CRA Tax Audit
A trust examination is a type of business audit that involves only taxes paid by or on behalf of other people and then held in trust for the government-payroll and HST. These generally occur where businesses miss filing deadlines, and in that case trust examiners will review the business' records and assess the taxpayer and assess failure-to-file penalties without their filing a return. Most are very straightforward and do not involve contentious issues; however, some may involve the CRA making significant changes, such as by re-characterizing independant contractors as employees.
Reviews could be described as "mini-audits", in which the CRA will review claims in a tax return. These often occur where individuals claim genrously-treated expenses and credits, such as employment expenses and foreign tax credits. They may take place before or after an initial assessment, which may result in delays to refunds. Reviews involve relatively junior employees, who have little discretion and take a highly restrictive view of the evidence that can substantiate an expense.
Yes. Particularly in the course of formal audits, representation via a tax lawyer can help you explain your position, speak the CRA's language, . A tax lawyer will also know how to prepare the necessary legal submissions that include extensive legal arguments required to resolve the issues relating to your audit. Tax lawyers are trained both in substantive tax law and also in persuasive argumentation. The best time to obtain legal representation is when you first receive notice from the CRA that they intend to conduct an audit.
Voluntary Disclosure Program
Claiming Benefits and Credits
Reducing Penalties and Interest
- CRA action or inaction (for instance, an unduly long audit process or adjournment request by the CRA's lawyers in tax court)
- Inability to Pay or Financial Hardship
- Extraordinary Circumstances (such as fire, flood, illness, or a death in the family)
Leaving and Returning to Canada
If you are leaving Canada permanently, you will likely cease to be a Canadian resident for tax purposes. Before leaving, it is often sensible to complete and file a "residency determination request" using form NR73 to confirm with the CRA that they will not consider you a Canadian resident and ensure that you will not need to pay Canadian income taxes on your worldwide income. This is not always as simple as it sounds; where you retain Canadian ties, or if you spend a substantial amount of time in Canada, you may continue to be a Canadian tax resident, particularly where you retain a Canadian residence or family members. In a close case, it is sensible to work with a Canadian Tax Lawyer to navigate this process and ensure that you get the result you are looking for.
If you are returning to Canada, you will want to be deemed a Canadian resident for tax purposes. This may have tax advantages for you as the Canadian tax rate may be lower than what you were paying previously. It is also possible that the country that you lived in will not require that you pay any tax if you are paying taxes in Canada. In doing so, you gain a considerable tax advantage.
Yes, you may need to pay tax to two governments , depending on which countries you are refering to. The vast majority of countries assess tax on the basis of residency but not citizenship, with the United States being a very important exception. If you are in fact a tax resident of two countries, it is entirely possible that you will need to pay tax to both on your worldside income, with the caveart that in many cases offsetting foreign tax credits will be available. However, many copuntries have a tax treaty with Canada that fundamentally alters how tax residency works because of the presence of tie breaker rules.
Late or Unfiled Returns
Where a taxpayer, HST registrant, or payroll employer misses a filing deadline, CRA will assess non-filing penalties on tax returns. These vary depending on the issue. If you have several years of outstanding returns, particularly if you do not respond to requests to file, the CRA may issue "arbitrary" Notice of Assessments that roughlu estimate income in a year, often include penalties, and allow the CRA to collect on the balance. These estimates tend to significantly overstate taxes owing, because the CRA assesses very few expenses, credits, or Input Tax Credits that offset HST.
A Notice of Assessment is a statement sent by the CRA to taxpayers which details the amount of income tax that they owe. Most often, notices of assessment follow filed returns. However, where a taxpayer has not filed a return, the CRA may assess the year or period unilaterally, in which cases they will take a very limited view of the taxpayer's entitlement to expenses, benefits, and credits. The CRA cannot apply any of their collections powers without first sending a Notice of Assessment. Where a taxpayer files a return, the CRA generally takes the return as filed; however, they may make smaller changes without consulting the Taxpayer and may conduct a review of the claims prior to assessing (see above)
A Notice of Ressessment is a second statement sent by the CRA that alters the results of the initial assessment. These typically follow either an audit/review or request from the taxpayer themselves to adjust the return.
Yes. You may be able to file a Voluntary Disclosure-see the discussion below.
Corporate Tax Deductions and Compliance
Employers fill out Form T2200 that confirms to the CRA that the employee satisfies the restrictive statutory conditions for claiming employment expenses. While this does not guarantee that the CRA will agree, CRA can and will deny any employment expenses where the Taxpayer does not provide form T2200 upon request.
Self-employed taxpayers use Form T2125 is to report business or professional income and expenses
Corporations report income using a T2 Income Tax Return. These returns are substantially more complex than individual return, and should almost always be prepared by a professional.
Employees claim employment expenses using form T2200, which they include in their income tax return.
Employers prepare and issue T4s to employees and the government, which is a statement setting out what salaried employees have earned before deductions, as well as an what has been deducted in CPP, EI, etc.
Many business that pay certain independent contractors on a regular basis need to issue T4As, which are similar to T4s but because contractors run their own businesses, they assume many of the tax-witholding and -remittance obligations.
Resolving Tax Disputes
CRA Compliance/Tax Litigation
Typically, the conduct of the CRA has little impact on Canadians' tax payable. If, say, an auditor overestimated a taxpayers' income, the Courts and appeals expect taxpayers to respond by demonstrating that they earned less income in the year, not merely that the auditor's process was flawed. However, in limited circumstances, CRA procedures may be subject to judicial review, whereby unfair procedures or unreasonable decisions can be overturned in the Federal Court. This primarily applies to discretionary decision involving interest relief and similar programs, but can extend to collections action and some unusual circumstances where an appeal to the Tax Court of Canada is not available. For minor issues and disputes for CRA personnel, one can file a "service-related complaint", formally notifying the CRA of improper conduct.
Judicial Review is a broad legal remedy whereby Canadian superior courts review the conduct or decisions of government officials to determine whether they have acted within the directionary mandate prescribed by legislation. In the tax context, reviewable discretion is somewhat unusual. Judicial Review of most decisions consists of a review of the "reasonableness" of a discretionary decision, but can also extend to whether it was conducted fairly or sufficiently quickly.
In the tax context, relief may be able via judicial review where the government refuses to assess a tax return, denies a request to waive interest without regard to the record or in a discriminatory fashion, or where the government allows its agents to improperly treat administrative guidelines as binding. It is not available where a taxpayer disagrees with the result of an audit or objection.
Reducing Taxes Through Corporate tax planning
What are some ways for my corporation to save on taxes through tax planning strategies?
There are a variety of tax planning strategies that a business owner or corporation can take to save on taxes. These include using the lifetime capital gains exemption, investing in a holding corporation, income splitting, passive income investment, and estate freezes.