CRA

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You are officially caught on CRA’s radar…

  • CRA is auditing or reviewing your information
  • Your filings have been arbitrarily re-assessed
  • The collections department is harassing you

No matter what the reason, dealing with the Canada Revenue Agency (CRA) can be extremely stressful.

Here are some tips to help ease that CRA audit pain.

What are your responsibilities?

By law, you have to keep adequate books and records to determine your tax obligations and your entitlements. Generally, books and records must be kept for a minimum of six years.

If you use a computer for your accounting records, you must keep your books and records in an electronically readable format, even if you also keep them on paper. Using the services of a tax professional does not relieve you of your responsibilities.

For an audit, you must make available to the auditor all of your relevant records (both paper and electronic) and supporting documents, and provide complete and timely explanations to the auditor’s questions. Failure to provide required books and records is an offence under the law.

Source: canada.ca

1. Do NOT Ignore them.

The problem will not go away. Keep the lines of communication open. Return phone calls even if the only thing you have to say is “I’m working on it”.

2. Deal with any requests or incorrect assessments ASAP as they are often very time-sensitive.

If you ignore requests and CRA re-assesses you, it can take several months to correct AND if you ignore them long enough, the problem may become unfixable.

CRA Audit Client Examples

a. I had a trucking company referred to me. He was behind on GST filings and CRA Factually assessed him. The client had opted to bury his head in the sand. The returns became statute-barred and CRA refused to reassess them. I luckily found a reasonable auditor to re-open the files and managed to save my (very happy) client $80,000.

CRA Factually assessed – If you don’t file your GST file on time, the CRA can arbitrarily access you and send you a bill.

b. In another case, (again, before he was my client) an automotive mechanic shop company underwent a payroll audit. The business owner and (non-CPA) accountant at the time didn’t respond properly to queries. CRA incorrectly assessed over $100,000 owing in source deductions. They were referred to me. It took over a year of fighting with CRA to have them amend their assessment to the correct balance owing of only $4,000. In the meantime, their corporate bank accounts were seized. Again, if it would have been dealt with properly in the first place, it would have never been an issue.

3. Enlist your Chartered Professional Accountant in dealing with CRA.

Generally, I’m the one who responds to my client’s CRA queries. If the client is preparing the response, I review it before it is sent in. In the case of an on-site audit, I prefer to gather the records and host the auditor in my own boardroom. This eliminates any intimidation factor.

Quite often, the accountant will know exactly what the auditor is looking for and be able to provide the facts and only the facts to get the issue resolved as efficiently as possible. The last thing you want is a simple review request for payroll to turn into a GST audit, personal benefit assessments, disallowed expenses… the list goes on.

Sometimes just a slight change in terminology can drastically change the audit outcome.

I had a trucking company client go through a review to determine whether a subcontracted driver was an employee. If the contractor was determined to be an employee, my client would have been liable for over $20K in payroll taxes. My client kept referring to the contractor in employee terms even though the nature of the arrangement was leaning toward the contractor. Had I not been able to pre-screen and rephrase his responses to the appropriate terminology, the client would have ended up with a nasty bill.

4. CRA isn’t always right.

I know…it’s shocking indeed. You want someone in your corner who understands taxes to be able to argue on your behalf.

I had a client undergo a GST audit. The auditor (who appeared somewhat inexperienced) proposed an assessment of over $20,000 owing. Upon review of his supporting paperwork, I successfully argued the GST owing down to less than $2,000.

Do you need help in dealing with a CRA issue? We’re happy to help!

 

I have often heard from entrepreneurs that it is difficult to obtain a mortgage to buy a home. Business owners can be viewed as a higher risk than the typical employee. As a result, obtaining financing at a preferred mortgage rate is challenging.

Here is a list of my favourite mistakes to avoid:

1. Failing to Plan Ahead

There are many factors to consider when you’re buying a house. You’ll need to coordinate your corporate tax plan, your personal income levels to qualify for a mortgage as well as your personal tax situation. Failing to plan can lead to painful tax bills and less than ideal mortgage arrangements.

2. Not Paying Yourself Enough

Let’s be honest. A huge benefit of being incorporated is having the ability to keep your personal income low and defer that personal tax bill. Many entrepreneurs pay themselves only what they need to live on. If you’re planning a significant purchase of a new home, that previous personal income may not be high enough to qualify for a mortgage on the home that you want. Consider what your income needs to be in order to afford that home you’re hoping to purchase.

3. Paying Yourself Too Much

Perhaps you’ve opted to inflate your personal income because you wanted it to be high enough to qualify for a mortgage. You report a giant dividend from your company that resulted in a large deficit in the equity section of your balance sheet. Sadly, your mortgage broker is going to see that you’ve declared income that you actually didn’t have and you aren’t going to get that mortgage.

4. Giant Spikes in Draws from Your Corporation

You’ve paid yourself a minimal salary and all of a sudden, you need to draw substantially more to be able to pay the down payment for your house. You’ve typically paid yourself $60,000 annually but suddenly need $250,000. This giant spike may put you in the most unfavorable personal tax brackets when you were barely utilizing the pleasant brackets in previous years. For tax purposes, you’re far better off smoothing out the personal draws over a number of years. In this example, take $155,000 each year instead of $60,000 then $250,000.

5. Failing to Pay Yourself Consistently

Dividends or a salary doesn’t really make a huge difference in the mortgage realm as long as you’re relatively consistent about your compensation plan.

6. Not Participating in the Home Buyers Plan

If neither you nor your spouse have lived in a home that you’ve owned in the last four years, you may qualify to use your RRSPs under the Homes Buyers Plan (HBP) as part of your down payment. After March 2019, CRA allows you to withdraw up to $35,000 for your down payment. Be sure to check out the CRA website for the latest criteria and rules around this program. Don’t have $35,000 in your RRSP yet? Bump up your wage from your corporation and make a contribution to your RRSPs. Have this money sit in your RRSP account for at least 90 days before you withdraw it under the HBP in order to get the deduction on your personal tax return.

7. Not Filing your Personal Taxes

Your mortgage broker will need a copy of your personal tax return along with your Notice of Assessment. Not having this paperwork readily available can delay approval of your financing and potentially cost you your dream home.

8. Not Paying Your Personal Taxes

Your mortgage broker will require proof that your personal taxes have been paid as part of your mortgage application. If you’ve paid yourself a giant dividend from your corporation in order to get that income high enough to get the mortgage but now can’t afford the personal taxes on the dividend—you’re still not getting your mortgage.

9. Not Hiring a Qualified and Experienced Mortgage broker

Not all lenders are the same. As an entrepreneur, you have unique circumstances that take a specific skill set to fully understand. Example: My client is an owner of a successful trucking operation. He wanted to buy a vacation property and the mortgage representative at his bank was not cooperating. I supplied my client with a list of my top mortgage brokers and he had his financing arranged within the week.

Do you need help creating a corporate plan with homeownership in mind? We’re happy to help!

GST QUICK METHOD

If your business is operating at revenue of $400,000 or less, you need to stop what you are doing and read this!

Canada Revenue Agency (CRA) offers an elective GST filing method for small businesses who have less than $400,000 in annual revenues. It is called the Quick Method and, in my opinion, it is a highly under-utilized election.

Who should use the Quick Method?

  • Other than a few industry specific exceptions, most businesses with less than $400,000 can use this election
  • Businesses with the majority of their expenses not being subject to GST would want to utilize this method. For example, if your largest expense is payroll you would definitely want to consider this.

How does the Quick Method work?

Under this method you would still charge the applicable rate of GST/HST on your sales, but this is not the same as the amount of GST you end up remitting up to CRA. What you end up remitting is based on the quick method remittance rates which are less than the applicable rates of GST/HST you charged.

Yes, that is correct, you collect more GST from your clients than you send to CRA. You do not get to claim any GST paid under this method though because the part of the GST you collected but got to keep accounts for the ITCs you would have otherwise claimed. The intention behind this election is to streamline the GST process for small businesses, but it can end up saving your business money! Who doesn’t want to save some money?

If the majority of your expenses are not subject to GST anyways, you are going to end up ahead under the Quick Method. You can find all the specifics on CRA’s website but I’ll go through a quick example below.

A practical example

It may seem a little confusing and it does require a little bit of number crunching so I will just sum it up a little.

Let’s look at Joe’s Contracting Ltd. Joe owns this business and he provides handyman services to his customers. He has very little costs associated with supplies as the majority of the jobs require only labour so he has one employee that helps him out. His business is based in Alberta and he earns exactly $400,000 in revenue a year.

Under the regular method of GST, Joe would collect GST of $20,000 from his clients and send the whole $20,000 up to CRA.

Under the quick method, Joe would still collect GST of $20,000 from his clients, but the cheque he sends off to CRA is only $15,120.

If you can choose to send CRA $20,000 or $15,120 which one are you choosing? I would think Joe would prefer sending the smaller cheque as well.

And has an additional bonus – this savings will continue to happen every single year when he files his GST return as long as he continues to meet the criteria.

The bottom line

If you think you qualify for the Quick method but have never heard of it before, you may very well be sending too much money to CRA. Reach out to us to discuss.

  1. Jazz Hands.

    That’s right. No auto-correct here—I meant it. With many cities implementing mandatory masks in public, we are missing out on a significant portion of our non-verbal communication options. Many of us can admit to over exaggerating our squinty eyes in attempts to convey that we are in fact smiling. Since Covid-19 is apparently here for the long haul, perhaps we need to consider implementing a universal sign that we are smiling without purposefully deepening our crows-feet (which, going forward, will likely be known as smiling mask wrinkles).

  2. Extended Deadlines.

    I recently visited my dental hygienist for the first time since lock down hit. After my teeth cleaning, I re-booked the appointment for six months later. In six months, it’ll be the end of March 2021! This realization was a bit of a smack in the face. In six short months, we’ll be doing our personal taxes all over again! This point is specifically for the procrastinators out there. Be aware that it’s almost time to do your 2020 personal taxes… even though you JUST finished your 2019 taxes. Perhaps you completed them earlier but JUST paid them. That next tax bill isn’t very far away. For many individuals (corporate filers included), the deadline extension has skewed the sense of urgency/timing/responsibility. Don’t procrastinate. Get ‘er done. Be on time. Missing deadlines may result in penalties, interest, missed incentive opportunities and delayed family tax credits.

  3. Covid-19 Incentives.

    Back in March and April, many folks got caught up in the government incentives and handouts. I’d encourage everyone to re-visit the CRA website to double check those programs. Over the last few months, the criteria has evolved and the website has been updated continuously. Did you actually qualify for that incentive? Perhaps you first thought you didn’t qualify but now you do. If you didn’t actually qualify but have received money, there are options to repay that money (via My Account and My Business Account on CRA online). Rest assured that CRA will be reviewing all who have received incentives to ensure eligibility.

  4. Creativity

    I’m impressed with the resiliency of entrepreneurs in Alberta. So many businesses have taken this setback and have quickly revised processes/systems and products/services to survive and or thrive. Thankfully this pandemic has hit when we have the technology to work from home. Could you imagine if this happened in 1985? Check out my article on how home offices impact your tax return. On the other hand, there are many businesses that have become victims of the lockdowns. This is truly heartbreaking. If you fall into this category, do continue to talk to your professional accountant to determine your filing responsibilities and opportunities to claim any losses.

If you need advice on COVID-19 issues with your business, please reach out! We’re happy to help. Contact us today.

The COVID-19 pandemic and resulting lockdowns have brought on a huge shift for people to work from home. Several business leaders have determined that having employees work from home is entirely possible and a great way to reduce overhead costs. Why would you force your employees to drive across town and sit in an office when they are just as productive (if not more) in their own homes? This trend has impacted our household. My husband’s automotive expenses are a fraction of what they were a year ago. On the other hand, our utilities, unlimited highest speed internet requirements, toilet paper and coffee costs have increased substantially. How does this trend impact your tax filing obligations?

Information for Employers:

If you have required your employees to work from home at least 50% of the time, they can claim some of their home office expenses on their personal tax returns. When you hand out your employees T4s, provide a completed T2200 Declaration of Conditions of Employment form. Indicate on the appropriate sections that the employee was required to work from home.

Based on the size of their home office, your employees will be able to claim a percentage of their expenses. This percentage is calculated by dividing the workspace area by the total finished area of the home. Expenses to track include: Utilities (heat, electrical, water), and maintenance (cleaning supplies, paint, plumbing, etc.) and rents. If your employee is paid commissions, they may also claim their insurance and property taxes. If home office specific expenses are incurred (fax line, increased internet capacities, office space only maintenance), the entire expense may be deductible. For example, if your household normally spent $50 per month on internet and now you spend $150 so that your ZOOM calls don’t freeze, one could argue that the $100 extra should be deductible. Similarly, if you revamped a spare room to create an office oasis (paint, shelves) you may (within reason) claim 100% of these costs.

Ensure that your employees are aware that employment expenses are often reviewed by Canada Revenue Agency. Encourage your team to keep their receipts/invoices/statements to be able to prove their claims.

Information for Business Owners:

Whether you are incorporated or a proprietor, you may also claim some home office expenses. The portion claimable is calculated in the same manner as for employees (office space divided by total finished area of your home). In calculating this percentage, it’s tempting to say that a significant portion of the home is used for business purposes. As a general rule, it’s best to keep the percentage around 10%. Any more than that and Canada Revenue Agency can argue that your home was a revenue generating property and you put your Principal Residence Exemption at risk… meaning tax implications on any gains when you sell your house. Also note that if you rent a secure commercial space, you likely cannot claim your office as well.

Keep track of your rents, heat, electricity, insurance, mortgage interest, property taxes, security monitoring fees, and maintenance costs. You can claim the calculated portion of those expenses. Consider office specific costs: the portion of internet required for the smooth running of your business, a fax line, office décor, desk, shelves, chair, chair mat, WIFI booster, etc. These office specific costs may be considered 100% for business purposes and expensed accordingly. Larger items such as furniture, computer, printers, and other office equipment would be expensed over a period of time via Capital Cost Allowance.

Ensure that your claims are reasonable and justifiable. Would it pass the sniff test for Canada Revenue Agency? Was it an expense incurred to earn business income? I think my favorite COVID-19 home office question so far has got to be: With the shortage of toilet paper, do you think I can justify expensing the entire cost of the bidet seat for my toilet? This client won tons of points for creativity and making me laugh out loud during a particularly stressful time in the accounting world. My advice: I would stick to the 10% household repairs and maintenance write off on this one.

If you have any specific questions or concerns about home office expenses for either your employees or yourself as a business owner, I’m always happy to chat. Send me a message at angela@rmllp.ca.

We’re still open and here to help.  We are just not taking face to face meetings.  We can do a lot via email and our secure online portal.

With the extended tax deadline, we’d encourage people NOT to wait to get their personal taxes done.  Most families are getting refunds due to the Climate Action Incentive rebate.  That money is worth a lot more in YOUR pocket.  ***I seriously got to call a client (who has been hit hard as of late) to inform them of a $10K family tax refund… I’m pretty certain they are happy to have filed sooner rather than later***

Stay up to date

The latest information from Canada Revenue Agency is available at www.canada.ca

If you haven’t already signed up for My Account with CRA, do so as soon as possible.  This will be the best avenue to apply for EI benefits and notifying CRA of any changes to your situation.  It will not be easy to get through to a CRA agent by phone any time soon.

Available to businesses

 

What does CRA require of an employer?

If you are a business owner and have employees, you know the challenges that can come with managing people. Hiring the right people, maintaining schedules, workloads, employment standards, and conflict resolution can be challenging and unpredictable. But making sure you are onside with Canada Revenue Agency’s (CRA) employer responsibilities doesn’t have to be.

Let’s break this down into three sections: Set up, process and report:

1. Set up:

You must have a payroll account registered with CRA and you can do this online using CRA online account registration.

Once you have the right candidate for your business you must get them to complete and sign a current TD1 form, both a federal and a provincial form. The TD1 tells you, as an employer, how much tax you are required to deduct from their payroll. It will also provide you with their Social Insurance Number which an employer is required to have before paying an employee.

2. Process:

As part of the employee hiring process, you will have determined what their pay will be.

  • Are they paid hourly, paid salary, paid by commissions?
  • Do they have any taxable benefits that you need to include in their gross income?

In order to process the payroll, you will have to determine what amount needs to be recorded as gross income per pay period for the employee.

How do you determine gross income?

Using the gross income from above, you must now calculate and withhold the CPP, EI and income tax from your employee’s cheque and hold in trust for the government until you make your source deduction remittance. You can use the payroll features of accounting software if you are using that or you can use the Payroll Deductions Online Calculator found online at CRA.

Once you have calculated the deductions, you are ready to pay your employee and provide them with a paystub so they can see how their payroll was calculated.

Remit your source deductions according to the dates prescribed for your company by CRA. Most small businesses have to remit by the 15th of the following month but as your payroll gets larger, you may have different remittance dates.

Don’t forget to include your employer portion as part of the money you remit to CRA!

3. Report:

All of your Company’s payroll from January 1st to December 31st needs to be reported annually on a T4 Statement of Remuneration slip. You must provide a copy to the employee and file a copy with Canada Revenue Agency by February 28th each year.

Another reporting requirement you have as an employer is when an employee is no longer with your company, for whatever reason. Whenever this happens you must file a Record of Employment (ROE) with Service Canada. Your ROE could be due within 5 calendar days of the interruption of employment so make sure you check out the government website for more Information on ROE.

Feel free to call me if you need assistance on ensuring you are meeting your employer responsibilities with Canada Revenue Agency.