Tax issues are complex and dealing with CRA is not a pleasant experience for most people. Often times, it is a roller coaster emotional experience.
This is not surprising as it often involves money. When it comes to your money, emotions get involved.
Below are the top 8 reasons that cause this difficult relationship with CRA. We have included suggestions on how you can successfully avoid or navigate these situations:
1. Ignoring correspondence from CRA
When those brown envelopes come in the mail, you toss them out without opening. If you open them, you glaze over them without understanding the contents, and put in a pile.
Often times, these letters are your Notices of Assessment which confirms your tax liability or refund. Other times, especially when it is in the fall or later in the year, they are letters requesting support for a deduction or tax credit claimed.
Very often, you or your accountant have the supporting documents, but if you don’t open the letter you won’t know. Without your response, CRA will reassess you for a higher amount. And in very adverse cases, CRA may start garnishment, if you have a balance owing.
One way to combat this, is to have your mail directed to your accountant’s office. There is a box on your tax return that you tick to facilitate this. Discuss with your accountant before you choose this option.
2. Corresponding (too much) with CRA via the phone
This seems contradictory, given the previous point. However, after you have opened the correspondence, seek guidance from a professional to thoroughly understand the requests from CRA.
If it requires a phone call, it might be best to have a professional handle the call on your behalf. It’s not that you have anything to hide; it’s just that you may say something that leads down a path you would rather not go.
3. Failure to review your income taxes before submission to CRA
This is such a big one. Your business or personal taxes are prepared; you sign them without reviewing them. In our firm, we always send back the tax returns for our clients to review, before we submit.
Often times, when you see the tax liability or refund, this brings up questions and opens up a discussion about other potential savings that were not taken into account.
If your tax preparer includes data in your tax return that you are unaware of, or don’t understand, ensure you question it, because at the end of the day, it is your responsibility.
And often times, your accountant or tax filer may not be available when you need input from them to address questions from CRA.
To protect yourself here, always use a trusted and competent accountant to prepare your business or personal taxes. It is not worth the headache to use a cheap alternative.
4. Failure to remit HST payable and payroll deductions
This one speaks for itself. How would you feel in the following scenario?
You asked your friend to collect money on your behalf from someone else (because it is more convenient for them to do so), and then hand over that money to you.
In fact, you gave them an incentive to do this, by allowing them to retain a portion of the funds they collect, or by giving them a few days to hold onto the funds before you ask them to remit it to you.
Your friend instead, collects the money, and keeps all of it. Never handing over a dollar to you! Wouldn’t you be mad? Wouldn’t you pull out all stops to get your money from that friend?
Well, this is how the CRA feels and acts regarding HST and payroll deductions.
When you collect HST or payroll deductions, put it in a separate savings account. When the time comes to remit the funds, it will be there.
Also, consider setting up automatic withdrawals from that account, so that CRA will get paid on the due date.
5. Failure to discuss a payment arrangement with CRA
Once CRA has assessed you, and you agree with the assessment, you may become overwhelmed at the size of the bill. Often times, you pay what you can, whenever you can. Bad idea.
When you find yourself in this position, it is best to call CRA’s Collections department, and arrange a payment plan suited to your needs. Normally the Collections department will only do a one year plan. If you need a plan longer than one year, you will be directed to another CRA department.
To qualify for a payment arrangement longer than one year, you will need to supply supporting documentation for your income, family budget etc.
A good accountant will be familiar with this process, and may be able to assist with guiding you through this process.
It is a good idea to have your accountant by your side during these payment negotiations to ensure that what you agree to will in fact be something you or your business can afford, and fits into your cash flow.
6. Failure to adequately keep proper books and records to facilitate a CRA audit
I cannot stress this one enough. I guess the best example I can provide is how we do business at our firm.
The personal, sole proprietorship and corporate tax process we employ is very rigorous. We don’t just take what you give us, record it and send off to CRA.
We record what you give us, ask questions, ensure that you have supporting documentation for things you claim (if you don’t, we caution you to get it, and have it handy), and we also keep soft copies of certain items that we know CRA typically asks for when doing a post assessment audit, a Payroll or an HST audit.
By doing this, when CRA calls for an audit of our clients, we NEVER sweat or panic, because we have all the records available that CRA will need.
Additionally, the clients don’t panic either, because we usually ask CRA to conduct the audit at our office.
7. Failure to actively manage the CRA audit process
The audit process needs to be managed. You cannot refuse to provide CRA with requested books and records, but you need to ask and understand why they need certain documents.
You must be prepared to answer questions smartly, without exposing yourself to further questions that may result in potential future audits.
You must be able to assess the direction CRA is taking the audit, and respond appropriately e.g., could they be looking into fraud or negligence.
You must also understand their calculations of the assessed balance at the end of the audit. For these very reasons, we always suggest to our clients that they conduct the CRA audit at our office.
8. Failure to understand the garnishment process before it is too late
Garnishment is one of the last tools CRA uses in its toolbox. For you to get to this stage, you must have ignored previous CRA correspondence, made no payments on a balance owing (after repeated requests for payment), reneged on a payment agreement, or failed to make an agreeable payment.
By the time you get into garnishment, it is very difficult to stop it. It can be stopped, but this is where you will need your trusted and competent accountant right by your side to guide you through this, and to stop the garnishment.
Don’t expect a miracle to stop the garnishments, there will be very clear requirements made of you, and if these are not met, CRA will likely restart the garnishment, or move to their next tool, usually a lien on your property.
If you’re having issues with CRA, consider reaching out to a professional for help. If you currently have no issues, pay attention to these 8 items to stay away from potential issues with CRA.