Thursday, July 2nd, 2020

The Taxman Cometh

By Chris Green on Mar 01 2010 • Filed under Chris Green's Legal Basics

Ah, Springtime! Cherry blossoms, daffodils, and everywhere signs of new growth and optimism, except of course for that black cloud of an April 30 tax deadline looming on the horizon. 

It snuck up on you again this year, didn't it? And unfortunately, it is now too late to do much to dodge the tax bullet this year: the Registered Retirement Savings Plan (RRSP) deadline is past, as is your chance to give your money away to charity instead of the government. Unfortunately, there is really nothing for it but to square your shoulders and take your medicine. 

Cry, whimper or rage as you do it, but whatever you do, file your tax return. Remember, failure to file a return is a criminal offence, while failing to pay your taxes is not.

Perhaps you have been taking the ostrich approach to your tax filings for several years now, and the sky hasn't fallen yet. Well, don't be lulled into a false sense of security. It may take awhile, but eventually Canada Revenue Agency (CRA) will find you, and when they do, you will be facing interest and penalties, often in excess of the amount of tax due, for which you will also be assessed. If you have been egregious, you may be facing charges of tax evasion as well. 

Far better to turn yourself in, using CRA's voluntary disclosure programme, before they arrive at your door. Unless your reason for not filing was because you truly had no taxable income, you will probably want to have professional assistance with the process. Your accountant or even a bookkeeper can help you with the process , if the amounts of tax involved are modest, but, if you know that voluntary disclosure will result in writing an uncomfortably large cheque to the tax man, you need to talk to a tax lawyer. 

A tax lawyer can negotiate anonymously with CRA, by virtue of solicitor-client privilege, whereas your accountant cannot. With a tax lawyer, you can find out with certainty how much you owe and what the terms of payment are to be before you disclose. 

Perhaps you have filed all your returns, however, and your return has been chosen for an audit. CRA audits a random sampling of all tax returns and additionally, will sometimes target certain industries. Some years it’s waiters and waitresses, while other years realtors or construction workers are the target. 

There are a few things you can do to minimize your chance of being audited. Firstly, make sure you file all your required returns on time. That includes your business' GST and employee source deduction returns. Late filings are a significant red flag. 

Incorporate your business, if you haven't already done so, so that your company can pay you a modest T-4 wage. That way, your personal tax return will show only employment income with the deductions already made. CRA auditors swarm to the self-employed like flies to manure, but largely ignore those only declaring T-4 income. 

Avoid the seductive call of the tax shelter. Trying to press the outside of the envelope with super aggressive tax planning is another red flag you don't want to run up the flagpole for CRA to see. Historically, most so-called tax shelters have brought tax payers nothing but grief. If you are looking for present tax relief, look to your RRSP, and for tax relief down the road, establish a Tax Free Savings Account (TFSA) 

Oh, and by the way, it’s not too early to start planning for minimizing your 2010 tax bill. You can contribute to your RRSP year round, and your favourite charity still needs you.

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