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TAX SURVIVAL FOR CANADIANS. Stand Up to the CRA
INTRODUCTION
1. INTRODUCING THE CANADA REVENUE AGENCY (CRA)
1. Your Relationship with the CRA
1.1 Your rights
1.2 Your obligations
2. What the CRA Knows about You
2.1 Information slips
2.2 Information arising from “requests” for information
2.3 Information from other countries
2.4 Information from financial institutions
2.5 Information from tax returns of third parties
2.6 Information gathered from third parties about unnamed taxpayers
2.7 Information gathered from the taxpayer
3. Confidentiality
3.1 Third party confidential information
2. RECORD KEEPING: WHAT TO KEEP AND FOR HOW LONG
1. The Importance of Maintaining Complete and Organized Records
2. Why the CRA Is Not Fond of the Self-Employed
2.1 Employee versus self-employed
1.2a Level of control the company has over the worker
2.1b Source of tools and equipment required to perform the work
2.1c Ability of worker to hire assistance or subcontract the work to third parties
2.1d Degree of financial risk taken by the worker
3. FILING TAX RETURNS
1. The Filing Mechanics
Sample 1: NOTICE OF OBJECTION
2. Personal Income Tax Returns (T1 Return)
3. Corporate Returns (T2) and Other Business Returns
4. Filing Deadlines
4.1 Individual income tax return
4.2 Partnership information return
4.3 T4 and T4A information returns
4.4 T5 information return
5. Consequences of Not Filing
5.1 Interest accrual
5.2 Penalty imposition
5.3 Fines or imprisonment
6. Tax Preparation
6.1 Tax software
6.2 Using an accountant or a tax return preparer
7. Things to Consider When Preparing Your Return
7.1 Amended tax returns
7.2 Waiver in respect of the normal reassessment period of extended reassessment period
7.3 If you have not filed your return
4. BUSINESS TAXATION IN CANADA
1. Business Structures
1.1 Sole proprietorship
1.1a Tax forms for sole proprietorships
1.2 Partnerships
1.2a General partnership
1.2b Limited partnership
1.2c Tax and filing requirements for partnerships
1.3 Corporations
2. Goods and Services Tax (GST) and Harmonized Sales Tax (HST)
3. Payroll Taxes
4. Canada Pension Plan (CPP) and Quebec Pension Plan (QPP)
5. Employment Insurance (EI)
6. Trusts
6.1 Testamentary trust
6.2 Inter vivos trust
5. TAX AUDITS AND REVIEWS
1. Risk Factors That Increase the Odds of Being Audited
1.1 Excessive expenses and deductions
1.2 Major changes in income or expenses from year-to-year
1.3 A business that has repeated losses
1.4 Expenses that are not similar to others in your industry
1.5 Underreported earnings
1.6 Lifestyle analysis
1.7 Large charitable donations
1.8 Tax shelters and gifting programs
1.9 Child-care costs
1.10 Home office deductions
1.11 Evidence of Criminal Activity
1.12 Informant tips
1.13 Prior audits
1.14 Being self-employed or running a business
1.15 Discrepancies between GST or HST returns and income tax returns
1.16 Rental income
1.17 Shareholder loans
1.18 Errors and missing information
1.19 Employment expenses
1.20 Investment gains and losses
2. How the CRA Reviews Your Tax Return
2.1 Pre-assessment review program
2.2 Processing review program
2.3 Matching program
2.4 RRSP excess contribution review program
3. CRA Special Projects
6. WHAT TO EXPECT IF YOU ARE AUDITED
1. The Audit Process
1.1 Step 1: The audit letter
1.2 Step 2: The audit — information gathering and analysis
1.3 Step 3: The proposal letter
1.4 Step 4: The reassessment
2. What the CRA Can Do During an Audit
2.1 Requirement for information
3. Types of Audits
3.1 Correspondence audit
3.2 Office audit
3.3 Field audit
3.4 Lifestyle (net worth) audit
4. Preparing for an Audit
4.1 Business use of a vehicle
4.2 Meals and entertainment
4.3 Business use of the home
4.4 Lost or missing records
7. HOW TO ACHIEVE THE BEST RESULTS FROM AN AUDIT
1. Know Your Rights
2. Don’t Withhold Requested Documents
3. Don’t Provide Too Many Documents
4. Keep Informed by Reading Materials Published by the CRA
5. Audit Tips
8. BUSINESS AUDITS
1. Being Selected for a Business Audit
1.1 Computer-generated lists
1.2 Audit projects
1.3 Leads
1.4 Secondary files
2. Types of Business Audits
2.1 Corporate tax audit
2.2 GST and HST audits
2.3 Payroll audit
3. Avoiding Delays in a Business Audit
9. NOTICES OF ASSESSMENT, PENALTIES, AND INTEREST
1. CRA Notices
2. Objecting to the Assessment or Reassessment
2.1 The objection process
3. Collections Action
4. Penalties
4.1 Late filing penalties of income tax returns
4.2 Late filing of GST or HST
4.3 Repeat failure to report income penalty
4.4 Gross negligence penalties
4.5 Penalty for late or insufficient installment payments
4.6 Third-party civil penalties
4.6a Planner penalty
4.6b Preparer penalty
5. Interest
10. INTEREST AND PENALTY RELIEF
1. Taxpayer Relief Program
1.1 Extraordinary circumstances
1.2 Financial grounds
1.3 Actions by the CRA
1.4 Ten-year limitation
2. Voluntary Disclosures Program (VDP)
3. Administrative Appeals
Sample 2: REQUEST FOR TAXPAYER RELIEF
4. Remission Orders
11. CRA COLLECTIONS
1. Collection Call from the Call Centre
2. The Collections Officer
3. National Collections Centres
4. When the Debt Becomes Collectable
5. Trust Debts versus Income Tax Debts
6. Objections, Tax Court Appeals, and Collections
6.1 Frivolity penalty of 10 percent
6.2 Diary promises and good faith
6.3 Payment plans
6.4 The essentials of life
6.5 Creators of high-quality employment
7. CRA Collection Powers
7.1 Requirement to pay
7.1a Bank account seizures
7.1b Seizure of trade receivables
7.1c Payroll garnishment
7.2 Certificates of debt and liens
7.3 Asset seizures
7.4 Jeopardy orders
7.5 Section 227: Director’s liability assessments
7.6 Section 160: Assessments for non-arm’s length capital transfer
7.7 Notional assessments: GST and payroll
7.8 Arbitrary assessment office memo: T1 and T2
12. BANKRUPTCY AND YOUR TAXES
1. Discharge of Taxes in Bankruptcy
2. Advantages and Disadvantages of Bankruptcy
13. CRIMINAL INVESTIGATIONS
1. CRA Criminal Investigation Procedures
1.1 The start of an investigation
1.2 Search warrants
1.3 Informants
2. Charges Resulting from Criminal Investigations
3. Taxpayer Rights during the Criminal Investigation
14. FIGHT THE CRA IN COURT
1. The Tax Court of Canada
Table 1: INFORMAL PROCEDURE VS. GENERAL PRODECURE
Sample 3: INFORMAL PROCEDURE: ELECTION LIMITING AMOUNTS IN ISSUE
1.1 Informal procedure
1.1a Filing a Notice of Appeal
Sample 4: INFORMAL PROCEDURE: NOTICE OF APPEAL
1.1b After the Notice of Appeal is filed
1.1c Important preparation for the self-represented
1.2 General procedure
1.2a Filing a Notice of Appeal
1.2b After the Notice of Appeal is filed
Sample 5: GENERAL PROCEDURES: NOTICE OF APPEAL
2. Federal Court and Federal Court of Appeal
2.1 Judicial review
2.1a Process to file an application for judicial review
Sample 6: JUDICIAL REVIEW: NOTICE OF APPLICATION
Sample 7: JUDICIAL REVIEW: REQUISITION FOR A HEARING
15. TAX SCHEMES
1. Tax Protesters
16. FIRST NATIONS TAXATION
1. Indian Act Exemption for Employment Income Guidelines
1.1 Guideline 1
1.2 Proration rule
1.3 Guideline 2
1.4 Guideline 3
1.5 Guideline 4
2. GST and HST
3. First Nations Self-Taxation
3.1 Property tax
3.2 First Nations sales tax
3.3 First Nations goods and services tax
3.4 First Nations personal income tax
3.5 Provincial-type taxes
17. WHEN YOU NEED A LITTLE HELP
1. Taxpayers’ Ombudsman
1.1 Complaint process
2. The Authorized Representative
2.1 Authorizing a business representative
Sample 8: AUTHORIZING OR CANCELLING A REPRESENTATIVE
Sample 9: BUSINESS CONSENT FORM
CONCLUSION
DEDICATION
ABOUT THE AUTHOR
NOTICE TO READERS
Self-Counsel Press thanks you for purchasing this ebook
Contents
For those who follow the tax golden rule: If a taxpayer always files his or her tax returns honestly, perfectly, and on time, keeps all supporting documentation, and pays all his or her taxes when due, the person need not fear the Canada Revenue Agency.
For all others: Beware.
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• T5 — Statement of Investment Income: This slip is issued by organizations which pay royalties, dividends, or interest, in order to advise the CRA and the taxpayer of investment income earned for a given tax year. Investment income includes insurance policies, interest earned from bank accounts, annuities, bonds, and any account with a broker or investment dealer.
• T5007 — Statement of Benefits: Issued by agencies or bodies to report payments for workers’ compensation benefits or social assistance.
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