragraph:

“You sent me a notice on October 26th saying that I owed you $362.91 (with no accompanying explanation), and I was stupid enough to think that you might have been correct, so I paid it. That’s why you’ve been overpaid by $362.91.”

The only hard part was trying to say that diplomatically. Luckily, I managed to write a fourteen hundred word letter to explain the situation in excruciating detail, along with five pages of spreadsheets and printouts, so hopefully it will take them just as long to sort out as it took me to put everything together.

posted by Jonathan (Scooter) Clark @ 4/14/2010 06:19:00 PM

HST is mostly good for business.

April 15th, 2010

HST is mostly good for business.

I continue to like the HST, and I do believe that in general businesses will be much better off. If business is better off, then by default so too are employees. Sure it is going to hurt in some ways. But… Not needing to deal with the PST Tax Department is a huge bonus. Getting back the PST component of the taxes as an Input Tax Credit is great. Not needing to file PST Tax Returns is a time and work saver.

My stern warning is: CRA is resisting any Input Tax Refunds that do not match your tax returns and what they think is right, they will audit to make sure, prior to issuing any cheques.

What this means is that more than ever audit ready bookkeeping is going to become a necessary practive if the businesses of this land hope to get their ITC’s.

We have changed the name LazyBooks to ARBooks…. pronounced R Books. There was a re-engineering required and we are now past the point we were when things got off track. We are looking at this summer for the Beta Versions of AR Books to be available. Audit Ready Bookkeeping that runs in any web browser, is going to change how accounting in Canada is going to be done.

Doing audit ready books will keep the stress out of audits and solve a lot of potential tax problems. ARBooks is cearly the tax solution needed for protection against the taxman.

Be sure to go to AUDIT READY BOOKKEEPING AT   http://taxauditsolutions.ca/cms/index.php/audit-ready-bookkeeping/

Dan White

Refundable tax will make HST work

By Michael Hamer, Times Colonist April 15, 2010

Re: “If the HST will help you, please tell us about it,” letter, April 13.

As a business person, I’m assuming that you are registered with the Canada Revenue Agency to collect the GST. And that you are aware of the refundable nature of GST input tax credits (GST paid on various expenditures for your business).

Now look at all your current expenses and highlight the PST on those bills, including B.C. Hydro, telephone, vehicle repairs, office and material supplies, asset purchases, etc.

All of this PST has been non-refundable and factors into your “narrow profit margins.” Starting July 1, when the GST and PST are rolled into the HST, all those PST amounts become refundable input tax credits.

Furthermore, for any expenses that currently only have GST on them (for example, your external accountant’s bill, your Times Colonist subscription) the HST increase will also be refundable and not a tax that needs to be absorbed.

In fact, I believe you will find that your expenses will drop, due to the refunding of the equivalent PST, and that your profit margin will rise. You could win more customers by passing along these savings to the consumer through lower prices.

Of course, all bets are off if you are one of the minority of businesses that can’t charge GST on their sales or services (doctor’s offices, residential rental companies, for example). In this case, you will see an increase in your costs as the HST becomes applied to currently exempt PST items. In which case I wish you good luck.

Michael Hamer

Courtenay
© Copyright (c) The Victoria Times Colonist

Read more: http://www.timescolonist.com/news/Refundable+will+make+work/2909363/story.html#ixzz0lBIarSjN

CRA Horror Story about Gary Henessey

April 15th, 2010

CRA Horror Story.
This is a classic example of just how the system can be used against a taxpayer. There is no quarter, no care and no fairness when CRA gets dirty. They don’t care that Gary Hennessey was an innocent victim, they don’t care that they bankrupt him. A guiding principle of CRA is fairness.  I never realized that the word “fairness” in itself is an oxymoron.

Perhaps the definition of the word “oxymoron” means stupid as an ox. (ox moron?)

There is just one solution to dealing with CRA. Get yourself a dam good TaxRepresentative and make sure your books and records are all audit ready. Make sure you do Risk Management, and most inportantly, don’t think that just because you think you have nothing to hide, does not mean you won’t end up as road kill, “Mac Truck vs Small Furry Creature.”

In order to not be a victim of the system, you need to be like a roadside bomb when CRA comes calling. If you don’t blow up at their first transgression, you have just signed up for what could be your economic death.

To learn more about CRA, go to www.taxauditsolutions.ca

To learn more about what  can go wrong, go wrong, go wrong…. read on….

Dan White

Forty boxes of evidence
Defence looking for Crown to turn over documents in tax case

DAVE BARTLETT
The Telegram

Gary Hennessey (right) speaks with his lawyer Robert Anstey outside provincial court Wednesday morning. – Photo by Dave Bartlett/The Telegram
Gary Hennessey (right) speaks with his lawyer Robert Anstey outside provincial court Wednesday morning. – Photo by Dave Bartlett/The Telegram

A St. John’s man caught in a dispute between the Canada Revenue Agency (CRA) and Eastern Health made his first court appearance Wednesday to face four tax-related charges.

Last month Gary Hennessey told his story to The Telegram.

He was forced to close his payroll business in August 2007, he said, and later declared bankruptcy because of the dispute, which eventually led to the charges.

Hennessey was formally charged in provincial court Wednesday with tax evasion, fraud over $5,000 and two counts of making false statements on his tax returns.

In court, Hennessey’s lawyer, Robert Anstey, asked Crown prosecutor Neil Smith to return 40 banker’s boxes of records the CRA seized from Hennessey about 18 months ago.

Anstey is also looking for records from CRA and from Eastern Health.

Smith said a full package of evidence is being prepared for Anstey.

Considering the amount of material Anstey has to review to mount a defence, he asked Judge Lois Skanes to put the matter off until September.

But Skanes suggested a court date be set for June 15, to update the court on Anstey’s progress.

She said that would give the Crown time to turn over the documents Anstey has requested and for him to figure out how much more time he will need to go through all of the paperwork.

Anstey was also hoping the court would ask Eastern Health to turn over relevant documents and had subpoenaed two of the health authority’s employees to be in court.

But Skanes said that will also have to wait until June, and Anstey would have to file a formal application with the courts to get those documents.

Afterwards Anstey spoke to The Telegram. He said if CRA – with all its staff and legal resources – has had the 40 boxes of evidence for about 18 months and still took 14 months to lay charges, he’s going to need an adequate amount of time to prepare Hennessey’s defence.

“We’re hoping that these documents that are going to be produced … will show that my client is caught up in the middle of this,” said Anstey. “The charges are against him, but he’s, I’ll call it, the proverbial scapegoat.”

Anstey said Eastern Health will provide him with the documents, but only after the court directs it to release the information.

“It’s unfortunate for Mr. Hennessey,” Anstey said.

“What it’s done to him and his family over the years is basically cruel and unusual punishment. He’s lost everything and now he’s fighting to clear his name.”

Anstey hopes the documents will help do that.

The original Telegram stories outlined how Hennessey used to do the payroll for hundreds of home care workers on behalf of their clients, and how Eastern Health had failed to tell him that some of those clients had outstanding balances owing to CRA before he was hired to cut their cheques. As a result, CRA is holding him accountable for the arrears.

Eastern Health and CRA tried to settle the matter in 2006, but when talks failed, the CRA set its sights back on Hennessey, saying he owed CRA hundreds of thousands of dollars in unpaid remittances, interest and penalties.

CRA laid the charges in January of this year. Before that, Hennessey launched a complaint with the province’s office of the citizens’ representative to see if it could help him resolve the issue.

Barry Fleming’s report backed up much of Hennessey’s story, but also laid some of the blame on him. Fleming wrote Hennessey “lacked business acumen” and his record-keeping was deficient.

But Fleming’s report also states Hennessey tried to co-operate with both agencies and there’s no evidence he misappropriated any funds.

“The actions of the CRA with respect to its dealings with Mr. Hennessey border on the unconscionable,” Fleming stated, adding Hennessey was an “easy target” for the CRA.

dbartlett@thetelegram.com

David Little versus The CRA Goliath,

April 8th, 2010

David Little versus The CRA Goliath,

This is an interesting situation.

I have do admire the guy, that he will go to jail rather than to break his principles.

However I also have to wonder just how it all makes sense.

I doubt that there are very many people in Canada who think the tax system, is fair, uncomplicated, or believes that the government spends our money all that wisely. CRA is at an all time low in the opinions of the average small business in Canada, but one needs to pick the best way to fight their battles.

IIn David Little’s case his solution to protesting the government funding of abortions, seems like a hard way to figuratively kill a cat. Because there are more than one ways to skin a cat, Mr. Little could have considered other less punative options.

I wonder if David Little considered other creative ways to not have his tax dollars go things he is opposed to.

For instance he could donate 75% of his net income to his church or other charity of his choice. That would leave only 25% of his net income as taxable. Of that 25% he could spend it on medical help or countless other things that would bring his income down to what he will get in jail. Zero.

Or he could just not earn money at all and then there would be no money to go where he wants it not.

So somehow, in spite of the fact that I admire his conviction to his principles, I think his family just might like to see him home instead of in jail.

So I guess we all have our tax issues, and tax problems, and our tax solutions. I guess we should all do what we believe is right in the best way we can. So lets all send David love and good wishes for the next journey.

His next step will be more problematic. He ignored a judges direct order to file his taxes.  It is not wise to ignore a judges orders. The judicial system has no choice but to deal severely with such judicial disrespect.

Perhaps his goal of getting public attention will be worth it, but somehow, I don’t think abortion is on the minds of many people when we are really busy just making a living.

My best advice would be to remember that politics and religion don’t mix. CRA is politics and religious beliefs are as diverse as politics.

I guess if you consider Gandhi’s approach to bringing change to India, and compare that to David Little’s approach to changing CRA, you would see that there was a much greater population base to stir up to support his cause.

I wish he had applied his conviction to bringing justice to the tax system itself. Of that he could get the popular support he needs and it would not be hard to make room for religious diversity. The tax system itself has outgrown its ability to be fair. It is time for change.

To get more ideas on dealing with CRA, go to www.taxauditsolutions.ca

Dan White

New Brunswick anti-abortion activist jailed for refusing to file tax returns

By: Kevin Bissett, THE CANADIAN PRESS

8/04/2010 3:54 PM |

FREDERICTON – An anti-abortion crusader in New Brunswick has been sentenced to 66 days in jail for refusing to pay fines stemming from a 2007 conviction for failing to file his tax returns.

David Little said in provincial court Thursday that he will never file another tax return as long as there is tax-funded abortion in Canada, and won’t pay the $3,000 in fines for failing to file returns for 2000, 2001, and 2002.

“Let us not waste time any more. … Put me in jail,” he told Judge Leslie Jackson.

In January, the Supreme Court of Canada refused to hear Little’s appeal of the conviction, which he argued violated his religious beliefs under the Charter of Rights and Freedoms.

The 66-year-old Roman Catholic, who is married and has eight children, said he is willing to spend the rest of his life behind bars if necessary.

“I don’t want to co-operate with an entity that takes my money and pays gynecological assassins to kill my brothers and sisters,” he said in an interview prior to sentencing.

“I’m prepared to die in jail, if necessary. I can no longer cope with the hypocrisy of praying for life … and paying for death.”

Little now faces a new charge for failing to comply with a judge’s order to file his returns for the three years in question.

Little, who represented himself in court, said he has not filed a tax return since 1999.

He asked for a delay to the start of his incarceration, but the judge refused, ordering him into custody immediately.

Jackson did agree to send him to a detention centre in Moncton so he will be closer to his wife and children now living in Prince Edward Island.

Little is to return to court in Fredericton on Aug. 10 on the new charge.

Outside the court, federal prosecutor Keith Ward refused to speculate if Little could face charges for not filing returns for 2003 to the present. He said that would be up to the Canada Revenue Agency to decide.

Little had a number of supporters in court, including Bishop Faber MacDonald, the bishop emeritus for Saint John diocese.

MacDonald said outside court that he expects the jail sentence will result in more supporters for Little’s cause.

“I think after a few days, after people read this story, it would be very easy to motivate them to action,” he said.

When asked if he thought other Catholics should refuse to file their taxes in protest of abortion, MacDonald replied: “Yes.”

MacDonald, though, acknowledged he has filed his own return. *** Dan’s note… You really have to wonder/ ////””””????????……

CRA not always right.

March 31st, 2010

CRA gets caught in their own errors.

Contrary to popular opinion, you can fight CRA and win. That is the business we are in, fighting CRA. We do fight CRA tax problems,  we provide solutions to those problems and we do achieve victories. Usually the solution is a procedural war with CRA. Fighting CRA is not particularly easy. There are brush offs,  ignoring, there are silly responses… all these things usually cause taxpayers to just fold. We have learned from experience that one has to be dogmatic and persistent as well as knowing CRA weaknesses.

It is good to see that “a Lady in her 80′s,” could and did fight and win.

To read more about fighting CRA, go to www.taxauditsolutions.ca

Dan White

Here is a good article written by Neil Reynolds, for the Globe and Mail.

Neil Reynolds
Taxman fallible? Lady in her 80s has the answer

Sometimes, the CRA has to deal with its own human errors

Published on Wednesday, Mar. 31, 2010 12:00AM EDT Last updated on Wednesday, Mar. 31, 2010 6:31AM EDT

In Saunders v. the Queen, the Tax Court of Canada had only a single legal question to resolve: Did the appellant, Elizabeth Saunders, described in court documents as “a lady in her 80s,” file her 2007 income tax return by the deadline of April 30, 2008, or did she file it on May 20, 2008, the date stamped on her return by Canada Revenue Agency staff at the agency’s Montreal office?

The answer would determine whether the agency had the right to levy a late-payment penalty. It would also give the public a glimpse of the arbitrary inclinations of government bureaucracy.

Accountant Nicolas Karavolas testified for the appellant, his client. He described first the established process that his office had followed for a number of years when filing personal income tax returns in the final days before the deadline. As he and his staff (all of whom were accountants) completed various clients’ returns, one staff member would rush them – a pile of returns at a time – to the CRA’s office, where the delivery person would join the line of people waiting to have their returns stamped.

The delivery person would then return to the office for another batch of returns. The office kept a list of all the returns with the corresponding delivery dates. Aside from lineups at the CRA office, Mr. Karavolas testified, the process worked well. Each return got a CRA stamp documenting the time of delivery.

In 2008, presumably in an attempt to provide faster service, the CRA modified its system. It would still accept returns at the counter from people who didn’t mind waiting. Taxpayers could avoid the wait, however, by inserting their returns into the slot of a closed box (similar to a mailbox). It was this time-saving mechanism that the Karavolas team used when it filed Ms. Saunders’ return. The Karavolas list indicated that her return was deposited into the CRA “mailbox” on April 29, 2008. The CRA, however, stamped it as May 20, 2008. What went wrong?

Throughout the days before the April 30 deadline, the CRA procedure for emptying the box didn’t change. At the end of the day or perhaps the next morning (according to CRA testimony), CRA staff would remove the accumulated returns from the box and deliver them to other staff for stamping; these stamped returns were then turned over to other employees who dispatched them to the appropriate CRA officers for processing.

Was this system reliable? The senior CRA official who testified for the agency said it was “pretty” reliable – which was why he believed the stamp properly identified Ms. Saunders’ return as delinquent.

Oddly, the CRA used only a single date in stamping the returns, regardless of the actual date of filing: “April 30, 2008.” The agency reasoned that the deadline date was the only one that mattered. Any return that was not dated April 30 would be automatically deemed a late filing.

Of the Karavolas tax returns deposited in the CRA box on April 29, 2008 (according to the Karavolas list), half bore CRA stamps with drop-off dates in May. The CRA confirmed that it had put in place no mechanism to verify the delivery date of returns placed in the mailbox.

In her ruling last month, Tax Court Judge Georgette Ann Sheridan ruled for “the lady in her 80s.” First, the judge found the three Karavolas witnesses credible. She found the CRA executive who testified, Phillippe Demeule, credible as well – though, she noted, he had “no personal knowledge” of either the collection procedures in place at the agency’s Montreal office at the time, or of how the Saunders return “was treated at the time of filing.” “I must say that I do not share Mr. Demeule’s faith in the infallibility of a huge government bureaucracy, especially during its busiest time of the year,” Judge Sheridan said in her ruling.

She concluded that the different stamp dates resulted from “the mishandling of returns by the roster of unidentified (and, for the Appellant’s purposes, unidentifiable) officials charged with retrieving, stamping and redirecting the flood of returns that would have been deposited at the Montreal office in the dying days of April, 2008.”

Furthermore, Judge Sheridan observed, the record showed that Ms. Saunders met with her accountant early in April, learned that she would owe a significant tax payment, subsequently transferred the money into her chequing account, and delivered two cheques to Mr. Karavolas (one for her federal taxes, one for her provincial). This behaviour, the judge said, hardly suggested either a tax cheat or a tax avoider. “In closing,” the judge added, “it is interesting to note that after 2008, the Canada Revenue Agency modified the collection box procedure to allow for date stamping upon delivery.”

In this case, the tax agency wasn’t dealing with taxpayer dishonesty. It was dealing with human error in its own department. The judge voided the late-payment penalty that the CRA had imposed – though, in fairness, it should have been paid, as damages, to “the lady in her 80s.”

HST And the Spin Doctors

March 27th, 2010

You have to love it.!  It is pretty interesting the subject of “Politics & Propaganda.”  I guess some real lobbying and some real back room chats changed what was really going to happen.

The Minister of Finance has said in the past that there would be no more changes. I suppose that his “spin” is pretty clever… It went along the lines of; I know you believe what you think you think that I meant, however, I am sure that you don’t realize that what I actually meant was not what you think I meant, or that you actually realize that what it appears you  I think , I meant what I said, however, however I don’t think that what I said was not clear, it is just not what I think you think I meant…… oh, boy…. oh, boy… spin spin, we sit and spin, then we suck it up and we spin again. And miraculously the truth becomes a truth that was not a truth, but was meant to be a truth, even if it is not clear which it was, but the intent was clear. As Jean Cretian said; “A truth is a truth is a truth.”

So now the tax problems change. HST is getting more and more confusing and convoluted… But I guess CRA will like that, as all the new HST issues will get more and more complicated.
So now HST which was intended as a flat tax is no longer a flat tax, and the flat tax fell flat… and now us, the  Tax Dudes are going to need to try to figure it all out.

Stay tuned for more HT data here and at www.taxauditsolutions.ca

Dan White

Here is a good article from the Globe and Mail by Tara Perkins.

________

No GST hit for financial sector: Ottawa
Finance Minister Jim Flaherty

Finance Minister Jim Flaherty

Tara Perkins

Globe and Mail Update Published on Friday, Mar. 26, 2010 7:39PM EDT Last updated on Saturday, Mar. 27, 2010 3:12AM EDT

Finance Minister Jim Flaherty has pledged to not impose any additional GST on financial services, suggesting that a rule change that appeared to cost the sector $1-billion was just badly worded.

“There’s no intention of changing tax policy,” he said Friday at a press conference in Oshawa, Ont., on another subject.

The Finance Department issued a statement late Friday saying that the Canada Revenue agency will review and update the rules, and that it welcomes views and suggestions from the industry.

“Businesses need clear GST rules,” Mr. Flaherty said. “We are not imposing new taxes.”

Mr. Flaherty’s comment was met with cautious optimism from the industry.

Barry Segal, a tax partner with Ogilvy Renault, said the comments “should be viewed as a positive step in the tax and financial communities.”

Mr. Flaherty’s remarks suggest that the Canada Revenue Agency’s February notice, which laid out what many experts in the financial sector viewed as a radical change to the way GST applied to a number of services, “may have gone beyond what the Department of Finance intended,” Mr. Segal said.

“We will have to see whether the government’s legislation conforms to Minister Flaherty’s comments,” he added.

The issue began when Ottawa said in December that it would clarify the rules that govern how GST applies to a number of financial services, in response to recent court cases on the topic. The CRA followed up with details in February. The changes applied retroactively to Dec. 14.

The financial sector says the CRA notice amounted to a drastic change in tax policy that would increase Ottawa’s GST revenue by more than $1-billion a year.

It boils down to the definition of “financial service” in tax laws. Such services are usually exempt from GST but Ottawa altered the definition so that many activities that “facilitate” or “prepare” financial services appeared to be newly subject to tax.

Mr. Flaherty said Ottawa did not mean to do that. “We will have the tools in the first Budget Implementation Act to make sure we get back to the status quo before the court cases, so people can rest assured that the tax treatment of defined financial services will not change,” he said.

Some experts are not satisfied.

Mike Firth, a tax partner with PricewaterhouseCoopers, said that “what industry really needs is a clear response on the specific examples of [services] which the CRA has clearly declared are taxable effective Dec. 14, 2009, whereas they were clearly agreed as exempt before that date, such as commissions paid to car dealers to arrange for consumer credit and commissions paid to investment dealers for the sale of mutual fund units.”

Most industry voices were optimistic.

“Anybody that’s trying to save for retirement or anybody that’s trying to save using mutual funds or other financial products, this is good news for them,” said Barbara Amsden, director of strategy and research at the Investment Funds Institute of Canada.

However, she added that she remains cautious until she hears the final word from the Canada Revenue Agency.

“It gives us some assurance,” Jim Murphy, head of the Canadian Association of Accredited Mortgage Professionals, said of Mr. Flaherty’s position.

“We hope the Minister’s comments today reflect the government policy of not raising taxes on consumers,” said Steve Masnyk, a spokesman for the Insurance Brokers Association of Canada.

HST is a new home buyer’s tax problem. We now live in a new tax world.

March 21st, 2010

 HST is the final nail in the coffin of what home ownership is all about. And it is not all bad news. The dilemma that has been created,  is HST is a tax problem for home buyers. This changes the price of homes that people can afford. The HST will give birth to smaller more affordable homes. Especially for new home buyers.

As far as downtown Vancouver condos having $100,000 in HST is not so much of a problem in the greater scheme of things. Those that travel in those circles, can afford more tax problems.

Eventually there will be a positive effect on the economy due to HST, but the effect on home ownership is permanent.

There will be a positive effect on the home renovation business. Renovations versus moving has taken an tax aptitude adjustment. This area of the economy will boom.

Want to start a new business…. ?  How about training for home owners in being their own renovators  ?

“Hello 1950′s” way back then, people could not afford big houses. The average family had a small home of less than 1,000 square feet. They had one car and they had a bunch of kids. They learned to live together.

Then houses got larger and the basements got bigger and were large unfinished storage areas or they became finished and the homeowner had tons of living space… and the size of homes grew because people could afford more and more. Or they could afford more and more debt.

Then zoning regulations were passed preventing small homes from being built. No one wanted to be embarrassed by having their monster home devalued by some modest home next door.

Then came the condos… they don’t even have basements and there is a plethora of condos that have less than a 1,000 square feet. They filled a lifestyle need that accepted not having basements and large amounts of rarely used space.

Now in “1950 revisited,” in order to get new home buyers, there is going to be a  new offering. Smaller and smaller homes, with finished basements or that can be finished by the new home owner. Basements will become the kitchen family room for us “want to be Italians,” who love the family interaction of living and eating together.

The kids won’t be able to smoke pot in the house and not be noticed. Mom and Dad will have the kids underfoot. Now that is a concept…

Houses will be to live in, not to impress people. What we now have is a concept of being HST taxed into reality of needing to live within our means. Modest living will become our new reality.

The second car will again be the old beater… Cheap will be called “Less Tax.”  Less tax is less problems. CRA auditors will no longer be offended by life styles beyond the auditor’s own ability to live. The CRA Lifestyle Audit will go away for the average family, and be reserved for the rich.

The concept of average families being able to live in the styles of the last few decades has now been taxed away. Canadians will learn to live tax smarter. Failing which, they won’t be able to pay their taxes and will financially crash and burn.

You are not “Richer than you think.” That BNS ad should be called a BS ad.

To learn how to turn the page on tax reduction strategies go to www.taxauditsolutions.ca

Dan White

____

Read what the Vancouver Sun has to say on this matter.

 Why I have come to think of the new HST as a death tax

And why I think this year, as never before, the first-time buyer who wants to make informed choices needs Tuesday’s seminar

By Peter Simpson, Vancouver SunMarch 20, 2010

“Of two things you can be certain -death and taxes.” -Benjamin Franklin

As forward-thinking as he was, inventor Ben likely never imagined death would be taxed.

B.C. residents are a scant 3 1/2 months away from the implementation of the harmonized sales tax -the dreaded HST -and, yes, death is included on the provincial government’s hit list.

In fact, a Surrey funeral home has been running public-notice ads in local newspapers urging folks to beat the HST. “Plan now and save. Prearrange your cemetery and funeral plans now to avoid paying hundreds of dollars in extra tax … save seven per cent.”

I resisted the temptation to call the funeral director to ask if he had problems with crowd control as panicked people picked through the caskets.

And is it just me, or does anyone else find it morbidly amusing that the tax date, July 1, is the day Canadians are usually celebrating, not lamenting a huge hole in their wallets?

More businesses are now offering beat-the-HST specials. Expect these marketing efforts to multiply through the spring as businesses are anticipating a post-HST sales hangover during the summer.

As we inch closer to H-Day, politicians on both sides of this issue are jockeying for position. The other day, I found in my mailbox a flyer from federal NDP leader Jack Layton. The headline screamed: “Thanks to the HST, Vancouver homebuyers will get ripped off.” Layton wanted me to tick off a box indicating I agreed with him and return the form, postage paid. I passed.

Recently, provincial Finance Minister Colin Hansen held a news conference to announce that University of Calgary public-policy chair Jack Mintz believes the HST will boost investment and create thousands of jobs. No surprise here: Mintz is the academic who supported Ontario’s HST model last year.

I opined many times that the HST might be beneficial to some industry sectors. I get that, I really do. But the HST will impose a heavy burden on consumers, especially on big-ticket items like new homes. To its credit, the provincial government, after months of intense pushback from the homebuilding industry, made adjustments to how the HST is applied to new homes.

Originally, the rebate threshold was $400,000, ridiculously low for the Lower Mainland. There was also a one-time rebate of $20,000 on homes priced higher than $400,000. Last November, the threshold was raised to $525,000 and the rebate hiked to $26,250.

At the time, I said the enhancements deserved a handshake, but that we were still a long way from slapping out any high-fives. Many new homes in this region are priced well above $525,000. And the people plunking down their hard-earned cash for those homes are average folks, representing all age groups and professions -teachers, blue-collar workers, office personnel, firefighters, whatever.

A developer told me the average HST bill on his downtown Vancouver condos will be $100,000, after the rebate. Remember when you could buy a whole condo for less? The developer also said he, along with many competitors, are scrambling to to get homebuyers into their homes before the HST hammer hits.

Recently, at the Canadian Home Builders’ Association annual conference in Victoria, I attended a presentation by pollster Allan Gregg, who outlined his latest polling results on government actions and the housing market. Most of those polled said the most important issues facing Canada are the economy and taxes. The environment -by a wide margin -was the least important issue.

Regarding the HST, the question was asked: “On balance, do you think the HST will make it easier or harder for people like you to buy a house in the future?” Not surprisingly, 69 per cent of those polled in Ontario and B.C. said the HST will make it harder or significantly harder to buy a home.

Understandably, house prices and other affordability factors significantly affect the intentions of renters, who were asked: “How likely do you think it is that you will be purchasing a home in the next two to three years?” Sixty-five per cent indicated it was either not very likely or not at all likely.

On the financing front, 69 per cent of the renters who intend to purchase a home believe it will be easy for them to obtain a mortgage. Regarding homeowners who intend to renegotiate their mortgages, 83 per cent were confident it would be easy for them to obtain a mortgage.

Overall, Canadians are optimistic about the future, and both consumers and governments now recognize how important housing is to the economic recovery and growth.

Another study released last week by RBC found that 91 per cent of Canadian homeowners believe a home is a good investment, the highest level in 12 years. Sixty per cent believe housing prices will rise in 2010 and 64 per cent believe mortgage rates will also rise. Bottom line, now is the time to buy.

The RBC report notes homebuyers, particularly first-timers, need solid advice about what they can afford, not only today, but down the road. And this sage advice is the perfect segue into where exactly first-time buyers can get all the advice they need to make more informed purchase decisions -the 16th annual free seminar for first-time homebuyers, presented next Tuesday by the Greater Vancouver Home Builders’ Association and the Homeowner Protection Office.

The Vancouver Sun and Province are sponsors.

Seminar attendees will get answers to these questions: What location is preferable? What type of home is best matched to needs and financial resources? What are the mortgage options? What are the legal considerations and closing costs? How will the federal government’s new mortgage qualifying rules and upcoming HST affect buyers? What is involved with buying a pre-sale condo? What are the benefits of builder licensing and mandatory home warranties?

Pre-registration is required. Learn more about the seminar and register at gvhba.orgor call . Registrations will also be accepted via voice mail during the weekend.

Peter Simpson is the chief executive officer of the Greater Vancouver Home Builders Association.
© Copyright (c) The Vancouver Sun

Can you be your own employee? CRA says so… hmmmm

March 19th, 2010

 CRA is on a mission,being, to get as much money as they can. Sometimes it boggles the mind as to how they can be so inconsistent in their approach to businesses.

Being that a lot of people incorporate to pay less taxes, which in itself is a bit of a joke, because in the big picture that belief is unfounded.

We won’t get into the fact that there are thousands of more legal issues that surround being incorporated which makes having a corporation a risky business.

Aside from the extra tax payable, the higher risks, there is a lot more bookkeeping.

And of course more government agency problems. Especially with CRA.

Here is an example of a CRA problem.

Posted in the Globe and Mail, comment by  the Canadian Federation of Independent Business

Employment Insurance claims are most often refused when employees are considered to have a non arm’s length relationship with their employer. In such cases, the number of years paid into EI is not relevant. In general, the Canada Revenue Agency (CRA) does not consider these jobs insurable due to the non-arm’s length relationship that exists, whether through blood (e.g. son), marriage (including common-law) or adoption. Where CRA believes the employer and employee have a job contract similar to one that would apply to an unrelated employee, they are considered to work at arm’s length. In such a case, EI premiums must be paid.”

Dan’s comments:
I find it pretty interesting that CRA does so much sucking and blowing at one time. Their current practice is to go to a single director corporation and deem the director to be their own employee and set up a payroll account for them. Yet they don’t allow that person to collect EI. Of course being that I make a living dealing with CRA issues, it is good for my business of fixing the messes they create. CRA is completely incorrect and inconsistent in their approach, so it is a fixable problem. So; “Long Live CRA” and may they continue to create problems that we get paid to fix.
Dan White
Whitby

To learn more about dealing with CRA go to www.taxauditsolutions.ca

CRA Service Complaints to Ombudsman

March 18th, 2010

About Complaints to CRA.
This is a good article about service level complaints against CRA. You can complain before going to the ombudsman, and I would recommend that you do that first. You will get a faster response, and may be able to resolve the matter at level one.

I note that the ombudsman’s office only had a thousand proper complaints last year… I guess you can look to see that grow about  a hundred times greater as Canadians learn that there is power to the complaint. Too many accountants are telling clients that there is no point to complaining because nothing happens. That is true if a complaint is either wimpy or filed by a wimp. (Not all accountants are wimps, although CRA gives them some pretty good reasons to be wimpy)  I you are going to accept a level one brush off.. then, there is no point in complaining.

When considering complaining to the ombudsman, the issues are really to understand that all an ombudsman can do is deal with how you are treated and not if the numbers are wrong or deal with legal issues..

Wrong numbers fall under the administration of the ITA, auditors are required to come to the right numbers. However that is not always the case. If you are dealing with legal or administration complaints, that is best dealt with directly with CRA.

Auditors are authorized representatives of the Minister, to administer the ITA and the ETA… they are not authorized to overrule other laws.

CRA staff do not like having complaints escalated, so if you file your complaint properly, you will get a response. Often you will get what I call the level one compliant brush off. If this happens, then you need to escalate the complaint, and put in some more ammunition in your gun.

To learn more about the fine art of complaining, go to www.taxauditsolutions.ca

Dan White

By Bruce Johnstone, Leader-PostMarch 18, 2010 2:10 AM

Canada’s Taxpayers’ Ombudsman, Paul Dube, spoke to the Regina & District Chamber of Commerce on Wednesday.

Canada’s Taxpayers’ Ombudsman, Paul Dube, spoke to the Regina & District Chamber of Commerce on Wednesday.
Photograph by: Roy Antal, The Leader-Post, Leader-Post

Canada’s Taxpayers’ Ombudsman says the biggest problem he deals with in mediating disputes between taxpayers and the Canada Revenue Agency is poor communications.

Paul Dube, a self-confessed “recovering lawyer,” who was appointed to the newly created position in 2008, says the CRA is a big, powerful bureaucracy that doesn’t always communicate well with its clients.

“The CRA has a tough job,” Dube said following a speech to the Regina and District Chamber of Commerce here Wednesday. “They have to protect the tax base. They have to detect fraud. They have to weed out the cheaters.

“And yet they have to give taxpayers their fair due and administer benefits to those who are eligible. Sometimes they err on one side, sometimes they err on the other.

“So they’re damned if they do and damned if they don’t.”

What Dube, who was named Canada’s first Taxpayers’ Ombudsman in February 2008, attempts to do is ensure that taxpayers are treated fairly and professionally by the CRA.

“The way the CRA administers the law, the way they calculate the amounts is not within our mandate,” Dube said. “What is in our mandate is the way they explain to you what they’ve done, and the way they treat you.”

While the Taxpayers’ Ombudsman can’t adjudicate disputes over tax rates or policies, or matters before the courts, or disputes that pre-date the ombudsman’s creation, it can “bridge the communications gap” between the CRA and its clients.

“The bottom line is: Taxpayers are entitled to know how and why the CRA came to that decision,” Dube said. “And sometimes that’s all taxpayers want.”

Dube added that CRA generally does a good job in dealing fairly with taxpayers, but sometimes people “fall through the cracks.”

“Rules are dumb. Rules applied universally sometimes have an unfair result,” Dube said.

Given the size and scope of CRA’s job — the agency has 44,000 employees, handles 26 million individual tax returns and 1.6 million corporate filings, and administers benefits for 11 million Canadians — mistakes are inevitable.

“We are dealing with the exceptions. Just given the sheer volume of the transactions, the exceptions can mount and they can be pretty significant situations for taxpayers.”

In its first year of operation, Dube’s office received 5,000 contacts, but not all were valid complaints. Out of those 5,000 contacts, about 1,000 files were opened and over 950 files were closed that year.

“We’re on track to match that this year. The difference is more of the complaints are mandate-related,” Dube said.

“(Last year) a lot of people heard about us and just called us and said ‘I’m paying too much tax and I don’t like my notice of assessment.’

“This year, we’re finding more of the calls are within our mandate.”

Dube said taxpayers are pleased to learn they have rights, such as the right to be treated professionally, courteously and fairly, the right to receive complete, accurate, clear and timely information, the right to lodge a complaint against the CRA.

“People are encouraged by the fact that they have somebody to go to with these complaints — outside the CRA. That’s the big difference,” said Dube, whose office is funded out of CRA’s budget, but reports directly to the minister of revenue.

Taxpayers with complaints about the service provided by the CRA can call or visit www.taxpayersrights.gc.ca.

A good clarification as to GAAR.

March 14th, 2010

 While the following cases are not exactly current, they are really good refreshers in how to see GAAR. (General Anti Avoidance Rules.)

This a first rate bench mark for deciding about a transactions.

For more information on how CRA sees things, go to www.taxauditsolutions.ca

 Dan White

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Most important tax decision in a generation
By Arnold Ceballos
Toronto
October 28 2005 issue

In a widely-awaited pair of decisions, the Supreme Court has set out guidelines which could make it easier for taxpayers to arrange their affairs in a way that minimizes taxes without violating the general anti-avoidance rule in the Income Tax Act.

The Court established a new test for determining when there is a violation of the general anti-avoidance rule (GAAR), which is set out in Section 245(4) of the Act.  The Court stated that three requirements must be established before the GAAR will be applied: a tax benefit must result; the transaction is an avoidance transaction; and there was abusive tax avoidance in the sense that the tax benefit would be inconsistent with the object, spirit or purpose of the provisions relied upon by the taxpayer. The burden is on the taxpayer to refute the first two prongs of the test, while the Minister must establish the third prong. If the existence of abusive tax avoidance is unclear, the Court said the benefit of the doubt goes to the taxpayer.

“The decision is enormously significant and sets out the parameters for legitimate tax planning,” said Vern Krishna, Executive Director of the Tax Research Centre at the University of Ottawa. He adds that the decision is particularly important because the GAAR is an overreaching section of the Act that hovers over the entire statute.

The new guidelines are set out in judgments released Oct. 19 arising out of two cases that considered the GAAR.

In Canada Trustco Mortgage Company v. Canada [2005] S.C.J. No. 56, the Court was considering a tax-reducing arrangement established by Canada Trustco Mortgage Company (CTMC). CTMC is a mortgage lender which derives revenues from leased assets. The company had purchased a number of trailers which it then leased back to the vendor in order to offset revenue from its leased assets by claiming a capital cost allowance on the trailers.  By doing so, CTMC was able to defer paying taxes on the profits reduced by the capital cost allowance deductions, which would be subject to recapture into income when the trailers were later sold.

The Minister of National Revenue disallowed the capital cost allowance claim and on appeal the Tax Court set aside the decision. The Federal Court of Appeal affirmed and the government appealed the matter to the Supreme Court of Canada.

The second case was Mathew v. Canada [2005] S.C.J. No. 55, involving Standard Trust Company (STC), whose business included lending money on the security of mortgages. The company became insolvent when the real estate market declined, leaving an unrealized loss of $52 million. The liquidator executed a series of transactions which, through the operation of certain provisions of the Income Tax Act, allowed a number of taxpayers to use the losses accrued on the mortgages against their own incomes. The Minister of National Revenue applied the GAAR and disallowed the deduction. Both the Tax Court and the Federal Court of Appeal upheld the Minister’s decision. The taxpayers appealed to the Supreme Court.

The basic issue before the Supreme Court in both cases involved an interpretation of the GAAR and specifically whether the there was abusive tax avoidance by the taxpayers in question.
The GAAR was added to the Income Tax Act in 1988 as a result of the 1984 Supreme Court decision in Stubart Investments Ltd. v. The Queen. In that decision the Court rejected a literal approach to interpreting the Income Tax Act, while also rejecting the business purpose test, which would have restricted tax reduction to transactions with a real business purpose. In response, the government introduced the GAAR in order to deny the tax benefits of certain arrangements that comply with a literal interpretation of the provisions of the Act, but which amount to an abuse of the provisions of the Act.

In the current Canada Trustco case, the government argued that the usual result of the capital cost allowance provisions should be overridden by the GAAR where there was no real financial risk or “economic cost” to the taxpayer, which it said was the case with CTMC’s leasing arrangement.

The Supreme Court, however, rejected this interpretation, agreeing with the Tax Court judge that the transaction was not so dissimilar from an ordinary sale-leaseback so as to take it outside the object, spirit or purpose of the capital cost allowance provisions. In doing so, the Court articulated a new two-part approach to interpreting whether the tax avoidance was abusive, based on what it called a unified textual, contextual and purposive approach.

Writing for a unanimous court, Chief Justice Beverley McLachlin and Justice John Major stated that the “first step is to determine the object, spirit or purpose of the provisions of the Income Tax Act that are relied on for the tax benefit, having regard to the scheme of the Act, the relevant provisions and permissible extrinsic aids. The second step is to examine the factual context of a case in order to determine whether the avoidance transaction defeated or frustrated the object, spirit or purpose of the provisions in issue.”

The Court continued: “the abusive nature of the transaction must be clear. The GAAR will not apply to deny a tax benefit where it may reasonably be considered that the transactions were carried out in a manner consistent with the object, spirit or purpose of the provisions of the Act, as interpreted textually, contextually and purposively.”

“The Court established a legal standard for GAAR and it did that very well,” said Al Meghji of Osler Hoskin & Harcourt LLP in Toronto, who acted for Canada Trustco. He added that the Court’s task was to ensure that GAAR was an effective anti-avoidance tool while at the same time applying it in a way that did not result in unacceptable commercial uncertainty.

The difficulty with GAAR, he continued, was that it “was very capable of becoming a smell test.” According to Meghji, the new legal standard allows a determination of whether something is abusive without reference to subjective views about what is or is not acceptable.

In Mathew, the Court applied its reasoning from Canada Trustco and held that, based on a contextual and purposive interpretation of the relevant sections of the Income Tax Act, and in particular the partnership provisions relied upon by the taxpayers, the impugned transactions were abusive and frustrated Parliament’s purpose.

Kim Hansen, a Vancouver sole practitioner who represented the taxpayers in the Mathew case, agreed that the Court did a good job of providing direction with respect to applying GAAR, pointing out that “the rule itself provides uncertainty.”

Calling the Canada Trustco decision a “major setback for the government”, Professor Krishna says he expects the Department of Finance to respond to the decision in much the same way it did following the Stubart decision. “They overreacted in 1988 and I expect they’ll overreact again and bring technical amendments to bolster the rule,’ said Krishna.

Justice lawyer Anne-Marie Levesque, who represented the government in both cases, agreed the Court gave “clear guidance to the government, to taxpayers, and to courts on how it sees GAAR being applied in the future.”

However, she added that “the Court has put GAAR in a box and I’m not sure the government saw the same box as the Court.” She said that the government will consider the decision and its impact before deciding how it will affect the future application of GAAR.

“Hallmark” regime proposed to crack down on aggressive tax planning

March 5th, 2010

Agressive Tax Planning Crackdown

OK>>> here is what this means.

It is ok to charge clients for tax advice, but the advisor should not share in the tax savings with the client.

CRA is looking to deny tax savings where a tax expert advises based on collecting a share of the rewards.

I guess this means that getting tax advice saves taxes.  (Now I am really glad that  I don’t charge based on the money I save people.)

This is like saying… that if a lawyer does not report to the law society that they are working on contingency, that client can not deduct the legal fees.

Oh…. Canada… oh how we bleed for thee….

Dan White

“Hallmark” regime proposed to crack down on aggressive tax planning

Similar regimes in use in the U.S., Britain and Quebec

Thursday, March 4, 2010

By Rudy Mezzetta

Advertisement

Ottawa is looking to catch more of what it consider to be too aggressive tax planning arrangements by asking for public consultation on new rules to govern the reporting of certain transactions that at present need not be reported to the Canada Revenue Agency.

While rules requiring the reporting of tax shelters, as defined by the Income Tax Act, already exist, there are many aggressive tax-planning strategies that don’t meet the definition by law of a tax shelter, the government contends. The transactions may be found to be abusive.

As part of this year’s federal budget, the government is proposing a regime under which a tax avoidance transaction featuring at least two of three “hallmarks” would be reportable to the CRA. The existence of the hallmarks would not in and of the themselves constitute evidence of abuse, the government contends, but their presence often indicates that an abusive transaction could be taking place.

A reportable transaction would be an avoidance transaction, as currently defined in the Income Tax Act, entered into by a taxpayer that bears at least two of the following three hallmarks:

1. A promoter or tax advisor in respect of the transaction is entitled to fees that are to any extent attributable to the amount of the tax benefit from the transaction; contingent upon the obtaining of a tax benefit from the transaction; or attributable to the number of taxpayers who participate in the transaction.

2. A promoter or tax advisor in respect of the transaction requires “confidential protection” about the transaction.

3. The taxpayer or the person who entered into the transaction for the benefit of the taxpayer obtains “contractual protection” in respect of the transaction.

The failure of a taxpayer to report a reportable transaction could lead to the CRA denying the tax benefit resulting from the transaction. However, the reporting of a reportable transaction would have no bearing on whether the benefit is allowed, the government says.

“The CRA might ultimately find that a transaction is fine, but they want to know about the existence of it, instead of waiting to stumble upon it,” says Jamie Golombek, the Toronto-based managing director of tax and estate planning for CIBC Private Wealth Management.

Reporting regimes making use of hallmarks as a means of identifying aggressive tax planning have been used in the U.S. and Britain and have been recently introduced in the province of Quebec.

Should the new reporting proposals become law, it could make some taxpayers “think twice” about entering into certain transactions that bear two or more of the hallmarks, as the mere act of not reporting could cause the tax benefit resulting from the transaction to be disallowed, Golombek says.

The government says that details of the new reporting proposals will be released “at the earliest opportunity” and that the information regarding the consultation process will be announced at that time.

IE

Read other news from our Budget 2010 Section

Sometimes CRA is right about taxable benefits.

March 2nd, 2010

I don’t know… but it seems to me that $53,000 for job related expenses could be high. Regardless of high, low or whatever; Toronto has not been handling this properly.

How it should work is that the counselors can be paid an extra $53,000. They then deduct as employment expenses those expenses that legitimately reflect job related expenses. The rest is taxable income. End of story.

Things such as zoo passes, seem pretty personal to me… not that I want to get personal on this.

For more info on tax problems and solutions;  go to  www.taxauditsolutions.ca

Dan White

Here is the Globe and Mail article on the subject.

ANNA MEHLER PAPERNY

From Tuesday’s Globe and Mail Published on Tuesday, Mar. 02, 2010 12:00AM EST Last updated on Tuesday, Mar. 02, 2010 5:01AM EST

The Canada Revenue Agency is trying to tax Toronto city councillors on benefits ranging from golf and zoo passes to underground parking spaces. And the city is fighting back.

On Feb. 18, each councillor received a letter from the city’s pension, payroll and employment division with the results of a CRA employer compliance audit. Each letter included a figure (some in the thousands of dollars) for taxable benefits related to passes for the Toronto Zoo, Sony Centre, TTC and city garages. It also included councillors’ expenses (each has a budget of $53,000 annually) as taxable benefits.

“The city does not agree with the interpretations set out in the proposal,” the division’s director, Celine Chiovitti, wrote in the letter, adding that the city believes councillors need all of these things to do their jobs and shouldn’t have to pay taxes on them.

The city is challenging the CRA’s findings through a submission to its audit division and a notice of objection. The city has until March 15 to respond, the letter said, asking councillors to submit information on their 2006 and 2007 expenses by that date.

The city has set up drop-in sessions for councillors to meet with the lawyers it has retained to deal with the dispute: David Spiro and Timothy Fitzsimmons of Fraser Milner Casgrain.

Councillor Joe Mihevc said he’s puzzled by the designation. “It’s appropriate that we pay our appropriate share of taxes … I have no problem on that front,” he said. “But when you look at the things they want to tax, it seems a bit ridiculous.” He added that most councillors use their expenses budget to cover such costs as newsletters and community meetings, not personal items. “My sense is that the CRA gave us a cursory look and did not probe in detail as to how these quote-unquote ‘benefits’ are actually used by city councillors,” he said.

But Councillor Rob Ford, who has long spoken out against councillors’ “perks,” said the CRA is right to crack down on free passes for councillors.

“All these perks, one right after the other. And I’ve tried to get rid of them at budget meetings and they just laugh at me,” he said. “I think it’s great that they’re forcing us to show who’s used [a pass], and how many times you’ve used it. And if you have used it, you have to pay taxes on it, ’cause it is an income.”

Mr. Ford said he has filed numerous complaints with the CRA, and, “finally, somebody up there’s listening.”

Yesterday evening, CRA spokesman Philippe Brideau said he couldn’t immediately confirm that the agency has conducted the audit and is asking for payment. He cited confidentiality provisions in the Income Tax Act.

CRA loses about Disability Payments being taxable income.

February 26th, 2010


It appears that the contracts of service and for service, are becoming ever more important in making sure that your status surrounding your status in the eyes of various government agencies.

 

In this case because no services at all were being provided by workers on long term disability, CRA was wrong in claiming that CPP disability payments were taxable income.

 

CRA has really sunk to a low on this one. Let’s take someone who is unable to work, collects disability payments and tax them. Nice work CRA. I am glad your efforts failed.

 

For more information on tax problems go to Tax Audit Solutions www.taxauditsolutions.ca

 

Dan White

 

 

From Benefits Canada

 

Briefly: “Court of Appeal rules on LTD benefits” and more news

February 12, 2010

 

The Federal Court of Appeal has rendered a decision that will be of interest to employers that provide long-term disability (LTD) benefits to their employees through self-funded or administrative services only (ASO) arrangements, according to Hicks Morley’s FTR Now.

 

According to the Court’s decision in Toronto Transit Commission v. Minister of National Revenue (TTC), Canada Pension Plan (CPP) contributions are not required on LTD payments made under an ASO plan, even if it is determined that employment insurance (EI) premiums must be made.

                       

The TTC case concerns an appeal of the assessment of the Minister of National Revenue that monthly ASO disability payments paid to two TTC employees constituted remuneration for pensionable employment and thus were subject to an employer’s CPP contribution pursuant to Subsection 9(1) of the CPP.

 

At the Tax Court of Canada, the TTC’s position was that the definition of employment under the CPP requires the performance of services. But, as the disabled employees performed no services, the LTD payments were not pensionable. The Tax Court concluded that CPP contributions are required to be deducted and remitted from LTD payments made from the TTC’s ASO plan.

 

Upon appeal by the TTC, the Federal Court of Appeal concluded that a payment has to be made in exchange for the actual performance of service under a contract of employment for it to constitute pensionable earnings, and there is no performance of services in the case of an employee who is in receipt of LTD payments.

 

As a result, the Federal Court of Appeal held that the TTC was not required to deduct CPP contributions from the LTD payments made under its ASO arrangement as the employees were not performing services during their period of disability.

Implications

 

The Hicks Morley bulletin explains that unless the decision is successfully appealed, the TTC case provides strong support for the position that CPP contributions are not required to be deducted and remitted on LTD payments made under an ASO plan, even if it is determined that EI premiums must be made.

CRA Abuse runs rampant!

February 19th, 2010

As a follow up to my earlier blog this morning. Read the following and then ask yourself; Does CRA go too far?

Dan White

To learn more about CRA abuse and what you can do, go to www.taxauditsolutions.ca

__________

Taxpayer ombudsman can’t fix everything at CRA

Paul Dube and his staff win some, lose some while taking on thousands of cases

By Don Cayo, Vancouver SunFebruary 19, 2010 2:06 AM

It has been five years since I wrote my first column in what has become an long-running, intermittent series on taxpayer complaints about the Canada Revenue Agency.

It’s two years this Sunday since lawyer Paul Dube was appointed by the federal government as Canada’s first taxpayers’ ombudsman with a mandate to do much the same thing, to expose and rectify those complaints.

I had some success with my first case: CRA backed down from a ruling that would have re-interpreted old rules and imposed a six-figure reassessment on three Vancouver fruit sellers. I’ve been as lucky with several cases since.

Nonetheless, I’m pleased to report that Dube and his staff are batting quite a lot better than me. They’ve taken on a few thousand cases, compared with my few dozen. They’ve righted a gratifying number of wrongs, although he doesn’t have a precise count.

Still, I’m left with the uncomfortable feeling the tools Dube has been given are no surer or sharper than mine. In the end, he and I can both only scold, me in print and he more privately, mandarin-to-mandarin, so to speak. Beyond that, all either of us can do is hope CRA will do the right thing.

Ultimately, despite what Dube describes as a “formidable” power to assume guilt and impose crippling penalties, there’s no affordable, effective check on when CRA acts capriciously or decides to dig in. He and I are in the same boat in that we can say CRA really should fix some mess or other, but we can’t say they must.

And Dube has no power to order a financial break for people who’ve been ill-treated.

This last point is important.

Dube told me when he was in the city this month that communication is the most common cause of problems he encounters. I sort of agree, only I call it a failure to communicate, when taxpayers can’t reach the people who are making life-altering decisions about their files, when CRA won’t answer valid questions for months or years, or when answers change every time a new guy is assigned to the file.

The recurring theme in the stories I hear is how fast CRA’s demands for money ratchet up while the bureaucracy’s collective thumbs are twiddling.

If Dube were to look into many of the cases that come across my desk and find that policies were ignored or misapplied, what good would it do? Because Dube doesn’t have the authority to adjust the amount said to be owing.

Nor does he have the power to do anything about policies that are wrong-headed, although he’s sometimes successful in pleading for a break when an across-the-board policy yields a patently unfair result as a result of unique circumstances.

The upshot, as was noted last fall by the headline on my 39th column on the CRA, is that the main option open to aggrieved taxpayers is to “pay up and shut up or pay up and beg.”

And, as if this level of uncertainty isn’t bad enough, it gets worse. A survey commissioned by Dube found that 42 per cent of Canadians fear repercussions if they complain about CRA.

So I’m pleased that he got the job and that he’s able to look into several hundred cases a month, and resolve many of them.

And I wish him well in his quest to become better-known to Canadians and increase this volume to whatever it needs to be.

Dube’s phone number is 1-866-586-3839. His office accepts only complaints about CRA service, although, he says, that is interpreted quite broadly.

dcayo@vancouversun.com

See Don Cayo’s blog on tax issues and one on globalization s at vancouversun.com/blogs

TaxMan drives TaxPayer Crazy. TaxPayer flies plane into TaxMan’s Offices.

February 19th, 2010

TaxMan drives TaxPayer Crazy. TaxPayer flies plane into TaxMan’s Offices.

We have seen a lot of client’s feeling suicidal over the TaxMan and we have seen TaxPayers be very angry. But yesterday Joseph Stack took the final sacrifice for his country. He gave his life to tell his story.

It is extremely unfortunate that this has happened. I am sure that the IRS has a code of conduct similar to the CRA code and the TaxPayers Bill of Rights. Perhaps the TaxMan was thinking they had unrestricted powers. We have had CRA collections officers telling us that they did. When they say such things we know it is either ignorance of the law, CRA policy, The TaxPayer’s Bill of Rights, or the Canadian Charter of Rights. The TaxMan does NOT have unrestricted power.

There is no excuse for murder. Especially when it was not even likely the IRS personnel who drove Mr. Stack over the edge of sanity were even part of the disaster. My heart goes out to Joseph Stack and his friends and family. Joseph was obviously driven out of his sane mind. When you go out of your mind, revenge is bitter sweet. This is a sad day for North America.

I would hope that this event would cause the mutual friends “IRS and CRA” to reconsider their behavior.

I can tell you from a lot of personal experience. Some CRA staff are beyond mean. Some staff are obnoxious, bullying and bald faced liars.

CRA staff need to take this as a warning. Joseph Stack is not the only person in North America at their wits end and ready to end a life, usually it is their own.

We spend a lot of time with our clients getting them emotionally stabilized… we usually strongly urge them to not talk to the TaxMan. Instead we look after it all. We cannot be intimidated, but the individual uninformed of their rights TaxPayers certainly can be intimidated.

Let this stand as a warning to the TaxMan; The next time you abuse a TaxPayer, ask “Am I going to far?” Then govern yourself accordingly.

Dan White
__________

http://www.foxnews.com/story/0,2933,586581,00.html

Fox News, announces Pilot Crashes Into Texas Building in Apparent Anti-IRS Suicide

Thursday, February 18, 2010

AP/Courtesy of Pam Parker

Joseph Stack

Joseph Stack

A pilot furious with the Internal Revenue Service crashed his small plane into an Austin, Texas, office building where nearly 200 federal tax employees work on Thursday, igniting a raging fire that sent massive plumes of thick, black smoke rising from the seven-story structure.

Austin Police Chief Art Acevedo said the incident was a single act by a sole individual, who appeared to be targeting the federal building. He refused to classify it as terrorism.

“I call it a cowardly, criminal act and there was no excuse for it,” Acevedo said at a news conference.

The FBI identified the pliot as Joseph Stack, a 53-year-old software engineer. Stack was confirmed dead, but his body has not yet been recovered.

At least one person who worked in the building was unaccounted for and two people were hospitalized, thirteen others were treated and released said Austin Fire Department Division Chief Dawn Clopton.

Emergency crews found two bodies in the building late Thursday evening, but wouldn’t identify them.

Texas Republican Congressman Michael McCaul told reported the incident was, “not tied to overseas terror organizations.”

A U.S. law official said investigators were looking at a lengthy, anti-government “manifesto” Stack is believed to have written on his Web site. The message outlines problems with the IRS and says violence “is the only answer.”

Click here to read the “manifesto” that was published on Stack’s Web site.

About 190 IRS employees work at 9420 Research Boulevard, the building that Stack crashed into. IRS spokesman Richard C. Sanford said the agency is trying to account for all of its workers.

IRS Agent William Winnie said he was on the third floor of the building when he saw a light-colored, single engine plane coming toward the building, TheStatesman.com reported.

“It looked like it was coming right in my window,” Winnie said, according to the Web site.
Related Stories

* Friends Didn’t See Texas Pilot’s Passion for Tax Feud
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* Glass Worker Turns Hero After Plane Crashes Into Texas Building
* Chilling Eye-Witness Accounts of Texas Plane Crash
* RAW DATA: Joseph Stack Suicide Manifesto

SLIDESHOW: Small Plane Crashes Into Austin Office Building

He said the plane veered down and smashed into the lower floors. “I didn’t lose my footing, but it was enough to knock people who were sitting to the floor,” he said.

In what appears to have been his suicide note, Stack is believed to have written:

“If you’re reading this, you’re no doubt asking yourself, “Why did this have to happen?’ The simple truth is that it is complicated and has been coming for a long time…

“Violence not only is the answer, it is the only answer…

“I saw it written once that the definition of insanity is repeating the same process over and over and expecting the outcome to suddenly be different. I am finally ready to stop this insanity. Well, Mr. Big Brother IRS man, let’s try something different; take my pound of flesh and sleep well,” the note, dated Thursday, reads.

IRS Commissioner Doug Shulman said he was shocked by the “tragic events,” but did not directly address Stack’s rant against the government agency.

“This incident is of deep concern to me,” the statement read. “We are working with law-enforcement agencies to fully investigate the events that led up to this plane crash.”

Stack took off in a Piper Cherokee from Georgetown Municipal Airport in Texas at 9:40 a.m. Federal Aviation Administration spokesman Lynn Lunsford said he didn’t file a flight plan. The plane crashed into the building in Austin about 20 minutes later.

Click here for chilling eye-witness accounts of Texas plane crash.

The Department of Homeland Security said it did not believe the crash was an act of terrorism. President Obama was briefed on the incident. As a precaution, the Colorado-based North American Aerospace Defense Command launched two F-16 aircraft from Houston’s Ellington Field, and was conducting an air patrol over the crash area.

Patrick Beach, who once played in a band with Stack, described him as a mild-mannered guy who was a stereotypical software guy.

“I talked to alot of people who knew him better than I did, and no one saw anything like this coming,” Beach told Fox News.

The toughest part about this, Beach said, was how this guy, who loved his wife and step-child, could be the same person who wanted to “commit mass murder.”

Billy Eli, a band member of Stack’s, has known the man for about five years and said he never suspected Stack had any political feelings.

“The Joe I knew was mostly apolitical,” he told Fox News. “I never heard him talk politics, or take a stand left or right. As far as I know he didn’t have a party affiliation.”

Stuart Newberg, who was in the area right before the crash, said the plane was flying low and fast when it plowed into the building, according to The Statesman.com.

“It was flying low and fast and I did a double take,” Newberg said, according to the Web site.

“I thought it was a play remote control plane. Then I saw the smoke.”

He told the paper he thought the plane seemed “very controlled.”

In a neighborhood about six miles from the crash site, a home listed as belonging to Stack was on fire earlier Thursday. Two law enforcement officials said Stack apparently set fire to his home before embarking on his suicide mission.

MyFoxAustin.com said firefighters reported that the entire house was on fire, including the fence, when they arrived on the scene.

Neighbors said they heard a loud explosion in the house Thursday morning right before it became engulfed in flames.

MyFoxAustin.com reported that a 12-year-old girl and a woman were rescued by a neighbor from the $236,000 home. The station reported that the girl is believed to be Stack’s stepdaughter. Other media reports indicated that these individuals may have alerted authorities to Stack’s actions.

A neighbor told MyFoxAustin.com that Stack was an experienced pilot who owned his own plane.

The Austin American-Statesman newspaper reported several “walking wounded” at the scene of the crash. Paramedics set up a triage center at the scene.

Early reports that the building housed the FBI field office in Austin turned out not to be true. An FBI spokesman told Fox News that the FBI office in Austin is near where the plane crashed, but not in the same building. There are some federal offices in the building, though authorities couldn’t identify which ones.

The NTSB was sending staff out of Dallas and Washington to the scene.

Witnesses were asked to contact the Austin Police Department at 210-650-6196 with any information that might be useful in the investigation.

According to California Secretary of State records, Stack had a troubled business history, twice starting software companies in California that ultimately were suspended by the state’s Franchise Tax Board.

In 1985, he incorporated Prowess Engineering Inc. in Corona. It was suspended two years later. He started Software Systems Service Corp. in Lincoln in 1995 and that entity was suspended in 2001. Stack listed himself as chief executive officer of both companies.

Click here for more from MyFoxAustin.com.

Insurance holding investments can be a complicated unkindness.

February 18th, 2010

Old Lace, Investments and Insurance can be a complicated unkindness.

The following article demonstrates how innocent investments made from following licensed advisers, can become a complicated tax mess.

To learn more on solving tax problems, please go to www.taxauditsolutions.ca

Dan White
________

Ottawa mum on taxing insurers’ fund guarantees

Published On Thu Feb 18 2010

By James Daw Personal Finance Columnist

Nearly 200 funds carrying Canadian life insurer guarantees are worth less than a decade ago.

So thousands of investors may soon be eligible to collect top-up payments to cover a loss of capital.

Yet, after all this time, it remains unresolved how those top-up payments should be taxed, if at all.

There were 199 so-called segregated funds – insurers’ alternative to mutual funds – that were worth less on Jan. 31 than a decade earlier, says researcher David O’Leary of Morningstar Canada.

Investors’ losses, including deductions for annual fees, ranged from an average of 0.1 per cent per year to 19.4 per cent per year in the case of the TransAmerica IMS Information Technology Fund.

The heaviest losses were for fund units purchased shortly before 2000, when the technology stock bubble burst.

TransAmerica used to tell policyholders and agents its top-ups would be tax-free, says Arthur Robson, of Future Planning Insurance Agency Ltd. in Pickering.

Then, a couple of years ago, TransAmerica came around to the expectation of other insurers: That top-ups would be considered a capital gain.

Some insurers have been reporting capital gains to the estates of deceased investors, to the dismay and confusion of heirs.

Consumers think of death benefits from life insurers as being tax-free. A top-up to restore lost capital does not seem like a gain.

Nevertheless, if the top-ups are a capital gain, then investors would have had a loss to offset the gain. So it should be a wash.

The tax question is irrelevant for funds held inside a registered retirement savings plan. Every dollar will eventually be taxed like salary or interest income.

But many other investors have been left in suspense.

“The tax treatment of the top-up is not certain at this time,” Manulife Financial warns investors, urging them to seek tax advice.

It’s not for lack of asking that insurers, and investors, are in the dark. Insurers have asked the Department of Finance to clarify tax legislation. But nothing has happened yet.

“We brought this to finance more than a dozen years ago,” says Ron Sanderson, director of policyholder taxation and pensions at the Canadian Life and Health Insurance Association. “It doesn’t seem to be a high priority with them.”

Yet, stakes are higher after changes in industry offerings and two stock market crashes in a decade.

Sanderson says insurers used to only offer top-up payments at the time of a death or the end of a contract, and only for losses of more than 25 per cent.

It was only after about 1990 that insurers started offering to cover losses after 10 years. Later in the ’90s some guaranteed a 100-per-cent return of capital. More recently some have offered, for an additional fee, to guarantee a minimum annual income.

Sanderson sees why consumers might expect a tax-free payment. They paid extra fees each year for a form of life insurance.

Yet, he says, finance officials led insurers to believe six years ago that they felt the top-ups should be treated as a capital gain. To be safe, some insurers have even reported top-ups as ordinary income, which cannot be offset by a capital loss.

Whether or not insurers report a top-up as a capital gain, all would have reported capital losses as they occurred, Sanderson notes.

Some investors may have reported these losses on earlier tax returns. This should make it relatively easy to use net losses to offset a net gain and avoid taxes on half of any top-up payment.

Regardless, the Canada Revenue Agency should have records after receiving copies of annual T3 tax slips from insurers.

Accountant Nancy Belo Gomes of KPMG points out the Tax Court of Canada agreed with taxpayer Don G. Burleigh in 2004 that a net capital loss need not be reported until it is used to offset a capital gain.

jdaw@thestar.ca

Taxman’s skewed appraisals add up to abuse

February 17th, 2010

This article just came to my attention.

Although it is not really news as it is a couple of years old…. and CRA behaviour has gotten worse… this really is a great article.

For more information on tax problems go to www.taxauditsolutions.ca

Dan White

Taxman’s skewed appraisals add up to abuse

What is “fair market value” for a property? Is it what a buyer actually pays in an arm’s-length deal? Or what somebody thinks a different buyer might have paid in different circumstances?

BY THE VANCOUVER SUN MAY 13, 2008

What is “fair market value” for a property? Is it what a buyer actually pays in an arm’s-length deal? Or what somebody thinks a different buyer might have paid in different circumstances?

And what if there is no buyer — a property changing hands through inheritance, for example? Is it worth the amount for which it’s currently assessed? Or what somebody decides, months later, it should have been back when the transfer takes place?

If you’re naive enough to think common sense and fair play might apply — of course it’s the price they paid, of course it’s the current assessment — then you aren’t a taxman. Our government bullies, federal and provincial, pay no heed to such constraints.

Two horror stories landed on my desk within hours of each other last week detailing how tax collectors — one representing Ottawa, and one in Victoria — put the screws to taxpayers in shockingly similar ways.

The first involves Canada Revenue Agency. The story is told to me by businessman Leonard Schein, but, judging from what CRA has told him, it’s happening to a lot of others as well.

Schein bought a pre-sale condo in a new Yaletown building from Concorde Pacific in 2001 for $330,000. When it was ready for occupancy three years later, he paid about $23,000 in GST on the full price, as he was required to do. As a rental unit costing less than $450,000, it was eligible for a partial rebate, so he applied for and got a cheque for $8,401.76.

He kept his end of the bargain, renting out the suite ever since. But CRA is welshing, in its brutally, heavy-handed way.

Two weeks ago, Schein got a call from CRA telling him that he — and many others — have to send the money back. The reason? They (gasp!) got a good deal when the bought their property. CRA believes it was actually worth more than $450,000, so it won’t grant the rebate.

A few days later, he got the bill. It’s for the original $8,401.76, plus $842.77 in “late remitting penalty” (even though they sent him the rebate cheque in the first place) and $1,410.96 in interest — a whopping $10,655.49 in all.

Now Concorde Pacific didn’t get where it is — to build and sell more than 10,000 units in Vancouver — by under-pricing its products. And it pre-sells almost all of them because that’s how new towers are financed.

Pre-sale buyers tend to do well in Vancouver’s sharply rising housing market, but that doesn’t mean they pay too little. It means they also took a risk — they’d have lost their shirts if, for example, they’d bought a pre-sale two years ago in a American city. And they’ve tied up big downpayments for two or three years before taking occupancy.

So the price they paid is the price the unit is worth under such circumstances.

But try telling that to the heavy-handed taxman. Schein recently bought a second rental unit in another new building for $358,000, and CRA rejected his application for a partial rebate out of hand. The arrogant taxman simply deemed this to also be too good a deal — a property actually worth more than $450,000.

When Schein sells his condos, the market at the time will establish their worth — it will be whatever he can get. It looks like that will be more, probably much more, than he paid. If so, the sales will trigger capital-gains liabilities.

That’s as it should be. In the meantime, the regulations that allow CRA to shake down Schein and others like him should be reassessed and repealed. CRA may require the ability to deem the value of properties in cases where non-arm’s-length vendors play games to create tax advantages. But they shouldn’t be using this power to second-guess the market and extort money from people who get what they pay for, and pay for what they get.

Mind you, it seems the provincial Revenue Department is just as bad. Beth Dierks of Dierks Equipment Sales Ltd. in east Vancouver tells me that she and two siblings are being similarly jerked around over an inheritance.

Their father died late in 2006, and his will was probated by mid-2007. Dierks, her brother and her sister re-mortgaged a building they jointly inherited in order to pay the property transfer tax and the capital-gains tax.

The property, in the family for 40 years, was assessed at $400,000 when their dad died, but that had risen to $600,000 by the time the will was probated, and their tax payments were based on the higher figure.

But now, Victoria is hounding them for another big payment based on yet another assessment — $918,000 — that didn’t come out until early this year.

The province claims that’s what the building was worth back when the probate was done.

But if any business on earth failed to adjust its prices when the time was optimum, it certainly couldn’t expect to go back and do it later. If you snooze, you lose. It’s not fair to change the rules when the game’s already in play.

So here’s an offer for federal Revenue Minister Gordon O’Connor and provincial Revenue Minister Rick Thorpe, whose departments are responsible for these taxpayer abuses: The first to call and say you’ve fixed the respective injustice will get a tip of the hat — maybe even a headline — in a forthcoming column.

dcayo@png.canwest.com

Visit Don Cayo’s blog at www. vancouversun.com/blogs

What is a TaxRep (Tax Representative) ?

February 16th, 2010

There are a number of different types of TaxReps;

It is very important to match the right TaxRep to the right tax problem. So review the following with just thought to what is right for you.

A TaxRep can come from any one of the following areas.

1. A Lawyer
2. An Accountant
3. A Tax Consultant
4. An Expert Witness.

The practice of law is very broad and you need a specialist in Tax Litigation. If you pick a Lawyer as a TaxRep, it could be your best choice, depending on your situation. If your situation is one where you know your activities involve a criminal element, and the Lawyer is a litigator, who is fully abreast of CRA procedures, then this is where you need to lean. It is normally the most expensive option. A tax litigation Lawyer is your best bet for client material privilege as well as client-solicitor privilege. Privilege is normally not of particular concern if you are not likely going to court.

Accounting is also a broad field, and you will require an accountant who is familiar with Taxes. Not all accountants specialize in taxation. If you are not engaged in a criminal activity, and you just need to get your tax returns caught up, a licensed accountant is a good idea. The chances of you getting audited are low if a licensed accountant does your tax returns. Accountant’s licenses are vulnerable, so they tend to be very conservative in their approach to doing tax returns. As a result a good accountant’s work will reduce your chances of being audited. If you are audited any good accountant can easily explain how they came up with the numbers on your tax returns. Accountants are normally considerably less expensive than Lawyers. However accountants have a monkey on their back when it comes to fighting with CRA. If you are in for a fight, an accountant may not be your best bet.

Tax Consultants can be any combination of 1, 2 and 4. With Tax Consultants you need to be especially concerned with their experience and track record. The concern is that the consultant may not have any credentials. The opposite side of that coin is that they also can be more aggressive in dealing with CRA… because they don’t have a license to lose. You need to make sure that you know that the consultant deals with CRA on a daily basis and has been doing so for a long time.

An Expert Witness, can be any combination of 1,2 or 3. An expert witness can be hired to present the material you have in court. What this means is that if you decide to defend yourself in General procedures in tax court, you can rely on your Expert Witness to testify as to the reasons, evidence, tax laws and cases relied on. While this is not as good as hiring a Lawyer it is an excellent option if you simply cannot afford a Lawyer. Your Expert Witness can also act as a Material Witness. This would apply when they are involved in the actual activities surrounding your tax problems. Lawyers often bring in such witnesses to support their case… Usually it would be as a Material Witness, however if an inexperienced Lawyer wanted to enhance their case, they too would bring in the Expert Witness.

Depending on your particular situation will dictate which is your better choice.

Tax Audit Solutions is a TaxRep (Tax Representative) we deal right across the board in all kinds of tax problems. If a lawyer is needed, we bring one in. We consult with Accountants who are outstanding in their fields. We do both Material and Expert Witness roles. We are fully familiar with CRA and their rules, procedures and their tactics. We always start off on a friendly note with CRA, but if necessary, we are aggressive, we fear no evil. We have tons of experience from dealing with CRA every day. We are in constant contact with various experts across the country. We believe that if you have a tax problem where a lot of money is on the line, we are your best choice for representation in defending you against the TaxMan.

To learn more about Tax Representation go to www.taxauditsolutions.ca

CRA gets some heat from abusing the Canadian Tax Payers

February 16th, 2010

 Due to dealing with CRA on a daily basis, and further, being we are the ones who are approached by Canadians who have been mistreated, we naturally don’t see the ombudsman’s report as any kind of a surprise.

To be fair to CRA… no one ever comes to us about them being treated well, so we often forget that there are a lot of reasonable CRA staff out there.

We just get exposed to the darker side of CRA.

The folowing artice demonstrates the point. You do not get 5,000 complaint inquirieys becuase there is no abuse out there. On the contrary the abuse is real and Canadians across the land are surrering from CRA abuse.

To learn more about what to do in cases of CRA abuse, please go to www.taxauditsolutions.ca

Dan White

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Canada’s tax ombudsman investigated 532 complaints last year: Report

By Allison Cross, Canwest News ServiceDecember 17, 2009

OTTAWA — A report produced by Canada’s independent tax ombudsman has found some problems with the way the Canada Revenue Agency hands out tax benefits and treats its taxpayers.

The report says investigations by the ombudsman led to CRA apologizing to taxpayers; the government releasing seized bank accounts; changes in CRA procedure and the payment of benefits or refunds.

Eighty-four cases were carried over into the next fiscal year and 422 files were closed without an investigation.

“When you have large systems in place, sometimes general rules are universally applied (and) rules don’t lead to the desired result in every case,” said ombudsman J. Paul Dube, during a media teleconference Tuesday. “So that’s what we’re there to do. Intervene in those cases.”

The office of Canada’s independent taxpayers’ ombudsman received nearly 5,000 inquiries and investigated 532 individual complaints related to service provided by CRA over the last fiscal year, Dube said.

A resolved case included in the report involved a single mother living on minimum wage, who applied for an increase in her Canada Child Tax Benefit and other family allowance supplements, after she separated from her common-law husband. When CRA did not accept proof she provided of her new marital status and asked for a repayment of $4,200, the ombudsman intervened and CRA eventually issued her a payment of $1,500.

“Canadians are entitled to professional service and fair treatment, and . . . (access) to an independent and impartial ombudsman when they feel they have not received the service and treatment to which they are entitled,” Dube said.

The proper distribution of the Canada Child Tax Benefit, the right to clear, complete, accurate, and timely information, the right to fair treatment and the right to professional service are among the systemic problems identified in the report.

In February 2008, Dube was appointed to the position of Canada’s taxpayers’ ombudsman, the first of its kind in Canada, in order to keep tabs on the CRA and report his findings to Revenue Minister Jean-Pierre Blackburn.

The report has been introduced in Parliament and similar undertakings are to be produced annually.

Future reports will include more detailed examinations into systemic problems at CRA, and will propose possible solutions, the report says.

“Fair treatment and professional service are central to our government’s ability to sustain Canada’s prosperity,” said Blackburn in a news release. “The taxpayers’ ombudsman provides an added measure of assurance that the Canada Revenue Agency treats all taxpayers with fairness and respect, in accordance with the taxpayer bill of rights.”

The CRA processes approximately 24 million individual tax returns each year, in addition to 1.6 million corporate returns.

Who to pick to help you solve serious tax problems.

February 15th, 2010

There are some serious questions that need answering, for making a decision of what to do about your tax problem.
Should you handle this yourself, hire a Licensed Accountant, hire a Tax lawyer, or should you hire a Professional Tax Representative?
There is a time and place for hiring professionals. Your job is to match your needs with the right professional.

There are no doubts in my mind as to the abilities of various professionals to do a good job. The hard part is picking the right help for the situation.

Lawyers often get a bad rap. When a lawyer is needed, they  are mercenaries. That is a good thing. That is just what you need, “a hired gun” to defend your legal rights.

Licenses Accountants often get unjustly blamed for tax problems. Accountants have a license to worry about, they often refer to CRA as a monkey on their back preventing them from being aggressive with CRA in dealing with your best interests.
If all you need is to file your tax returns, as in a demand to file, you should simply hire a good tax accountant. This issue does not require a lawyer. The lawyer just has to hire an accountant to do the work and this will cost you needless extra dollars.

Lawyers and accountants specialize in many different areas. You need to make sure they have EXPERIENCE in dealing with cases such as yours.

If you are going to hire a tax lawyer, I would suggest that you hire a tax litigator. Hiring a tax lawyer who is not a litigator to talk to CRA is a questionable expense at best.

If you are considering client privilege, make sure the lawyer understands the finite difference between solicitor-client privilege and litigation privilege.

The distinction between the two privileges in straightforward terms. Solicitor-client privilege protects a client from having to disclose confidential communications passing with counsel in the course of obtaining legal advice.

Solicitor-client privilege is protected because citizens must have “full and ready access to legal advice” if they are to know and exercise their legal rights and obligations. If a client knows that communications with counsel will be strictly confidential, he or she is more likely to be candid in discussing legal matters, and the advice is more likely to be accurate and helpful. It is for this reason that the privilege is jealously guarded by the courts, and will only be overcome in exceptional circumstances.

As for litigation privilege,  it encompasses materials or communications created for the dominant purpose of litigation. Unlike solicitor-client privilege, it need not involve confidential communications and only exists in the context of litigation. Its rationale is also different: the underlying policy is to ensure that a party to litigation can investigate and prepare without having the fruits of these labours revealed to the other side. As Ontario Court of Appeal Justice Robert Sharpe aptly stated in an article written before his appointment to the bench, “litigation privilege aims to facilitate a process (namely, the adversary process), while solicitor-client privilege aims to protect a relationship (namely, the confidential relationship between a lawyer and client).”

So what does the above mean? What it means is that if you go to a lawyer for advice and you get that lawyer to represent you, then the verbal communication/relationship is protected under client-solicitor privileged.
If you don’t hire the lawyer to litigate, I see no advantage to having the privilege.

If you are not hiring the lawyer to litigate for you, the information documentation itself may by vulnerable unless it is to be used in litigation, if some other party needs the information to defend themselves.

In other words, a taxpayer in trouble, needs to know what they need and not blindly think that just any tax professional is the right choice.

Tax Representatives specialize in helping people with CRA tax problems. I believe that a Tax Representative is always where you start. Just make sure that the representative has a lot of experience.

A skilled Tax Representative can save you a ton of money and can handle everything from dealing with CRA to negotiate, to remove liens and garnishees, handle any audits, notices of objection, appeals.

A skilled Tax Representative can even serve as a Material or Expert witness to support you in tax court.

If a lawyer is going to be needed, then your Tax Representative will be the first one to suggest you hire one.

Client confidentiality is not an issue until you are ready to go to CRA or to tax court, and then only if it is clear that you are going to need a lawyer or that CRA will see this as an issue that they wish to pursue. Should CRA pursue you, then you may need a lawyer.
Can a Tax Representative be forced to testify against you? The answer is yes. However any good representative who sees that you are at a serious risk, will simply recommend a lawyer prior to CRA being contacted. The purpose will be for legal advice in preparation for litigation. The lawyer can then retain the representative to work under them to prepare all the accounting records, which will be protected under litigation privilege.

Your job is to decide what is the best and most appropriate help for your particular situation. Let’s look at the types of problems you may have; Unreported income; This is not necessarily a serious issue if the amounts are small. In many cases the best risk management is to simply file a T1 A adjustment. If the amounts in question are large, then you do need professional help. Have your Tax Representative who is a risk manager, assess the risk and advise you which direction to take.

Requests to file and demands to file (unfiled tax returns) are routine issues and just need to be handled by a highly competent tax accountant. Filing of these types of returns do not usually require a lawyer or even a Tax Representative unless you have some serious issues going on.

Collections definitely require a skilled and experienced Tax Representative, it is not a matter of law, it is a matter of procedures.
Audits are a mission critical situation, where only fools tred fearlessly into dangerous waters. Audits are not legal proceedings, they are simply a legal process of determining the amount tax owing. However an audit is where CRA gets a ton of money from Canadians who think that they have nothing to hide, hence nothing to fear. When the audit is over, then they know what they did not know that they should have feared. An audit is most often a very expensive activity for the taxpayer and a very financially rewarding activity for the TaxMan.

Unpayable tax bills simply require a skilled negotiation, by someone who is a risk manager and is very knowledgeable about what and how to go about the negotiations.

Sometimes an unmanageable tax bill is a matter of bankruptcy, but make sure you get high end tax and risk management advice to see if the problem can be fixed by going to a trustee. By the way a trustee is a Charted Accountant who specializes in bankruptcies. They are usually experts in their fields. Having said that, as in any field, it is a good idea to ask for a referral from someone who knows the business.

Let’s face some facts to consider.
CRA usually just wants your money. You usually don’t need a lawyer to handle your case unless you are charged with tax evasion.
***** again…I am not knocking lawyers and accountants, I am just saying hire what is the best risk and value proposition for your particular case.
Even if you are charged with tax evasion, you still need your records put in the proper order. Lawyers are trained to deal with the law. So it is a good idea to have your ducks in order before going to see your lawyer, who will be able to analyze the situation in much less time by having the pertinent facts properly presented to them.

Hiring a licensed accountant to ensure your taxes are done right in the first place is a good idea. However it may not be such a good idea if you are already in trouble. If you are in danger of an audit, then you need someone like a Tax Representative who knows audit ready bookkeeping. QuickBooks and the like is NOT audit ready bookkeeping. It is anything but audit ready.

Not many licensed accountants have been trained in forensic or audit ready record keeping. So just picking an accountant may be a disaster in your case. You need to find out for sure what exactly is their experience in dealing  with CRA battles.

CRA wants to see your records so that they can eliminate any deductions they can for whatever reason they can come up with. Most accountants are not trained to do audit ready bookkeeping, and the accounting software out there is not set up to do audit ready bookkeeping.

Do you need to settle your problems from a legal safety zone? The answer to that question is clearly; “Not likely.” If you are not charged with a crime, then you are strictly in the zone of needing to prevent problems. Going and doing a confession to CRA is likely very risky for people with tax problems. You need to consider other right answers before blundering down that path.
And for heaven’s sake: ASK the lawyer “Are they a Tax Litigator.”

Remember that you should not use canons to shoot a cat. You just need to stay out of the mouse trap. If your case is simply one of avoiding trapping yourself, get the right help. Overkill can be as bad as under kill. Pick your right help for you; Lawyer, Accountant or Tax Representative.

This page is mandatory reading if you are in trouble with the TaxMan. Do not proceed with getting help until you have read and digested the information. It could make all the difference in the world to your outcome.

For more information go to www.taxauditsolutions.ca

Can you claim a swimming pool as a medical or business expense?

February 13th, 2010

This article by Jamie Golombek, is a very good description of how CRA sees swimming pools (and likely therapeutic hot-tubs).
I am going to have to check into the law on this one. I can see that it can’t be a medical expenses, but  It seems to me that if someone needs to have a pool or a hot tub, in order to be able to do physical work in a business, then it should be able to be claimed as a business expense.

So in order to not cause any tax problems, I will research this one.

In order to have a hope on the claiming such expenses there needs to be a very good record kept with the appropriate audit trail. Also I would think that only claiming the business percentage of use of the item would make it infinitely more credible.

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

Dan White

Pool is not a medical expense

Jamie Golombek, Financial Post  Published: Saturday, February 13, 2010
Related Topics

With tax season just weeks away, now may be a good time to start gathering all those receipts from 2009 so that you are not caught scrambling at the last minute, especially when it comes to collecting medical expense receipts.

The tax rules permit you to claim a non-refundable credit for “eligible medical expenses” you incurred either for yourself, your partner or your kids under age 18.

To qualify, the service or item must be listed as an “eligible” medical expense under the Income Tax Act. Medical devices must be prescribed by a medical practitioner.

Earlier this year, the Canada Revenue Agency formally responded to a couple of taxpayer requests dealing with eligibilty of certain expenses for the medical expense tax credit (METC).

In the first case, a taxpayer asked whether the cost of installing an indoor swimming pool could qualify as a medical expense. The taxpayer’s physician “prescribed the swimming pool” for the purpose of alleviating chronic pain and the taxpayer indicated that there would be “little to no other personal use of the swimming pool” by the individual’s family.

Under the rules, in order to claim the METC for a mobility device, it must be “exclusively designed to assist an individual in walking where the individual has a mobility impairment.” Since a swimming pool is not considered to be a device exclusively designed to assist an individual in walking, the CRA concluded that it doesn’t qualify for the credit.

The Tax Act also allows certain renovation expenses to qualify for the medical expense credit if they permit an individual with a severe impairment to be mobile within their home. But two conditions must be satisfied: First, the renovations must not generally increase the value of the home; and second, they must not be renovations that would normally be incurred by someone without a mobility impairment.

Since an indoor swimming pool may increase the value of the home and swimming pools are normally built by individuals “for general health, fitness and entertainment reasons,” the cost of such an installation would not qualify for the METC.

In another case, a taxpayer described that he was diagnosed by his doctor as having hypertension and high blood pressure. His doctor recommended that he undertake a supervised exercise regime with a personal trainer twice per week. The taxpayer wanted to know if he could claim the personal training sessions as a medical expense eligible for the credit. But medical expenses only include payments made to a medical practitioner, who is defined as a person authorized to practice a medical service “according to the laws of the jurisdiction in which the service is rendered.”

The CRA responded that it was “unaware of any provincial legislation that authorizes and regulates personal trainers” and as a result, the payments do not qualify for the medical expense tax credit.

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.

Get up to date on what you need to do about the transition to HST

February 10th, 2010

Harmonizing local business with tax

Susan Bussieres, senior resource officer from Canada Revenue Agency (CRA) recently held a meeting in Burns Lake in order to present information to local business owners about the proposed Harmonized Sales Tax (HST).

In B.C. the HST would be taxed at a rate of 12 per cent, and in Ontario it will be 13% consisting of seven and eight per cent federal taxes and five per cent provincial taxes.

The HST is planned to be implemented in B.C. and Ont. on July 1 2010.

According to the CRA, the HST once introduced, would apply to most transactions that become due, or are paid without having become due on or after July 1, 2010.

The HST would also apply to any memberships that become due or are paid on or after July 1, 2010, however CRA notes that HST would not apply to the transaction if more than 90 per cent of the membership period is before July 2010.

For example, selling year long memberships; On Jan. 2 2010 a yearly gym membership is sold which will expire on December 21, 2010. The HST will not apply to the sale of this membership because the membership fee becomes due before May 2010.

But continuous services such as cellular phone services, natural gas and cable television services will be subject to the proposed HST.

HST could also possibly apply to returns and exchanges purchased before the HST comes into effect but returned after the introduction of the HST.

Generally the HST will apply to the sale of goods when the goods are delivered and when ownership of the goods is transferred to the purchaser on or after July 1, 2010.

Zero rated taxable supplies [goods that do not attract HST] include prescription drugs, medical devices, basic groceries, some agriculture and fishing supplies and exports.

According to the CRA point of sale rebates for the provincial part of the HST (seven/eight per cent) would be introduced for children’s clothing and footwear, children’s car seats and booster seats, children’s diapers, books, including audio books, feminine hygiene products and motor fuel. [The retailer would automatically provide the purchaser with a point of sale rebate by only collecting only the five per cent federal component as they do now].

For further information about the HST go to www.cra.gc.ca/harmonization-

HST has a potential for a lot of tax problems, to ensure you stay on the right side of the line, learn about LazyBooks, audit ready bookkeeping system.

For more information on audit ready accounting go to http://taxauditsolutions.ca

Tax preparer found guilty of tax evasion

February 10th, 2010

This is a very interesting case of an ingenious tax fraud scheme, where the tax preparer and the taxpayers all got caught.

While the scheme is really quite intelligent, there was obviously one major flaw. The tax preparer did not do risk management.
Le’s look at what is wrong here.

There had to be at least ten taxpayers involved. All likely had spouses. All likely had friends that they bragged to.

The chance of not offending anyone who could become an informer, is quite low.

So the obvious answer is.

Taxes101. don’t do tax evasion.

For more information on CRA audit procedures, please go to http://taxauditsolutions.ca

Best Regards

Dan White

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Tax preparer found guilty of tax evasion

LAVAL, QC, Feb. 10 /CNW Telbec/ – Martine Laprise, a Saint-Sauveur tax preparer, pleaded guilty yesterday to tax evasion charges at the Saint-Jérôme courthouse. She was fined $41,252, which represents 50 % of the federal tax she tried to evade.

The Canada Revenue Agency (CRA) investigation revealed that, for the 2002 to 2005 tax years, Ms. Laprise voluntarily contravened the Income Tax Act by providing third parties with a total of $518,197 in false child care receipts. This scheme enabled the third parties to fraudulently reduce their income taxes by $82,505. In addition to the fine imposed by the Court, the taxpayers involved will have to pay the full amount of taxes owing plus related interest and any penalties that apply.

The investigation also revealed that Ms. Laprise hired fictitious caregivers, who declared income equal to the amounts on the receipts issued in order to avoid raising suspicions from the tax authorities. Expenses were also claimed against this income, which allowed the parties to avoid paying income tax.

The taxpayer is responsible for the information on his or her income tax return, even if the return was prepared by someone else. Any fraudulent activity can be anonymously reported to the Enforcement Division of the tax services office nearest you.

CRA Distraint; Search and Seizure

February 9th, 2010

 If you are in trouble with CRA, and have not obtained a skilled Tax Representative, you could have a serious problem. Here is important information to keep in mind if the TaxMan comes to your door.

Dan White

For more info go to http://taxauditsolutions.ca

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From the Great White North news

Tax Debt And Distraint

Distraint is the process of seizing a person’s possessions to sell at auction, in order to clear outstanding tax debt. The taxman has the legal right to take this action without a court order, but a certain procedure needs to be followed to stay within the law.
Warning Letter

Firstly, a letter will be sent to the debtor warning that distraint action is about to begin. This will be followed by a visit to the debtor’s home or premises by a tax collector, in order to assess what assets and possessions of value may be taken. This visit must take place between sunrise and sunset on any day except Sundays and public holidays, and while no appointment needs to be made or time of visit announced in advance, the collector can only make a ‘peaceful entry’ to your home. In other words, if you refuse entry, the collector will need to apply for a court order before going any further.
Seizure of Possessions

During the visit, a list of seizable items and their value will be made. Most of your personal possessions are able to be taken, but there are several exemptions. Firstly, any item essential for your work or trade cannot be taken if this would impair you ability to carry on working. Clothes are exempt, as are perishable foods and the basics of living – a chair and table, along with basic cooking equipment, and a bed are the often cited examples of such basics.

Finally, any item which is jointly owned or wholly owned by someone else is ineligable for seizure.
Last Chance Before Seizure

Once this list has been drawn up, you will normally be given a period of 5 days in which to either clear your debt or reach a repayment agreement. If this is not done, then the taxman has the right to seize the goods and sell them at auction, often for a fraction of their true value, meaning that even after distraint your debt might not be fully cleared.
What To Do If You Receive A Distraint Notice

If you receive a letter warning of distraint, it’s vital to get in touch with your tax office as soon as possible. In many cases, the whole process can be avoided by reaching an agreement to repay over a mutually acceptable period. In fact, only about one in a thousand distraint warnings actually result in the sale of goods.

If you find the whole issue seriously worrying, then consult with a tax debt specialist or charity such as Citizens’ Advice, who will have had plenty of experience in the area of tax debt and will be able to ensure that even if distraint can’t be avoided, at least it will be carried out in a fair and reasonable manner.

Don’t think Boogie Woogie is safe from CRA

January 28th, 2010

Today more than ever it is important to remember that playing games with clever schemes to avoid taxes is no longer a good idea. CRA changes the rules, new laws come up, and CRA works retro actively.

There are tons of things that can be done to reduce taxes while amassing assets…. but you have to play by not only the spirit of the law, but you have to play exactly by the law… not by loopholes.

We all need to understand that taxpayers are not the only ones who can crawl through loops and hoops, so too can CRA.

So the next time someone says… hey! there is this cool scheme to foil the tax man, think again.

Today is the time where we all need to accept, we now have to play by the book. If we accept that fundamental truth, make everything transparent to the tax man, you can still win the tax game. You just have to follow the spirit of the law, which can work in your favour.

You need to begin audit ready bookkeeping now, and save your self grief in the future.

To learn more about Audit Ready Bookkeeping go to:

http://taxauditsolutions.ca/cms/index.php/audit-ready-bookkeeping/

Below is a good article demonstrating CRA’s ability to assess retroactively.

Dan White

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No `free’ ride
Ottawa looks for ways to stop abuses of popular TFSA accounts
Published On Thu Jan 28 2010

Canada Tax Audit CRA

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Paula Kulig Special to the Star

They may be called Tax-Free Savings Accounts, but the federal government is raising the stakes for those Canadians trying to get a free ride.

In an effort to prevent the use of tactics that lead to gains beyond what Ottawa intended when TFSAs came on the scene a year ago, Finance Minister Jim Flaherty announced proposed amendments to the Income Tax Act in October that target over-contributions, ineligible investments and asset transfers. The amendments apply to transactions after Oct. 16, 2009.

Although the legislation has not yet been introduced, the finance department says it wants taxpayers to file their returns on the basis of the proposed legislation. If they file under existing law, their claims will be reassessed by the Canada Revenue Agency when the amendments are passed.

“What often happens when you bring in something new is you bring out the rules and creative tax planners find ways to get around them, and then (the finance department) reacts to it and tightens up the rules,” says Bruce Ball, national tax partner of BDO Canada (formerly BDO Dunwoody), adding that the tactics at issue tend to be used by “sophisticated” investors.

“Tax-Free Savings Accounts are a huge thing. If you create a Tax-Free Savings Account balance, you’re never going to pay any tax on income or gains.”

It is clearly a concern to the government if investors are increasing those gains by breaking the rules. While it’s too early to tell if federal coffers have lost money, says Heather Evans, a partner and tax services leader with Deloitte & Touche in Toronto, “my sense is that they might be concerned about lost revenue, because that’s why they’ve unleashed the auditors. They’ve made it clear that they’re going to be looking very, very carefully at TFSAs and any `unusual’ transactions.”

Tax-Free Savings Accounts, which became available in Canada last January, allow for annual deposits of up to $5,000. If money is withdrawn during the course of the year, it can be redeposited the following year, along with another $5,000.

Like an RRSP, TFSAs can hold cash, mutual funds, GICs, bonds, publicly traded securities and certain shares of small business corporations, Ball says. Unlike an RRSP, investors don’t receive a deduction on their taxes when they open a TFSA, but in return, anything that is withdrawn is tax-free.

“Many financial advisers recommend that individuals keep a reserve fund for a rainy day. The TFSA is perfectly suited to this, as your reserve fund will not be taxed, and if you do have to draw on it, you can put the money back in a later year when financial resources permit,” Ball says

The government’s amendments include applying current anti-avoidance rules to any income that comes from deliberate over-contributions and prohibited investments, such as shares of stock in a corporation in which the investor has an interest of 10 per cent or more, and investments in entities where the holder does not deal at arm’s length.

Under the current rules, a tax of 1 per cent a month is levied on contributions that exceed the limit, an amount that was seen as adequate to balance any benefit from over-contributions. In response, Ottawa now wants income connected to a deliberate overcontribution to be taxed at 100 per cent, in line with existing advantage rules in the Income Tax Act. The same goes for asset transfer transactions, which are sometimes called swap transactions. The amendments would essentially prohibit such transactions between registered or nonregistered accounts and TFSAs – for example, shifting value from an RRSP to a TFSA without paying tax, “in the absence of any real intention to dispose of the asset” – and would tax TFSA amounts attributable to these transactions at 100 per cent.

Other amendments include taxing any income linked to non-qualified investments at regular income tax rates, and ensuring that withdrawals of deliberate over-contributions, ineligible investments or amounts stemming from swap transactions do not create extra TFSA contribution room.

Time for a break from tax problems, have a laugh

January 18th, 2010

This gave me a good laugh, I was in the middle of fussing about an idiot from CRA when this came in and lightened my day of dealing with tax problems.

Dan

“A lady came to see me about a legal problem.  She said a friend of hers was a former client of mine and had recommended me.  That made me feel rather good, and so I decided to stretch the compliment by asking what her friend had said about me.  The woman replied, ‘She says you’re an a$$hole but you did a good job’.”

And here’s from a judge  “I presided over a trial in which an RCMP officer testified that he was on patrol in a rural area when the car ahead of him drove into the ditch, back onto the highway, back into the ditch then across a field into a tree.  The officer walked across the field to the car and said to the driver, ‘Have you been drinking?’  The man replied, ‘Of course I’ve been drinking.  Do I look like a f*cking stunt driver?’”

Jail Time for David Little, an interesting attention getter.

January 18th, 2010

 We are watching this case with great interest. This is not a case of tax problems, but rather using the tax system, to make public a social cause. Lets see how the government publicity machine stick handles this one.

For more info on solving tax problems, go to www.taxauditsoluitons.ca

Jail time could be greatest victory print this article
The Journal Pioneer

It is likely, at some point this year, David Little will head off to jail, his penalty for steadfastly refusing to file income tax returns.
David Little is willing to sacrifice his personal freedom on behalf of those who cannot speak for themselves. He is a decades-long anti-abortion crusader who vowed in 2000 he would not file another income tax return for as long as tax-funded abortions are provided in this country.
With the Supreme Court of Canada’s refusal last week to hear an appeal of his 2007 conviction for failing to file tax returns, Little could be heading off to jail as early as April. That’s around the time of the year most other Canadians are either preparing their 2009 returns or waiting for Revenue Canada to send them their income tax refund or bill.
Such timing could prove beneficial to Little’s cause. Some filers who share his position that abortion is wrong – and there are many – might choose not to file this year.
But millions, including many Pro-Life supporters, will file returns as usual, because it’s the law and because they know tax dollars fund many essential services, like health care and education.
This, however, is not a case of someone cheating Revenue Canada out of millions or even hundreds of dollars annually. This is a case of an individual simply refusing to file annual returns.
But there’s a principle here: you have to file a return whether you owe money or are getting some back.
There’s also the possibility that individuals who get caught trying to avoid paying taxes on large sums of income will end up serving less time in jail than David Little.
That’s the sacrifice David Little seems willing to make, and he’s likely to get lots of attention while doing so. In fact, he seems to be banking on that. His 2007 conviction applies to tax years 2000, 2001 and 2002. He claims he hasn’t filed returns for the subsequent years and he wants to be charged for those years, too. David Little might not be dragged off to jail kicking and screaming, but he won’t be going quietly. This is a planned campaign against abortion. He wants Canadians to hear of his cause.
Even many of those who don’t agree with his protest method are likely to possess some sympathy for a fellow whiling away his time in jail because he opposes abortion.

Top court rejects anti-abortion crusader’s tax case

January 14th, 2010

Top court rejects anti-abortion crusader’s tax case David Little loses his tax case, based on government funding of abortions. Too bad we as Canadians can not force the government to be accountable to how they spend our money.

It is funny how some people think that they don’t have enough tax problems, they invent even bigger tax problems by taking on lost causes.

The abortion battle has been fought and it is over. Women have the right to chose what is best for themselves, so let’s accept that and not turn to the tax courts to give rise to social causes irrelevant to the tax problems of this land.

I am sure David Little believed in what he was saying as evidenced by his move to a province that did not support abortion. Good for him. However he still pays more in federal tax than in provincial taxes, so that move seems kind of pointless.

I guess he made a good point on that we should question how the government spends our money. On that I can agree with him. And at least he does stand up for what he believes in.

Had he been successful in winning and bringing down the government. Well that would have been fun, eh?

My approach to solving tax problems suggests that to not get confused between tax problems and moral issues. In the mean time life goes on and we deal with the mean things CRA does to Canadians.

To learn more on solving tax problems in Canada, but not about social causes, go to www.taxauditsolutions.ca

Dan White

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Top court rejects anti-abortion crusader’s tax case

Janice Tibbetts, Canwest News Service  Published: Thursday, January 14, 2010
More On This Story

Top court rejects anti-abortion crusader’s tax case

OTTAWA — The Supreme Court of Canada has declined to consider an appeal from a devout Roman Catholic who refused to pay his taxes because he said he did not want his money to go toward funding abortions.

The court did not give reasons for rejecting the appeal application of David Little, an anti-abortion crusader who had unsuccessfully argued in the New Brunswick courts that forcing him to contribute to abortion funding violated his Charter of Rights guarantee of religious freedom.

The New Brunswick Court of Appeal, in a ruling last summer, concluded paying taxes does not equate to support of any particular government policy.

The appeal court also found that legitimizing Little’s claim would mean that anyone who opposed a government policy could dodge paying taxes, while still receiving public benefits, such as medical care.

Mr. Little was charged with failing to file tax returns in 2000, 2001 and 2002.

Representing himself in court, he testified that he was concerned about the moral consequences of filing tax returns, because some of his money would go toward paying for abortions, which he said was mortally repugnant to him as a Roman Catholic.

The Supreme Court’s refusal to wade into the dispute means that Mr. Little’s 2007 conviction is upheld.

Mr. Little moved last year to Prince Edward Island, which does not publicly fund abortions.

Beware the CRA attacks

January 13th, 2010

January had hit the world with a renewed assault by CRA on Canadians across this land. Audit and tax problems are becoming a part of everyday life for small business in Canada.

It is not just tax cheaters they are after,,, they are after anything that they can attack.

Every Canadian needs to learn how to protect themselves from what is coming from CRA.

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

Dan White

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Taxman has eye out for cheaters, by the Cochrane Report

As income tax time moves closer, the Canada Revenue Agency has begun its annual campaign to warn cheaters about the trouble they could be in, and how they can use the Voluntary Disclosures Program.

The CRA says it is aggressively addressing non compliance. Last year, the agency conducted over 350,000 audit and review actions, including about 17,300 underground economy audits, and more than 1,100 audits of taxpayers suspected of earning income from illegal activities.

The CRA completed 20,750 international audits and 34,111 audits of tax shelters. The CRA identified a total dollar value of $5.7 billion in non”‘compliance for international and large business and $2.1 billion for small and medium-sized enterprises.

The CRA reassessed over 20,000 individuals who had participated in at least one of 20 unacceptable tax shelter gifting arrangements.

The CRA completed 148 interprovincial tax avoidance cases, which resulted in more than $300 million worth of taxes being recovered.

“These accomplishments led to results in the courts, including significant fines and — for some people — jail time,” the agency said this week.

The CRA is a member of international organizations that work to tackle the abusive use of tax havens. International partnerships help us uncover schemes that are developed abroad and marketed in Canada. Taxpayers with unreported assets and income offshore could face penalties of up to 50 per cent of unreported tax on income and five per cent per year for any unreported assets.

The agency says taxpayers who have not reported all of their income can voluntarily correct their tax affairs. They will not be penalized or prosecuted if they make a valid disclosure before they become aware of compliance actions being started by the CRA against them. These individuals may only have to pay the taxes owing, plus interest. More information on the VDP can be found on the CRA Web site at www.cra.gc.ca/voluntarydisclosures.

* The Cochrane Report appears each Wednesday and Saturday. Items for publication may be submitted by e-mail to cochrana@timestranscript.com, or by fax to 859-4904.

CRA seems to have no conscience.

January 13th, 2010

This is not one of our cases, but it is a terrible injustice Audit Horror Story.

For more information on audits and how to prevent tax problems in Canada, go to www.taxauditsoluitons.ca

British Columbia’s Mr. Irvin Leroux, who has lost everything fighting for 14 years against such bully tactics by the CRA
Audit Nightmare As Published in Canada Free Press
By Kevin Gaudet  Wednesday, January 13, 2010

Imagine the Canada Revenue Agency (CRA) shows up at your door to do an audit.  As if that alone isn’t scary enough, they proceed to take both copies of your documents, originals and photocopies —without your permission.

They lose or destroy these key originals. Then they assess hefty tax bills against you because you cannot provide documents in your defense.  CRA mistakenly demands you pay $800,000 in taxes allegedly owed.  This helps ruin your business, leaving you broke. Does this sound far-fetched?  Not according to British Columbia’s Mr. Irvin Leroux, who has lost everything fighting for 14 years against such bully tactics by the CRA.

His treatment outraged his MP, the long-serving Dick Harris, who took up his cause with the former Minister of National Revenue. According to Mr. Leroux, his MP was told by the Minister that the CRA couldn’t pro-actively compensate Mr. Leroux for his loss, but that he could sue the government and they would offer a settlement.

As ridiculous as it is that Mr. Leroux has been forced to sue the Canadian government to get back some or all of what he has lost in his lengthy tax fight fiasco, not a nickel has been offered. In this case it appears the federal government made a mistake; a big one at that. They should just admit it, apologize for it, and settle out of court with Mr. Leroux. Instead, they are playing the Goliath against his David, fighting him in court and denying any wrong-doing on their part.

The latest tactic employed by government lawyers, scheduled for court at the end of this January, has been to argue that Leroux’s lawsuit has no merit as his tax case was resolved earlier.

The issue of taxes owing was resolved by a judge only after Leroux fought in tax court to prove he owed no money. The case was settled in 2005 with the CRA agreeing that he had actually overpaid his taxes. They were required to pay him a small refund.

The CRA’s attitude seems to be ‘oh well, this issue is over.’ But it isn’t over for Mr. Leroux who is struggling to pick up the pieces after CRA’s withering 14 year campaign against him.

Their campaign against him drained him of cash, aggravated by the expense of legal and accounting fees and triggered a domino effect. Mortgagees began foreclosing, and Leroux’s properties were sold off for one-third of their value. When the dust settled, the creditors were paid, but nothing was left for Leroux. Once he had been comfortably set for a secure retirement. Now he is virtually destitute, living on CPP and Old Age Security. He now has recurring nightmares about being homeless and scrounging for food in garbage cans.

While taxpayers certainly don’t want the government tossing money away unnecessarily, governments must do the right thing to correct its mistakes.

Do Revenue Minister Blackburn and Justice Minister Nicholson really not know what is going on here? Are they really condoning this attack on a tax-paying Canadian? Perhaps they simply have no idea what the government’s lawyers have been doing?

Irvin Leroux is an ordinary Canadian who trusted his government to be honest and decent towards him. He paid taxes like he was supposed to – overpaid, in fact. His government turned on him and has ruined him.

This is a case either of rogue tax collectors or of systemic abuse by the CRA. Taxpayers should hope it is the former; that rogue tax collectors were running amok and made life hell for Mr. Leroux. Why would they do this? Because they can. The powers of our tax collectors are enormous and stacked against the little guy. If you mange to get on their bad side then look out because this case shows what the CRA, when roused, can do to you.

The cabinet ministers involved should instruct their lawyers to negotiate a way out of this shameful episode. It further damages the already tarnished reputation of the CRA, and continues to punish a taxpayer who has already gone through too much.

As the end of the year approaches many people take stock of the year that was and make resolutions for the year to come. If politicians did this they first would realize that there is much work to be done.

Not all winnings are tax free…

January 12th, 2010

 everyone should take note that CRA is looking for money where ever they can.

The next time you enter a contest and the question on the ballot / ticket is a simple math question that could require skill,  then that winning will likely b
Institutional links

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Income Tax Interpretation Bulletins
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IT-213R Prizes from lottery schemes, pool system betting and giveaway contests
o Other formats

Income Tax Interpretation Bulletin
Prizes from lottery schemes, pool system betting and giveaway contests

NO: IT-213R

DATE: October 19, 1984

SUBJECT: INCOME TAX ACT
Prizes from lottery schemes, pool system betting and giveaway contests

REFERENCE: Paragraph 40(2)(f) (also subsections 52(4), 5(1) and 9(1), and paragraph 69(1)(c))

This bulletin cancels and replaces IT-213 dated May 12, 1975. Current revisions are designated by vertical lines.

Lottery Schemes

1. The amount or value of a prize received by a taxpayer from a lottery scheme is not taxable as either a capital gain or income unless, due to the circumstances applying to the lottery scheme, the prize can be considered to be income from employment, business or property or a prize for achievement referred to in paragraph 56(1)(n).

2. While paragraph 40(2)(f) specifies that no taxable capital gain or allowable capital loss results from the disposition of a chance to win or a right to receive an amount as a prize in connection with a lottery scheme, subsection 52(4) states that for the purposes of computing any tax consequences after receiving a prize a winner in a lottery scheme is deemed to have acquired the prize at a cost equal to its fair market value at the time of acquisition.

3. A lottery has been defined as a scheme for distributing prizes by lot or chance among persons who have purchased a ticket or a right to the chance. If real skill or merit plays a part in determining the distribution of the prize the scheme is not a lottery (unless it is based essentially on chance and the degree of skill is minimal). Again, when the chances of a prize are obtained wholly gratuitously, as for instance, a prize awarded to the winner of a game, the scheme is not a lottery.

Pool System Betting

4. Paragraph 40(2)(f) also provides that no taxable capital gains or allowable capital losses arise from the disposition of a chance to win a bet or a right to receive an amount as winnings on a bet in connection with a pool system of betting referred to in section 188.1 of the Criminal Code. The nature of pool system betting is such that the only winnings are in the form of cash from the respective pool. Consequently, no additional capital gain or loss tax consequences could arise on subsequent disposition of the winnings and thus it is not necessary (as described in 2 above, in the case of a lottery) to deem the winnings to have been acquired at fair market value.

5. A “pool system” of betting is defined in the Athletic Contests and Events Pools Act as a pool system of betting on any combination of two or more professional athletic contests or events. The fact that a degree of skill is involved in the selection of the outcome of the contest or event in the pool betting distinguishes it from a lottery scheme as described in 3 above.

Other Schemes

6. Where a prize has been won otherwise than through a lottery scheme or a pool system of betting, neither paragraph 40(2)(f) nor subsection 52(4) will apply. The tax implications of receiving these other prizes will vary, depending on the following factors:

(a) When the prize has been received as a gift, it is not included in computing income at the time of receipt. However, the recipient will be deemed to have acquired the prize at its fair market value pursuant to paragraph 69(1)(c), so that a subsequent disposition of the prize will result in a capital gain on any increase in value since the time of its acquisition. A prize can be reasonably considered to be a gift from the viewpoint of the recipient, even though chance and/or skill may have been involved in the win. Ordinarily a gift is not considered to have been made until the donee has received delivery of the gift and accepted it in a completed and irreversible transaction.

(b) The prize will be received as income where it is received by virtue of the recipient’s employment pursuant to subsection 5(1) and paragraph 6(1)(a), received by virtue of the recipient’s business pursuant to subsection 9(1) or received in respect of an achievement in a field of endeavor ordinarily carried on by the recipient pursuant to paragraph 56(1)(n) (see IT-75R2).

(c) Where the prize is not received as income as described in (b) and is not a gift as described in (a), no amount will be included in income upon receipt of the prize and the provisions of paragraph 69(1)(c) will not apply. Such a situation would arise where the contestant has incurred a cost towards winning the prize such as purchasing a ticket or paying an entrance fee entitling the contestant to participation in the contest. In such a case, while there are no tax consequences resulting from receipt of the prize, any subsequent disposition of that prize may result in a capital gain or loss. In computing any such gain or loss the taxpayer’s cost of the prize will be the original cost of the ticket or entrance fee rather than the fair market value of the prize as used in (a) above.

It should be noted that where “personal use property” is involved, the $1,000 exemption contained in subsection 46(1) may eliminate any capital gains on disposition of a prize as described in (a) and (c) above.

7. In some instances, a ticket (or entrance fee) of the type described in 6(c) above entitles the holder to something in addition to a prize, for example, some entertainment value. Where, in such a case, the portion of the ticket that relates to the prize is considered insignificant in relation to the total cost of the ticket, the fact that a portion of the cost has been incurred towards the prize may be ignored and the prize will be treated as a gift to the taxpayer as described in 6(a) above.

8. Where the winner referred to in any of the paragraphs above is a syndicate, the income tax consequences to the individual members of the syndicate are the same.

9. Some examples of the manner in which the rules in 6 to 8 above apply are given in the paragraphs which follow.

Employer-promoted Contests

10. Where an employer who was accustomed to awarding employees with a bonus has provided a scheme or giveaway contest in which the bonus or some amount in lieu of a bonus is divided among the employees as prizes following a draw, the scheme would not be a lottery and the prizes are considered to be employment income under subsection 5(1). However, if the employees and their families account for only a small percentage of the participants in a scheme, are not given a favoured position in relation to the other participants and they are subject to the same contribution requirements (if any) towards the scheme as other participants, the value of any prize won by chance is not employment income but is considered a win from a lottery scheme. Therefore, paragraph 40(2)(f) and subsection 52(4) will apply. IT-470, “Employees’ Fringe Benefits – After 1980″ and Special Releases to IT-470 discuss holiday trips and other prizes.

Television and Radio Programs

11. The value of a prize or other award received by a person for being at or participating in a radio or television program is generally not included in income when the person is not party to an employment or business contract, and

(a) it is awarded through a draw because, for example, the person is in a “lucky” seat or has a certain brand of merchandise at home, even though the person may have to demonstrate some minor degree of skill or knowledge before being eligible to receive the prize, or

(b) the prizes that go to winning contestants, the consolation prizes that go to losing contestants or the merchandise gifts given to all participants are all that the person receives for appearing in the program. On the other hand, if a contract exists, such as may be the case where a professional actor, an entertainer or some other person appears on a television show as a celebrity and receives a giveaway prize or wins a prize by skill or chance for appearing or participating in a contest on the show, the prize will be subject to tax as business or employment income.

In all cases cited in this paragraph, the capital gains implications will be established on the basis of the particular circumstances in each case through application of the rules given in 6 or 7 above.

Free Tickets in Lieu of Volume Rebates or Bonuses

12. Volume bonuses or rebates from suppliers are included in computing a purchaser’s business income. However, where a supplier provides customers with free tickets for a draw for a prize with the winning ticket to be drawn strictly by chance, the prize is ordinarily considered a gift. Its value is not included in the recipient’s business income and the application of paragraph 69(1)(c) to the deemed cost of acquisition of the prize is as set out in 6 above. On the other hand, if real skill or merit is involved in the win, it will be a question of fact to be determined in accordance with the circumstances in each case whether the prize is a gift or whether its value is business income to the recipient.

Annuities as Prizes

13. Where the prize in a lottery scheme is an annuity, for the purposes of determining the amounts to be brought into income, the initial adjusted cost basis of the annuity is considered to be the fair market value of the annuity when it was acquired in accordance with subsection 52(4). Should the annuity be a prescribed annuity contract, as defined in Regulation 304, the adjusted purchase price of the annuity will be its fair market value at the time it was acquired. For prescribed annuity contracts and those other annuity contracts not subject to the accrual rules, annuity payments are brought into income under paragraph 56(1)(d) and a deduction from income is allowed under paragraph 60(a) for a portion of the adjusted purchase price as determined under Regulation 300. For other annuity contracts, which are subject to the accrual rules, the income from the annuity is determined according to the provisions of paragraph 56(1)(d.1) and section 12.2 in which the adjusted cost basis is a determining factor. In the case of the application of paragraph 56(1)(d.1) and section 12.2, the income calculation should be furnished by the issuer.

In times of CRA Tax Crisis

January 12th, 2010

TAX CRISIS MANAGEMENT

While the gist of this article is about the risks of evading taxes offshore, the key thing here also is relevant for whenever you are contacted by CRA. A phone call or a brown envelope means you have a tax problem and you need to treat is seriously.

When you get one of those phone calls or letters it is too late for a voluntary disclosure which in itself is a risk maneuver.

You need to be aware that CRA matters are not to be treated as anything less than a major wake up call.

The most important thing you need to know is that talking to CRA is asking to have what you say used against you. CRA has a data management system where CRA takes electronic notes that will be compared to whatever further information they collect from you.

Understand that you are talking to a very money hungry agency when you are dealing with CRA. They will go after any angle they can and will most definitely use intimidation on you.

Normally there is nothing you say that can help you and everything you say can and will be used against you. CRA does not look for reasons to leave you alone, they look for angles to get money.

Don’t think because you are an honest upright citizen who believes in paying your fair share of taxes, that you will be treated fairly. The Tax System in Canada is anything but fair.

Why do we give you this harsh warning? We do so because we deal with CRA every day in our business and we know what they are like, first hand. There are some great people who are auditors, and it is the luck of the draw whether you get a reasonable auditor or some small minded snake taking their venom out on Canadian Tax Payers because they suffer from their personal lack of self esteem.

Be honest, you are not a tax expert, so don’t act like you are. Tax Audits are a mission critical financial survival exercise where you engage the opposition in a battle for your money. So if you think you are equipped to fight the pros, you better govern yourself accordingly.Herein is an excellent summary taken from www.proinvests.com  What ti does is demonstrate the level of agression by CRA into any possible area to collect taxes.

We are not saying that you should evade paying taxes. To the contrary, we have been saying for years that using offshore to evade taxes, thinking privacy will protect you is not astute.

Offshore is great for tax avoidance, but you better be transparent to CRA or you are going to be getting some interesting calls and brown letters, from people you don’t even know.

You could be contacted by CRA for any suspicious numbers on your tax return, a disgruntled spouse, a jelous co worker or neighbor. So treat the contact seriously.

For more information visit www.taxauditsolutions.ca

 Dan White

________

Tax collectors and the Bank of Nova Scotia BNS-T

are locking horns in federal court over access to the names of investors – including “six prominent Canadian business families” – behind a $1.1-billion offshore investment fund.

For about three years, the Canada Revenue Agency (CRA) has been engaged in a high-stakes to-and-fro with the bank. Tax collectors are trying to pierce the layers of a British Virgin Islands investment fund, while the bank insists it can’t force its own foreign subsidiaries to name names.

The battle escalated last autumn when, in a sworn affidavit, a CRA auditor alleged that the bank was effectively defying a 2008 judicial order. “The Bank of Nova Scotia has not provided to the CRA the information and documents it was required to pursuant to the order of this court,” Pierre C. Leduc, one of the CRA officers overseeing the probe, said in the sworn statement, which was filed in federal court in October.

The bank disputes the contention that it has not fully complied, court filings show, and it is opposing the CRA’s latest application. The bank has not been accused of any criminal wrongdoing.

None of the investors have been accused in the court filings of any wrongdoing, and CRA has merely said it is seeking to “verify” their “compliance.”

The spat is another sign of the tax agency’s ramped-up efforts to target the use of offshore investments by wealthy Canadians, tax lawyers and experts say.

During the past year, CRA auditors have zeroed in on Canadians suspected of disguising their holdings in the principality of Liechtenstein.

Just last week, Revenue Minister Jean-Pierre Blackburn threatened again to sue Swiss bank UBS AG unless it hands over the names of its Canadian clients.

The CRA’s row with Scotiabank also offers an inside look into how difficult it can be for tax officials to unmask taxpayers who are less inclined to be identified, even when the bank handling their funds is headquartered in Canada.

Scotiabank declined to make a bank official available for an interview with The Globe and Mail, and said it could not respond to a detailed list of questions because the matter is currently before the court.

Many of the identities of the Canadians behind the Caribbean-based investment fund, which is known as St. Lawrence Trading Inc., are still a mystery to federal auditors. Internal fund documents circulated to investors show that, as of 2001, “six prominent Canadian business families” owned as much as $900-million (U.S.) of the fund, which held investments in hedge funds and mutual funds around the world. CRA auditors say they have unearthed the names of 120 of the estimated 180 Canadians behind St. Lawrence Trading, and are still in pursuit of the unidentified investors.

Caitlin Workman, a spokeswoman for the CRA, said auditors have completed reassessments of 49 investors and the agency believes those people failed to report a total of $70-million in income. However, the CRA was unable to say how many investors are disputing those reassessments. One source close to the dispute said a number of investors have responded to the department with notices of objections about the amount the agency says it is owed.

“Somebody in the CRA has a bee in their bonnet and thinks they’re going to bring a fortune into the treasury and somebody’s going to make a name for themselves,” the source said.

The roots of the agency’s fight with Scotiabank can be traced back to 2002, when the bank entered into a convoluted agreement with St. Lawrence Trading.

At that time, the then-Liberal federal government had proposed changes to the Income Tax Act that would have resulted in “adverse Canadian tax consequences” for the fund’s investors, according to an internal fund memorandum that auditors have filed in court. In the end, the rules were not enacted into law, but the prospect of changes sparked a flurry of behind-the-scenes manoeuvrings.

According to the internal fund literature, the investors and their advisers devised what they thought was a solution to ensure that their investments maintained their “exclusion from Canadian tax” – the Canadian investors agreed to sell half of St. Lawrence Trading to Scotiabank in return for a note. The note is set to mature in 2016, at which point the bank would likely sell St. Lawrence Trading on the market and hand the proceeds back to the Canadian investors. An internal fund memorandum shows that investors expected to pay Scotiabank an annual “seven figure” fee in return for the bank temporarily taking the investments off their hands.

The CRA’s efforts to lift the veil on the investors via Scotiabank, however, have been met by repeated obstacles. The first barrier, court records show, was that the sale of St. Lawrence Trading to the Bank of Nova Scotia was made through subsidiaries of the bank in the Bahamas and Ireland.

When the CRA obtained its first federal court order in 2008 for the list of investors, a Dublin lawyer for the bank’s Irish subsidiary declared that the subsidiary could not hand any information because of Irish law. Scotiabank Ireland had “a duty of secrecy with regard to the information,” the lawyer, William Johnston, said in a Sept. 11, 2008, letter.

Undeterred, the auditors tried other channels. Given the vast fortunes involved in this transaction, the bank was required to perform anti-money-laundering checks on the investors, so the tax collectors asked for that material and the names of any outside firms involved in the checks.

The bank responded that, yes, Scotiabank Ireland performed such checks, and it enlisted the services of a firm in Bermuda, another country outside the jurisdiction of the court.

Auditors persisted, arguing that because the bank’s Canadian parent guaranteed the note provided to investors, there must be information somewhere in Canada about these people.

Chris Purkis, the bank’s managing director of equity derivatives, responded in an affidavit that, unless Scotiabank Ireland defaulted on the note, Canadian bankers “would not, and did not, know who the shareholders were.”

However, as part of its most recent application, CRA has brandished internal Scotiabank e-mails that show at least one Canadian bank official was part of an e-mail exchange with a Montreal businessman with an interest in St. Lawrence Trading.

Complexity can be a potential tax problem.

January 12th, 2010

Hello world, the TaxMan Cometh to those who overly complicate their tax affairs.

The more complicated things are the more complicated they become.
I am wonder struck on how complex our world has become.
In today’s world, tax planning has become such a complex matter that it requires a ton of expertise to achieve tax savings that may well be overshadowed by the cost of setting up, defending and reporting on.

Complexity opens up a great opportunity for CRA to bully their way to your money.

A basic survival rule is that you need to be able to understand what it is you are doing and why you are doing it, not to mention does it really make sense in the grand scheme of things.

Often there are better answers.

The big problem with getting involved with Trusts and Corporations as an asset and tax management strategy as the fact that the Dark Forces can and do change the rules… (Remember income trusts?)

Often tax planning ignores that what works for the goose, may not work for the gander, in other words, you may find yourself unable to have tax benefits from losses.

Anyway, unless you have great gobs of cash to throw at tax planning, you may find yourself under a tax assult by CRA. You may find that instead of being a tax winner, you are a tax loser.

If you are in a mess because you got involved with a complex structure, then contact us at info@tax-audit-solutions.com also please visit our web site. www.taxauditsolutions.ca

Dan White

The following article illustrates what I am talking about. Consider how people who set up complicated structures based on blind faith in their advisors, become vulnerable to the tax man.

Purchase of US vacation properties by Canadians
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Miller Thomson LLP
Nathalie Marchand

Canada, USA
December 22 2009
Miller Thomson LLP logo

Given the attractive U.S. real estate market, the strong Canadian dollar and low interest rates, more and more Canadians are purchasing U.S. vacation properties.

Canadians should be aware, however, of the potential exposure to U.S. Estate Tax on death. Simply stated, a Canadian owning assets in the U.S. on death (such as real estate) is liable to U.S. Estate Tax on the value of all U.S. “situs” assets and benefits only from a limited tax credit, proportionate to the value of the U.S. assets over the worldwide estate. Hence, if the U.S. property represents only a small percentage of a large worldwide estate (over $3,500,000 U.S.), the tax credit will be minimal. The U.S. Estate Tax rates range is from 18% to 45% and may create a substantial tax bill on death.

It is possible, with proper planning, to eliminate exposure to U.S. Estate Tax and it is usually preferable to implement such planning prior to the acquisition of the vacation property.

One technique involves the use of a Canadian trust. Under this plan, the Canadian would settle a Canadian discretionary trust and transfer to the trust the funds necessary for the purchase of the U.S. property. The Canadian contributor, however, may not be a beneficiary nor a trustee of the trust. Typically, the beneficiaries would include the spouse of the contributor and his or her children. If properly implemented, this structure eliminates U.S. Estate Tax exposure both on the death of the Canadian contributor and on the death of his or her spouse. It also permits the gain on a sale of the U.S. property to be taxed in the U.S. at the favourable federal long-term capital gains rate applicable for individuals (currently 15%). From a Canadian point of view, it minimizes Canadian taxation on death as the property is owned by the trust and not by the Canadian contributor and would not be subject to a deemed disposition at fair market value on the death of the Canadian contributor or his or her spouse. The trust would, however, be subject to the deemed disposition of all of its assets at fair market value 21 years after its creation, unless steps are taken to avoid this result.

Another alternative may be to minimize U.S. Estate Tax exposure by purchasing the U.S. property through a Canadian limited partnership. This planning is more complicated and raises various issues to consider (such as the need to have the partnership treated as a corporation in the U.S. and hence, subjecting any gain on a sale of the property to the higher corporate tax rate).

Finally, another option would be to use a Canadian corporation to purchase the property. The Canada Revenue Agency considers that if the property is made available to the shareholder, a taxable benefit will arise, that may not be limited to fair market value rent and might be based on the cost or value of the property. The benefit would, however, be reduced if the funds to purchase the property are provided interest-free by the shareholder to the corporation. The property being owned by a corporation, any gain on a disposition of the property would be taxed in the U.S. at the corporate rate. At the Canadian level, the shareholder (or the shareholder’s spouse, as the case may be) will be deemed to have disposed of the shares of the corporation at fair market value on death.

Purchasing a U.S. vacation property is an important decision that should not be taken lightly. Canadians contemplating such purchase should consult their tax advisors in order to properly implement a structure meeting their particular needs and situation. We can help you with this.

CRA Runs Scare Tactics, to cash in on Voluntary Disclosures.

January 11th, 2010

While one has to point out that while this scare mongering results are true, it is also true that there are often much better approaches than there are to run to the tax amnesty slaughter house.

For insight into VD, make sure you visit our web site which gives you the skinny on doing a Voluntary Disclosure or not. We do advise coming clean, but not necessarily through the VD TA program…  (Won’t you come into my parlor said the spider to the fly.)

Save yourself from getting into more serious tax troubles, by becoming an informed taxpayer.

For more info go to www.taxauditsolutions.ca

 Dan White

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Jan 11, 2010 14:04 ET
Canada Revenue Agency: Come to us, Before we go to you

OTTAWA, ONTARIO–(Marketwire – Jan. 11, 2010) – The Canada Revenue Agency (CRA) wants to make you aware of the Voluntary Disclosures Program (VDP) as we move forward to aggressively address non-compliance internationally and domestically.

Here are some examples of what the CRA did to address non-compliance in the 2008-2009 tax year:

- The CRA conducted over 350,000 audit and review actions, including about 17,300 underground economy audits, and more than 1,100 audits of taxpayers suspected of earning income from illegal activities.

- The CRA completed 20,750 international audits and 34,111 audits of tax shelters.

- The CRA identified a total dollar value of $5.7 billion in non-compliance for international and large business and $2.1 billion for small and medium-sized enterprises.

- The CRA reassessed over 20,000 individuals who had participated in at least 1 of 20 unacceptable tax shelter gifting arrangements.

- The CRA completed 148 interprovincial tax avoidance cases, which resulted in more than $300 million worth of taxes being recovered.

These accomplishments led to results in the courts, including significant fines and-for some people-jail time:

- In 2008-2009, the CRA referred 164 income tax and goods and services tax/harmonized sales tax (GST/HST) investigations to the Public Prosecution Service of Canada.

- The CRA referred 58 GST investigations to Justice Quebec.

- These and referrals from previous years resulted in 323 convictions for fraud or tax evasion (including 66 cases in Quebec courts).

- Courts across Canada imposed fines of close to $29.2 million (including $9.3 million in Quebec courts).

- The offenders were sentenced to more than 81 years in prison collectively (including 17 years in Quebec courts).

- Convictions were obtained in 98% of the cases prosecuted.

In cases of gross negligence, the Income Tax Act and Excise Tax Act allow the CRA to assess a penalty of up to 50% of unpaid tax or an improperly claimed benefit. In addition, a court may, on summary conviction, fine people 50% to 200% of the tax evaded, and sentence them to a jail term of up to two years.

The CRA is a member of international organizations that work to tackle the abusive use of tax havens. International partnerships help us uncover schemes that are developed abroad and marketed in Canada. Taxpayers with unreported assets and income offshore could face penalties of up to 50% of unreported tax on income and 5% per year for any unreported assets.

You can come to us to correct your tax affairs before we go to you. Under the VDP, taxpayers who have not reported all of their income can voluntarily correct their tax affairs. They will not be penalized or prosecuted if they make a valid disclosure before they become aware of compliance actions being started by the CRA against them. These individuals may only have to pay the taxes owing, plus interest. More information on the VDP can be found on the CRA Web site at www.cra.gc.ca/voluntarydisclosures.

For more information, please contact
Philippe Brideau
Media Relations
Canada Revenue Agency
613-957-3522
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What is the meaing of life? Why are we here? It is all about paying Taxes!

January 7th, 2010


What is the meaning of life? Why are we here? It is all about paying Taxes!

In life you are fined for doing things wrong. That is punishment for wrong doing.

Taxes are punishment for doing things right. Making money is a right thing to do. Taxes punish you for rightdoing.

One would think that working hard and creating jobs and prosperity for the country is a good thing. It must not be good because we get all kinds of tax punishment for being profitable.

Small business and investors are under an ever increasing assault against their financial well being. CRA does not care what individual corporation or taxpayer goes bankrupt.

There is a Tax Fairness Provision but it is not fair.

There is Tax Amnesty, Voluntary Disclosure, but that is a horrible trap where you could find yourself in a boiling pot of tax trouble.

There is a Tax Ombudsman, but only for when you have exhausted all other options to resolve problems.

You can fight CRA in court, but normally that is more expensive than paying taxes, so the small guy is out of luck because legal justice is usually not affordable for the average Canadian taxpayer who is suffering from tax abuse.

The minister of finance claims that the aggressive assault by CRA on Canadians is to ensure fairness. That is such a load of bull. If it was about fairness then CRA would be fair when they audit. CRA does not even care if they tax phantom income (income on paper that you never actually received and may have already lost) that is just one example of unfairness, there is not enough time to go that tangent any further today…

So there we have it…. As in the days of old, the Kings of Bold, paid the serfs in gold and taxed back every ounce of gold not needed for bare essentials. They kept the serfs poor and controlled them by way of taxes.

How is it any different today? The answer is the only thing different, the only thing new is the complexity and the increased level of tax collector aggression.

Read on for what is going on with CRA today; It is really quite scary.

For more info go to www.taxauditsolutions.ca

Dan White

If you have tax problems requiring a strong CRA tax fighter, please email me;

dw@911taxes.com

_______________

Taxmen wield powerful arsenal

Whistleblower laws, exchange of information rules

Vern Krishna, Financial Post  Published: Wednesday, January 06, 2010

In this story:

Whistleblower Bradley Birkenfeld was jailed for 40 months. Getty Images Whistleblower Bradley Birkenfeld was jailed for 40 months.

Exchange of information laws combined with whistleblower legislation are powerful tools in the arsenal of tax authorities. As global economies and international trade expand, so also do the problems of tax compliance and administration. The Union Bank of Switzerland versus the United States legal saga illustrates that one man’s meat is another man’s poison.

The so-called Revenue Rule prevents nations from using conventional judicial channels to enforce their tax laws in a foreign jurisdiction. So countries use tax treaties to override the common law by providing for exchange of information and assistance through administrative channels.

For example, the United States used the U.S.-Swiss Treaty to extract banking information from UBS, after one of the bank’s former employees, Bradley Birkenfeld, blew the whistle on UBS and divulged tax-evasion secrets to the U.S. Department of Justice.

The Swiss government and UBS must hand over names of 4,450 U.S. taxpayers believed to be hiding assets in secret bank accounts. About 14,000 UBS clients stepped up to plead and negotiate tax-evasion charges as a result of the whistleblower’s information. For his part, Birkenfeld was sentenced to 40 months in a plea bargain.

The Canada-U. S. Tax Treaty also allows the Canada Revenue Agency and the Internal Revenue Service of the United States to request information from each other so that they can properly administer their taxes. However, there are legal constraints on the exchange-of-information rules. Under U.S. law, the IRS will not honour summonses unless it can show that it issued the summons in good faith. The critical question is not whether the investigation by the foreign tax authority is legitimate, but whether the compliance of the IRS with the request of the foreign tax authority is legitimate.

Taxpayers who engage in international trade and commerce can expect greater scrutiny from tax administrations. We will see more exchange-of-information legal issues as the CRA requests files on Canadians from foreign governments with whom we have tax treaties.

Birkenfeld’s fortunes change when he completes his federal prison sentence. Under the whistleblower law, he can collect 15% to 30% of the taxes, fines, penalties and interest that the IRS ultimately stands to collect. The payoff will run into the billions. The tax collector and the whistleblower are both smiling at their meat as the taxpayers drink their poison.

-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=2409645#ixzz0bwDr3zNe
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Request for info on what happened with the Smith Maneurver

January 3rd, 2010

It appears that there still are people out there who think the Smith Maneuver is a good tax strategy, so I am posting a reprint  of Bob Aaron’s article that is an excellent review of the situation.

Financial planners like Ed Rempel, who wrote insulting things about me in regards to my negative opinion on this tax strategy now not only does he look like a rude jerk, but he is a prime target for some serious tax problems with all the clients he lured into this program. If Ed gets audited, so too will most of his clients.

The concept that by doing boogy woogy, suddenly your principle mortgage can be converted to a tax deductible debt should never have expected to survive in tax court. So Mr. Remple if what you said that any accountant would be able to poke holes in my argument, that would leave all accountants looking foolish. You can be sure that in the next 2 years there will be a lot of Canadians getting audited for excessive interest claims on their tax returns. I hope Mr. Ed Rempel and the other financial planners who sold people on this idea have good insurance.

There were a good number of other people who got pretty riled up about my article in REM, but Ed’s article bugged me the most. The reason it was so annoying is that he attacked my credentials instead of my argument. If his basis for being right is that he has better credentials. Again we prove having lots of letters after your name does not mean that you know what you are talking about.

Dan white

for more info on tax problem solutions, go to www.taxauditsolutions.ca
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Beware of Mortgage Tax Deduction Claims
Posted last year.

by Bob Aaron

Earlier this month, the Supreme Court of Canada issued a decisive ruling that clarifies once and for all that the interest paid on a mortgage taken out to purchase a principal residence cannot be tax deductible under any circumstances (unless part of the house is used for business purposes.)

The ruling in the case of Lipson v. Canada, 2009 SCC 1, relates to a complicated series of transactions put into place by Earl and Jordanna Lipson back in 1994.

Initially, Jordanna borrowed $562,500 from the Bank of Montreal to buy shares in her husband’s company at market value. She paid the proceeds of the share purchase loan directly to her husband. The next day, the couple bought a home for $750,000 and obtained a Bank of Montreal mortgage on it for another $562,500. Right after the house closing, the Lipsons used the proceeds of the mortgage to pay off the share purchase loan completely.

In 1994, 1995 and 1996, the husband deducted from his taxable income a total of more than $104,000 in interest expenses on the mortgage loan. The Minister of National Revenue disallowed the deductions and reassessed Lipson accordingly. The government’s position was that the complicated series of transactions amounted to “abusive tax avoidance.”

In this country, evading tax is illegal, but avoiding tax is – generally – acceptable, except when the avoidance is abusive. If the minister believes a tax avoidance scheme is an abuse and misuse of the Income Tax Act, the government can invoke the general anti-avoidance rule (GAAR) and deny the taxpayer’s claimed deductions. That’s what happened in Lipson.

When his deductions were disallowed under the GAAR rules, Earl Lipson took the minister to Tax Court, then the Federal Court of Appeal and ultimately, the Supreme Court of Canada. In a 36-page judgment with two separate dissents, the Supreme Court sided with the government and the two lower courts in a 4-3 ruling.

Lipson may have serious ramifications for taxpayers who use schemes like the Smith Manoeuvre to attempt to convert the interest on their principal residence mortgage to a tax-deduction.

The seductive pitch for the Smith Manoeuvre on the promoter’s website, www.smithman.net, reads, “Go ahead, make your mortgage tax deductible. Yes, it can be done. Yes, it’s legal.” The essence of the Smith Manoeuvre strategy is that each month the homeowner pays down a little bit of the principal owing on the home mortgage, and then borrows it back. The borrowed money is then invested and the carrying charges on that newly borrowed money only are tax-deductible.

But, according to Melanie and Robert McLister at canadianmortgagetrends.com, “it’s not for everyone. There are both investment risks and serious tax risks. Your (investment) returns could be insufficient, CRA (Canada Revenue Agency) could invalidate your application of the strategy, or you could wind up in a negative amortization scenario if your house value falls.” (A negative amortization occurs when the balance owing on the mortgage exceeds the value of the house.)

In my opinion, strategies like the Smith Manoeuvre are far too risky for the average homeowner. After the Lipson decision was released, tax specialist Dan White wrote me to say that taxpayers simply “cannot convert their mortgage to tax-deductible interest. The final verdict is in. … The primary purpose of an activity dictates the final results in tax deductibility. They can borrow money against their house to invest and write off the interest … so long as it is not just a manoeuvre.”

Anyone tempted to participate in the Smith Manoeuvre or other strategies to try and make interest on a home mortgage tax-deductible should obtain tax advice from a qualified accountant or tax lawyer who is not selling anything except unbiased advice. Tax advisers who make a commission from selling participation in schemes like the Smith Manoeuvre may be in a conflict of interest and their advice may not be impartial.

Above all, taxpayers should not be misled by promises which appear to make all their home mortgage interest tax-deductible.
[filed: Income tax Lipson (2009) Real property]

The most common tax traps to watch out for

December 31st, 2009

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

We enter the year 2010 knowing the following there will be more audits.

December 31st, 2009


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

The ever growing invasion into the rights of Canadians

December 30th, 2009

 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

___________

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.

Happy Sales Tax to you! HST is now the law both Federally and Provincially.

December 25th, 2009

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

______

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.

CRA’s Scare Press Releases send us messages.

December 23rd, 2009

 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

_________

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

CRA does a huge tax grab on Tax Free Savings Accounts.

December 17th, 2009

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.

HST is good, but there is still lots of bad.

December 17th, 2009

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!

How CRA ruins people with tax problems.

December 16th, 2009

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
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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

CRA Injustice Creates Tax On Income that never exisited. Only deemed to be income.

December 9th, 2009

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


________

Wednesday, December 9, 2009
JUST WHAT WOULD YOU DO…
JUST WHAT WOULD YOU EXPECT
When you find yourself facing an income tax levy
that is 200% larger than your gross income that year:
(1) what would you do? And (2) what would you expect?

A commentary by Victor Drummond ©
December 2009

Gainfully employed Canadians soon become familiar with the Income Tax System used in this country. The process is simple. As the deadline to pay your income tax approaches your employer provides you with a statement of your previous year’s gross income – on a T4 slip – which also contains a list of payroll deductions and your net income for the year.

Employees who receive taxable gifts or awards from their employer will find their T4 slip also contains dollar values, in additional panels, which the employee is instructed to report on specified lines of their T1 General Tax Return. Depending upon the nature of the taxable benefit the employee receives — the tax levied and deductions applied will vary.

For example the use of company car for both business and personal use will generate a taxable benefit that is based on the percent split of personal versus business of the total distance travelled during the year. The operating and maintenance cost would be split along the same percentage.

Regardless — of the personal percent use of the car — the tax generated would never equal or exceed the employees real earned income.

The first time your income tax levy exceeds your gross income you might think there has been an error made somewhere so you visit your nearest Canada Revenue Agency (CRA) tax office to speak with an appeals officer.

After checking your employment records the appeals officer explains your reported “earned” income for the previous year includes a “DEEMED” taxable benefit derived when the shares you received from your employer — per an Employee Shares Purchase Plan (ESPP) — were delivered to you.

“What about those shares you ask?” I signed up to purchase 2000 shares a year ago at an employee cost of $2.50 per share.” “I paid for those shares, in cash, out of my savings account.” “In July last year my employer notified me that my shares had been delivered and would be held in my employee account until I decided what to do with them.” “So what’s the problem?”

The appeals officer explains that on the day your shares were transferred to your account they were trading at $250.00 per share which gave you a DEEMED gain of: ((250×2000) – (2.50×2000)) = (500,000 – 5,000) = $450,000.00

This $450,000 gain is “DEEMED”, by the CRA, to be a “taxable benefit” and is added to your “earned” income at the “Capital Gains” inclusion rate of 50% for last year. i.e. $225,000.00 plus your normal $40,500.00 annual salary.

This brought your gross earned income for the year to $265,500 which after the usual exemptions and deductions left you a taxable income of $238,200.00 Your bottom line tax rate, provincial and federal works out to 36% which produced a tax of $85,752.00

You are shocked. You say to the appeals officer: “I never received one red cent – so far – from those shares – they are still sitting in the account with my employer.” “And for your information I would be lucky to be able to sell them today for the money I paid for them.”

The appeals officer informs you of the good news: “As you paid less than a total of $100,000 for your ESPP shares you don’t have to pay the tax immediately.” “You may apply for a tax deferment now, and every year, until you sell your shares, or you move out of Canada, or your employer corporation goes out of business.”

That is good news you say! “So I won’t pay tax on the deemed gain of $450,000 I will only pay tax on the money I receive when I sell my shares.” “That’s fair enough.”

The tax appeals officer replies: “That is not quite the way it works – You pay tax on the deemed gain as of the date of exercise regardless of whether or not you lose or gain at the time of sale.”

You think this over for a moment then say: “What’s good about that arrangement?” “As long as I have that tax hanging over my head I won’t have a worry free moment.”

“So what happens if I sell my shares now for the $5,000.00 I paid for them and declare a zero taxable benefit?”

Again the appeals officer informs you: “that is not the way it works.” “The taxable benefit legislation “ASSUMES” you have received a taxable benefit at the moment you take possession of equities acquired via an ESPP or ESO. If you sell your ESPP shares now it will generate an immediate payment demand of the taxes levied even though you have actually have a zero gain situation.

“That is outrageous”, you reply, “How can anyone in their right mind expect people to pay “income tax” on money that never existed?” “I’m going straight to my Member of Parliament about this ridiculous tax and we will see about this tax on zero income.”

So you make an appointment to meet with your MP and when you arrive you are treated with courtesy and made welcome. After explaining your phantom income tax situation and your discussion with the CRA Tax Appeals Officer you MP appears shocked.

Your MP assures you he will send a letter immediately to the Hon Minister of Finance (MOF) informing him of this ridiculous tax situation and he also assures you the Minister of Finance will take prompt action to address the problem.

Now that is the kind of representation you have a right to expect from your MP.

A few months pass by and you begin to receive notice letters from the CRA reminding you your tax return has not been received and that penalties are pending if you do not submit your tax return promptly.

Confident your MP will take care of this problem you wait to hear that your tax assessment has been amended at the request of the MOF.

A month or so later you receive the following reply directly from the office of the MOF.

It reads as follows:- “Thank you for bringing your tax concerns to my attention.” “Your income tax assessment for the year 2001 has been carefully reviewed and found to be in full compliance with the terms of Canada’s income tax legislation.” “Therefore you are advised to submit taxes levied in accordance with your present tax assessment to avoid incurring additional penalty.”
“You may apply for deferment of taxes levied on the taxable benefit portion of your tax assessment by completing form T1212 and submitting the form with your tax return.”

“Should you have other concerns in this regard I would welcome your further communication.”

Sincerely

(signed) John Bull, No. 1 Executive Assistant to the Minister of Finance.

So you bite the bullet, clean out your savings account and pay the taxes demanded.

A few years later you begin to see pre-election brochures and TV ads proclaiming: “STAND UP FOR CANADA” and that if elected the federal Conservative Party will introduce legislation to provide “Fair Taxation for All Canadians.”

So you “STAND UP FOR CANADA” and vote for the Conservative party in the 2006 federal election.

True to their pre-election promise the Conservatives delivered “Fair” taxation for 37 Canadians victimized by taxes — levied on phantom income — just the way you were.

Furthermore when asked by a journalist from the Victoria Times Colonist Newspaper if this “fair tax” action would be extended to other victimized taxpayers the Right Honourable Stephen Harper is quoted as saying: “We’ll get it resolved – it will take a change of code.”

When nothing happened by the year 2008 you decide to take your appeal — for the promised “fair taxation” and justice — to the “Tax Court of Canada” (TCC). And — as advised in the TCC client information pages –- you hire a tax lawyer to present your appeal to the court.

In due course your case comes up and your lawyer does an outstanding job of describing the details of your past efforts to obtain fair taxation and he highlights the case of the 37 similar victims who had their taxes on phantom income, penalties and all cancelled by way of a Tax Remission Order (TRO).

The TCC justice hearing your appeal defers issuing his ruling for a few weeks and sets a future date at which time he will render his decision.

You have every right to expect your taxes levied on phantom income will also be cancelled and your money refunded in view of the fact the Conservative party has made a promise of “Fair” taxation for All Canadians and has set a precedent by already delivering on this promise to 37 victimized, honest, hard-working Canadains.

Finally the day of decision arrives. Accompanied by your lawyer you return to the Tax Court of Canada to receive the courts decision. You have already purchased a bottle of vintage Champaign to celebrate the end of your tax nightmare. Your lawyer assures you a favourable decision is almost a guaranteed certainty. The bottle of champagne may be all you have left to show for your efforts, after paying your legal fees, but you feel it is worth it to finally obtain justice and fair treatment.

The court justice begins handing down his decision with the words: “After careful review of the details of your appeal and consultation of similar rulings in similar cases I find that the Canada Revenue Agency has acted in full conformance of the law and therefore your appeal is denied.” “Case Closed.”

You and your lawyer stare in disbelief. How can you lose this appeal in view of the promises made by your elected government and the tax relief they have already delivered to other similar victims?

The answer is provided in the following report by Taxation Law@Gowlings, which can be viewed at:

http://www.gowlings.com/resources/enewsletters/taxationlaw/Htmfiles/V1N97_20070208.en.html

The following statements were made by TCC Chief Justice The Hon. Donald Bowman.

“In the wake of political pressure, the CRA has apparently relented from its initial refusal to grant relief to the affected JDS workers, and agreed to refund all taxes and interest paid. The natural reaction to this is, of course, “what about the rest of us?”. A spokesperson for CRA has indicated that the CRA will not be granting such relief to other taxpayers who may find themselves in similar circumstances.
Most taxpayers would consider the CRA’s stance on this issue to be patently unfair. However, absent further political pressure, or legislative amendment, taxpayers would probably be surprised to learn that Canadian courts have generally refused to recognize a duty of consistency on the part of the CRA in the course of administering and enforcing the Income Tax Act, and have expressly held that the CRA has no positive legal obligation to treat similarly situated taxpayers consistently.1 As stated by now Chief Justice Bowman of the Tax Court in Harvey v. The Queen:
The Minister’s obligation is to assess in accordance with the law. It would throw the administration of taxation in this country into chaos if the Minister were bound by every private deal he made, whether in accordance with the law or not.2

Is immunity to the laws of Canada and freedom from personal attribute such as Honesty, Decency, Fairness, Integrity, Compassion, Dependability etc what you expect from your government?

If you are not happy to be lied to, deceived, and/or exposed to legalized extortion then you must take action.

Contact every Member of Parliament in your riding, including opposition MP’s and notify them in definite terms: “Commit to correcting Canada’s defective taxable benefit legislation to put an end to taxing honest, hard-working Canadians on money that never existed.” “And include provision to fairly compensate Canadians who have already been victimized in this way.” “The U.S.A. government has already corrected their defective “Alternative Minimum Tax (AMT) legislation and included provision to treat those victimized fairly.” Ref: www.reformamt.org

If the U.S.A. can take corrective “phantom income tax” action at this time – when their economy is much worse than Canada’s — then what excuse does Canada have to perpetuate this unfair, unjust, outrageous tax policy?

Who needs a government staffed by elected individuals who have no sense of responsibility to their constituents and who blindly follow party policy that grossly abuses those who elected them?

I do not – and neither do you.

See you at the voting polls in the next federal election O’Grady.

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

Canadians have reason to second guess donations as a “safe – Do good things & tax strategy.”

December 5th, 2009

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
Related Topics

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Jamie Golombek
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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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CRA goes into competition with with the banks.

December 3rd, 2009

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