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When CRA Calls:

When we hear the ring of our phones, scientists suggest that our brain is provided with a glorious surge of dopamine – a happiness hormone. Would this be true if our caller ID showed that CRA is calling?

The reason CRA is calling is not to invite you to a Jay’s game, or a Saturday afternoon BBQ. The CRA seldom calls to help you, they call when they are seeking your money because you have an expected tax problem. Over the many decades, CRA has become a master of gathering information to squeeze money from us citizens. The information gathered from a telephone conversation between you and the CRA can and possibly may be used against you.

Under normal circumstances, CRA will send you a letter in the mail. At certain times they will call you, or do both. If they call, the prudent answer would be to request for them to communicate the issue(s) via a letter. A letter will give you an idea of the pending tax problem(s), and will aid your accountant to better prepare to tackle the problem(s). The most common letter from the taxman will be a review letter requesting to see your supporting documents used to claim your expenses. If you can provide them the documents, then the matter should be over. However, should they not like what they see or if there’s no response from the taxpayer, a simple review can turn into an audit situation. It’s always best to consult with your accountant on any communication received from CRA.

Wide Powers of CRA:

 In general terms, laws are designed to protect citizens and the government, but it seems (in my humble opinion) that the laws which are designed to protect the government are more resilient and may have a broader range of interpretation in favour of the government. Again this is just my opinion. The CRA has very broad powers; the Income Tax Act allows collection officers to have the authority, without court approval, to garnish wages and receivables, and seize investments and bank accounts, for monies owed to them by the taxpayer.   They can demand information that can be admitted into evidence to support the tax offence as well as confiscate any document or thing. The CRA can demand the documents from auditors’ and accountants’, which are not protected by privilege. Failure to obey with a demand for information can lead to prosecution.

CRA Sniper – Who’s At Risk For An Audit Bullet:

In short, we are all subject to be audited, but CRA has a list of potential favourites:

• Electronic fund transfers in today’s regulatory world are being watched closely. Financial institutions must report transfers from other countries over $10,000. One transfer may not trigger an audit but if you have received several transfers, this may raise red flags and questions to follow.

• The Self-Employed and Small Businesses are big juicy targets for the CRA audit bullet, especially businesses that are heavily cash intensive. Cash intensive businesses such as construction, retail, and restaurants, to name a few, have been gaining scrutiny by CRA.

• Radical Income Fluctuations can cause questions especially for the self-employed.

• Net Losses that are continuous. Losses in a start-up are understandable but the questions posed would be is there a real loss or is the money being drained and placed underneath the mattress.

Conclusion:

The tax system is highly complicated and non-obvious. It can be a stormy ride even for the most experienced tax professional. If you get reassessed or audited, it’s best to always consult with your accountant or tax professional to help you navigate the murky waters of the Canadian Tax system.

Here at Year End Experts Inc., we help our clients with full cycle accounting and bookkeeping services. Call us at (855) 275-9710 with your accounting and bookkeeping needs, we are always glad to help.