Tax time and the CRA

[ham2004]

One of my all time favorite subjects CRA. the stallwart men and women that collect our taxes and make each of us feel secure in payment of Income Tax..

I had a conversation with a SP the other evening. She noticed that I had the old income guide out and was doing some work on the computer.

To my horror she said the most numbing words in the canadian language.

"it all under the table", they can't trace it.

To everyone who is in the SP, MPA, Agency management, Drivers, telephone operators..

They can and do regularly trace it.

All it takes is one dumbass, client/SP/MPA/Driver/manager to do one of the following seven deadly sins.

1. Deposit or take out large sums of money into or out of a bank account..
2. Apply for a credit card/home mortgage/loan
3. Purchase an airline ticket
4. Buy a car
5. Declare a business entertanment expense for an evening that is over 250.00 without reciepts.
6. Make a dumbass remark like " I only do this part time/ its under the table / no records are kept" in the wrong place at the wrong time.
7. Piss off the client,

this happens in every walk of life, someone who is pissed off, will call/write/contact - GST, CRA, Provincial Sales Tax, Customs and Immigrations, the police, city hall, the local MPP or MP. The client already has your telephone number, has your agency number, knows you breast size (sorry got caught up in the moment).

For years now, CRA has been monitoring banking activity, and everything else under the guise of 'protecting the citzens against identity theft". and it works, they know who you are and what you do.

The shit surest way to run into trouble is ignore the taxman. he does cometh, and not just on the 30th of April.

be smart, report your income as professional fees, record your out of pocket expenses. If you work for an agency, sign a sub contractors agreement. Keep it legit.. and remember the best defense against a problem is your accountant.

 

[guelph]

In the past year, all of the Sched A banks have significantly expanded their money-laundering and illicit transactions monitoring operations. These departments work very closely with the RCMP and the CCRA. Although the purpose is oestensibly to crack-down on terrorist funding and large-scale money laundering, the net that is cast will undoubtedly snare a few small fry...

Does any one have current stats on the underground economy.

I read once that it's at least the size of the acknowledged economy.

An other time I heard that if the all underground transactions were reported the GST could be eliminate.

 

[ary69er]

Cash only

I once asked an SP about how she deals with living in a cash-basedbusiness in a cash less economy. Her solution was to buy everything on a credit card and settle the bill with cash deposits. Point is, everything leaves a trace and the ultimate lesson is Al Capone's downfall: it was an accountant and the IRS that took him down.

 

[ham2004]

CASH ONLY >>>> Talk about a red flag..

If you settle your credit card debt with one deposit a month to pay it off, this will really put up red flags.

Since Service providers provide a service they are GST able and also eligable for a GST rebate.

A quick side bar is that a lot of SP/MPA's live in low income housing and not only get the money free of tax benefits they also have less of an overhead then the average family.

 

[Gord's Bro]

Does any one have current stats on the underground economy.

I read once that it's at least the size of the acknowledged economy.

An other time I heard that if the all underground transactions were reported the GST could be eliminate.

Check out this site. It only relates to Ontario construction but might give you some idea of the problem. If construction, which is pretty high-profile and regulated (but at the same time known for single-person, operating-from-a-truck companies), has an undeground rate of 25% one would suspect the overall number could easily hit 50%.

http://www.undergroundeconomy.ca/index.html

G's B.

 

[ham2004]

and the CRA now requires all "construction" related activities to be documented to the GST department in the prescribed format.

If you are a company and you hire a contractor, youy must record the SIN and report annually to GST

 

[guelph]

and the CRA now requires all "construction" related activities to be documented to the GST department in the prescribed format.

If you are a company and you hire a contractor, youy must record the SIN and report annually to GST

For comparision purposes in Austrailia every one contractor, or individual must report contractor payments and if you don't and the contractor doesn't report it and is found out you are liable for the taxes evaded.

 

[ham2004]

As an IT specializing in Accounting software and networks I work for a whole wack of Accountants and Tax Lawyers, even have done some work with the CRA, recovering data for them.

Every year with out failure, some poor smuck runs afoul of the CRA, now multiply this by a factor of 10000 and you now have the average number of desk audits each month conducted by CRA.

Lets carry on..

A man decides to sell his used car on the intenet. They value of the car is 5,000.00. He selles to a pretty young SP for the agreed price. The SP takes the valuation (Used Car Package) to the license office, safety's, etests and registers the car. Based on the valuation. RST (retail sales tax) looks at the buyer and the seller and decides ( for no other reason then a desk audit is required ) to have a look at the transaction. The auditor finds that the seller has been selling cars for the past year (curb-siding) and he always gets his valuations done at a "shady" shop. He then contacts the buyer and asks them what they really paid for the car.. the SP says the price that is on the papers. Auditor goes.. BS.. and turns it over to Criminal Investagations. both seller and buyer have signed the paperwork.

CI asks for the car to revalued, its worth is higher than the stated amount. Taxes are asseted against the purchaser. Her SIN is recorded in the Public data base.

CRA while conducting a unrelated investagation into the seller, come across the SP in RST files. Runs a check and finds no income declared for 2yrs. They now have name address telephone and SIN of SP. Request SP files. SP panics, decides to go the short route and lie. AUDIT, bank records, mortgage records, life insurance, all are requested.

get the picture

 

[ham2004]

Contiuned SP and CRA
Just to end this story on a happy note.

The SP realizes she is in way over her head, takes off to a tax lawyer, who refers her to a Tax Accountant. The T.A. right away gets in touch with the CRA, sets up a face to face. Compiles a list of documents required by the CRA agent.

TA and SP sit down and get to work on the records, going back 3 years, recording all transactions (sales vs expenses) they can, fudge factor it up by 5- - 7%, submit all returns to CRA auditor. Small slap on wrist for SP, because the TA has presented the case in a business like manner. GST and CRA are both happy, SP files quarterly income taxes based on income. Remites GST yearly, claims GST imput tax credits, saves money in the long run and is audited every three years.

Taxes owed - nominal
Penality owed - moderate
Peace of Mind - Priceless

 

[Ross Eyerie]

CASH ONLY >>>> Talk about a red flag..

If you settle your credit card debt with one deposit a month to pay it off, this will really put up red flags.

Since Service providers provide a service they are GST able and also eligable for a GST rebate.

A quick side bar is that a lot of SP/MPA's live in low income housing and not only get the money free of tax benefits they also have less of an overhead then the average family.

I use my winnings at the casino to pay off huge old debts... they don't ask for your name when you cash out...

 

[ary69er]

Sigh...

I remember an incident a number of years ago when a guy in the CA firm I worked for at the time got a call from a dancer who wanted to talk about doing her tax return, and had a number of friends in the biz who wanted to do the same. He reflexively quoted a fee that wound up with her hanging up...no point to this, but just a nostalgic rememberance of a potential barter agreement...which, of course, would have been taxable...

 

[Keebler Elf]

Lets not get paranoid, shall we? Yes, there is a risk of RevCan coming down on you hard. What are the odds? Pretty slim. There's 30 million people in canada and something like 20 million in the workforce. The odds of them nailing you are slim.

As for the underground economy, it's somewhere around 15-25%, depending on how you define it. If it were 50%, the gov't would be doing a lot more about it.

Imagine this though: if everyone paid their taxes accurately, tax rates could be slashed by 15-25%, at least...

 

[ham2004]

Four quick things..

The only official piece of official legisaltion in Canada the bears the onus of proof on the defendent is the Income Tax Act;

Casino winnings - be ready to back this up. Just had accounting client audited and he claimed the same thing.. even had a hand full of the slot flags ( you know the things they write the amount on and you get to take home ) Auditor then wanted other proof. Car parking fees, witnesses, etc. she even went to Casino Niagara and checked with security to verify the winnings. Needless to say he lost, his story was not believed. Big time penality, also now under further investigation.

Losses are not a deduction unless " your primary source " of income is received through gambling. Then you could also claim that tirp to Vegas as a business trip....

This year CRA has targeted the restraunt and bars for audits. Last year it was the constrution trade, the year before it was the computer consultants and home businesses.

lets just say the house always wins and the SP's/MPA's/ and associates are betting against the house. They will be looked.. see new post ..

 

[keybitz]

can someone comment on the similarity and dis-similarity of canadian vs. us income tax rules...they appear similar to me...