Buckley Dodds | Chartered Accountants in Vancouver » Services

By: Buckley Dodds  09-12-2011

Professional Accounting Service in Vancouver

Buckley Dodds provides state-of-the-art accounting, audit, tax and advisory services to a wide range of business and personal clients – from very small owner-managed businesses to public companies.

Tax audits

If you have been unlucky enough to be singled out for an income tax audit or a GST audit we have a raft of experience dealing with just such issues. Our goal in these matters is to minimize taxes owing, if any, and to make the experience as stress free as possible for you. We are your hired gun and, although we must play within the rules and we can’t do the impossible, we feel with Buckley Dodds you have the best representation in town.

Typically, once you have been notified that CRA wants to conduct an audit, we will sit down with you and explain the process, what CRA is probably looking for, what questions they are likely to ask you and most importantly, what are your rights and what are their rights. Our suggestion has always been that the actual audit be conducted at the Buckley Dodds offices and any interview with you will only be conducted with one of our staff present. During the actual audit the CRA auditor will have several questions, most can be answered by Buckley Dodds as they will be of a technical nature or of an accounting nature. There will inevitably be some that only the taxpayer can answer and these will be summarized at the conclusion of the audit. These questions we will go over with you and explain what CRA is searching for and in many cases how best to phase your answer (always being truthful of course).

For example you are in the construction business and you take a banker, Mr. X, not your current banker, to a hockey game. CRA may ask you the question “do you ever do any business with this banker?” If you say “no” then the hockey expense will likely be denied as it was not incurred to earn income. But maybe a more correct answer is “no, not yet but he is one of my back up bankers. As you know we, in construction, are dependent on bankers to finance our next project and bankers, in my experience are a fickle bunch.  In case my current banker balks at my next project, I will try Mr. X. That is why I took him to the game.” With this answer the tickets become tax deductible.

Tax traps

There is a widespread believe that large companies use “tax loopholes” to get away without paying taxes. We don’t share that opinion but we do believe that there are many “tax Loopholes” available to CRA to force taxpayers to pay more then their fair share.  We can’t emphasis enough that you have proper tax advisers with you from the time you start in business.

A sample of these loopholes are as follows;

CRA can collect GST from you going back to 1994 when it was introduced but you are only allowed to claim input tax credits for the past three years. Suppose you had sales of $100,000 a year since 2000 and a cost of $90,000. If you filed your GST each year you would owe 5% (assuming that was the rate) on the $10,000 difference each year. $500 for each year for a total of $5,000 over the ten years. But if you didn’t file you would not owe $5,000 plus interest and penalties but $36,500 plus interest and penalties. This is because of the Loophole for CRA which disallows the input tax credit on the first 7 years. Each of those years you would be taxed on 5% of the $100,000.

If you have not registered for GST but you should have because you have sales over $30,000, CRA can go back to the date you should have registered and access you.  However if it is to you benefit to back date your registration, CRA through another Loophole doesn’t have to do it. For example if your competitor registers for GST and spends $300,000 starting his business he will receive a $15,000 refund from the government (today it would be $36,000 with the HST). If you forgot to register, CRA would not allow you the $15,00O your competitor got.

If you made corporate income tax installments in 2006 of 10,000 as you were required to do and then the company fell on hard times and lost several thousand dollars but made it all back in 2007 but did not get around to filing the 2006 and 2007 until 2010. You might logically think that you would get a refund on $10,000 in 2006 and that would be applied in 2007 so you have no tax liability. No so. Again another loophole allows CRA to keep all refunds over 4 years old so there is no carried forward to 2007.

You have a Nevada corporation that pays directors fees and legal fees in Canada. Under the US / Canada tax treaty this Nevada Corporation is exempt from Canadian tax so it doesn’t file a Canadian tax return. This seems logical but again, a CRA tax loophole, means they can still squeeze money from you. Since you are conduction business in Canada, paying fees to Canadians, you must file a tax return. Now, no matter what you will never have to pay tax here as you are treaty protected. The penalty, not tax, for failing to file a return is $2,500 per year. If you have not filed for 3 years the amount you owe CRA is $7,500 plus interest.

Filing back returns

If you file your return late there is a 5% penalty on any unpaid taxes plus 1% per month. On top of this there is interest. If you are a “habitual late filer” which means twice in three years there is a 50% penalty. As you can see if you haven’t filed for a while the interest and penalties can be huge. Fortunately CRA has a program that may eliminate these penalties. If CRA has not contacted you yet and you have outstanding returns this program may be for you. It’s called the voluntary disclose program and we at Buckley Dodds have used it several times and would be pleased to assist you with it.

The information in this article was current at 06 Dec 2011