Category Archives: Audit

It’s my accountant’s fault… Third Party Advisor Penalties

February 15, 2021

Put your hand up if this sounds familiar to you:

  • Taxpayer goes on a cruise.
  • Taxpayer hears about a neat option to save tax.
  • Taxpayer buys into the “option”.
  • Taxpayer gets audited.
  • CRA says taxpayer owes more money and that the taxpayer participated in a “scheme”.
  • Turns out the taxpayer is one of 1000 people that also got assessed for the same “scheme”

Unfortunately, I have heard this story too many times.  It can wreak havoc on a taxpayer and can be scary for the tax preparer – especially if the tax preparer does not have all the information about the “scheme”.

Not to scare anyone, but sometimes a penalty can apply to a third party – including a tax preparer – if there is a “misrepresentation” on a tax return.  I am talking about the “third party civil penalties”.

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Oops, I did it again! Failure to file, and Repeated Failure to File Penalties

February 8, 2021

Be honest with me.  You were totally singing Britney Spears right now… and if you own a Peloton, you might be channeling Cody Rigsby’s dance moves too!

Now that I have your attention, let’s talk about another category of “administrative penalty” – the failure to file penalty.

This particular penalty includes a clause pertaining to not only a one-time failure to file, but also a repeated failure to file.

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What does it mean to be “grossly negligent”?

February 1, 2021

Picture this scenario:

You have been dealing with a CRA audit for the last couple of months.  Today, you get a final letter from CRA that sets out the changes/adjustments they plan to make to your assessment.  The letter includes a 30 day time frame for you to make any additional submissions. 

Your eyes scan down the changes, and come to a paragraph that talks about “gross negligence” penalties.  Immediately, you panic. 

Are you being criminally charged? 

Is CRA saying you are a “bad person”????

Can you do anything about this????

If this scenario sounds familiar to you, please know that you are not alone.  In the last couple of years, I have seen an increase in the times that CRA chooses to assess gross negligence penalties. 

Let’s break down “gross negligence penalties”.

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Filing your 2020 tax return – are you ready?

January 25, 2021

Cue music from Game of Thrones…

Tax season is coming. 

Yes, I recognize that the deadline for filing your personal T1 income tax return is April 30th (June 15th for self-employed individuals).   So, you might be thinking, “Amanda – why are you raising this now?!?!?”

I chose today to blog about this topic because I believe that filing the 2020 T1 income tax return will be a bit more complex than in past years.  So why not get a head start on things?

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But my home is my office! De-coding the 2020 WFH expense rules

January 18, 2021

Like the rest of the world, I also packed up my office and moved home in March 2020.   My new office was located somewhere between my living room and my kitchen.  Thank goodness for the Costco folding table we had purchased a number of years ago.

Over the next couple of months, I amassed some new office supplies – a new standing desk, a scanner, a printer.

I had previously reviewed the rules in the Income Tax Act (Canada) regarding home office expenses – albeit for my clients.  But there is definitely a renewed interest in the topic in light of the more recent changes to the home office expense rules for 2020.

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How long is your arm? A discussion on non-arm’s length transactions

January 11, 2021

Consider the following scenario:

Jim and Mary decide to sell their house to their son John.  A local realtor told them that they could sell the house for around $500,000.  But John helped them with some painting and drywall work so they decided to sell the house to John for $300,000 instead.

Jim and Mary figured there was no need to put anything in writing to document the sale.  After all, everyone knew the terms of the deal – they had figured it out over breakfast the other morning.  They went down to the local land titles office and filled out the transfer documents.

Two years later, Canada Revenue Agency (CRA) decided to audit Jim and Mary.   The CRA auditor told Jim and Mary that he did not agree with the sale price on the property.

Unfortunately, I regularly receive a call asking for help with this very scenario.

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Tax Chick Tips on Surviving an Audit

September 28, 2020

Last week, I was arguing an appeal in the Tax Court of Canada. The case was about the application of the specific anti-avoidance rule found in ss. 256(2.1) of the Income Tax Act (Canada) to a set of corporate taxpayers. I will give you an update on how that turned out once the decision is released…

In the meantime, we return to our regularly scheduled programming.  Today, I wanted to talk a bit about audits.

Audits are generally not a fun thing to endure.  An audit is a bit like going through security screening at an airport – the whole environment has the ability to make you feel guilty, even if you have not done anything wrong.

But if you are an honest person and have done your best to file your taxes properly, then you should not have much to fear with an audit.  At worst, the auditor might find a mistake that was made, which might result in some additional tax to pay.   You will also lose time dealing with the audit, which could otherwise have been spent with family, relaxation or perhaps on your business.

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I Object! An overview of the internal appeals process at Canada Revenue Agency

September 7, 2020

It is an otherwise happy Monday afternoon, and you stop by your mailbox on the way home. You open the mailbox and pull out… the dreaded brown envelope.

I do this for a living, and my heart still skips a beat when I see an email from Canada Revenue Agency, or open up one of those brown envelopes.

Step #1.  Do not panic.  Open the envelope and see what it says.  Sometimes, you get a letter informing you of a refund that will be deposited into your account.  High five to you!

However, I am guessing that you are not surprised to get this letter.  Because you likely just filed your tax return, or have been dealing with a CRA auditor for the last couple of months.  I am also guessing that the letter probably is telling you that you owe some money to CRA.

In last week’s blog post, I provided you with some helpful tips for dealing with CRA Collections division.  One of those tips was to determine whether you agreed with the amount owing.  If you do not, consideration should be given as to whether it is appropriate to file a “Notice of Objection”.

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Tax Chick Tips for Dealing with CRA Collections

August 31, 2020

Cue Eminem’s  “Without Me” music:

Guess who’s back,

Back again,

CRA collections is back,

Tell your friends…

Yes, my friends – after a brief, but pleasant moratorium on collections calls, it is very likely that CRA Collections will begin actively pursuing outstanding accounts again very soon.

Seems like an appropriate time for a Top 10 list of tips when communicating with CRA Collections:

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Planes, Trains and Automobiles: Taxation of Travel

July 27, 2020

One of the most common audit issues that I run across on a regular basis is a disallowed travel expense.   If you are claiming travel expenses as an employee or as a business owner, it is important to know the parameters of a valid expense and what documentation is required to prove validity. 

Let’s break down the rules for some of the more common travel-related claims:

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