Category Archives: Penalties

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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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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Taxpayer Relief – I have applied, so why don’t I feel relieved?

September 14, 2020

Things happen that are sometimes out of our control.

We get sick.

Our basement floods and destroys our records.

Or…

We go on lockdown due to a global pandemic.

These unexpected events can sometimes have an affect on our ability to file our tax returns in a timely manner, and in paying amounts owing in a timely manner. 

In past blog posts, I have already tackled some options for you when you do not agree (or cannot pay) the taxes owing.  In this week’s post, I want to focus on options available to reduce or eliminate interest and penalties accruing on an account.  Today, we will be discussing “Taxpayer Relief”.

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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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Time Travelling Documents – why backdating is always a bad idea

August 3, 2020

Question: “So, my partner and I sat down this morning and we decided that the agreement has to be dated January 1, 2020.”

Me/Answer: “I need a bit more information before we can decide that January 1, 2020 is an appropriate date.”

Question: “What is the big deal?  Just use that date!  No one will ever know!”

I wish I could say that I made up this conversation, but I did not.  I have had this conversation several times in my career.  There are often attempts by others to “bully” advisors into preparing documents on terms that do not squarely match reality.

The purpose of today’s blog post is two-fold:

  1. What is backdating, and when is it appropriate (if ever)?
  2. A quick discussion of the ethical responsibilities of advisors.
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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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But I said I was sorry! Five fast facts about the Voluntary Disclosure Program

July 13, 2020

Tax litigators are rarely called upon to provide advice in a “preventative” fashion.  Usually, we get a panicked call from the taxpayer after something has happened. 

When I am contacted by a client (or his/her advisor) about a problem, my mind instantly starts running through possible “solutions” and the pros and cons of each solution.  Some of these “solutions” include:  remission orders, rectification orders, rescission orders, Notices of Objection, Taxpayer Relief applications, and utilizing legislative provisions to allow for late filing of an election/return or the amendment of an election/return.  These solutions are akin to tools on a tool belt.  You have to find the right one, and sometimes you might need two or three to get the job done.

Prior to 2018, one of the “tools” I commonly considered using was the “Voluntary Disclosures Program” (“VDP”) at Canada Revenue Agency.   The purpose of this program is to provide relief from penalties (and in some cases, interest) for taxpayers who voluntarily come forward to correct previous errors or omissions.  However, the program was overhauled in 2017/2018, resulting in a drastic change to the applicability of the program.

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