taxdetective-Sandusky-Register

Free Tax Information pages provide examples of the kind of links you'll find on many more tax topics

Recently I used pages from the TaxLinks collection to make a submission to CGA Canada to utilize for their presentation to the Minister of Finance.  I wanted to explain for example, how the rules about vehicles, home office and CCA are found in so many different places on the CRA website that it's impossible to figure out which are the right rules to use for an individual, a partnership, or a corporation or trust n any given story.

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This is a collection of topical links generated by my research into a variety of tax topics for articles, client queries and presentations on tax to a variety of organizations including CGA Chapters for PD, CGA Financial Controllers Group, CGA Computer User Groups, CGA firm's partner's meetings plus various community family support groups and libraries.

There's a revised claim review manual setting out instructions for CRA reviewers on how to review a claim.

CRM Manual explanatory notes about changes and a link can be found here

Imagine the heart ache for everyone who knows this fellow...
CRA fines bookkeeper for taking over $100,000 from employer.

This is one of the prime reasons small business's need internal controls.

Not everyone that works for your business is as honest as you'd think.The business owner has to protect themselves by setting up internal controls.  Rules about who does what, for example would have prevented this bookkeeper from taking these funds. 

The rule is simple, it's called segregation of duties and what's required is a procedure to ensure the person who reconciles the bank shouldn't be the one signing cheques. 

To learn how to build internal controls into your business books, check out my video series on Mastering QuickBooks Software!

I'm finding this really interesting. This woman, who is really smart by my estimation, wants to do bookkeeping. She's learning QuickBooks software because business owners are using it.  She's taking all kinds of courses on how it's supposed to work, but she's not getting it. There are so many ways to do things that she's hung up on all the different choices.  So we've started with stories about her clients, one at a time, or stories about what she's found after doing about 50 different types of clients, what isn't being done properly by other accountants or bookkeepers when she takes the books over.

Today, it was about fixed assets and how to record the purchase, and when the asset is sold, how to record the asset sale in the books and on the tax return.

I've been recording key parts of the conversation and those conversations are for sale on my website.  If fixed asset / capital asset recording has always stymied you, it's no surprise.  I spent ten years doing extensive work on capital asset dispositions and acquistions, as the group of companies I worked for at the time, 30 companies in the group, about 10 operating, and 20 holding companies, re-organized, refinanced, and then sold or disposed of every single asset in the group, including 750 units in the fleet.

As a result, I know a thing or two about capital assets.  If you're looking for simple ways to handle the recording and reconciliation of assets using QuickBooks software, this 23 minute conversation might completely change your outlook on this complex area of accounting.

I'm building an inventory of stories like this one, each between 20 minutes and an hour, to showcase different challenges users might face in the design and structure of their use of the software.

Check out the list so far, and if you have a challenging story, contact me with the story.  We can have a similar conversation and we can if you like, record the conversation, for your use only, and yes, fees apply.

Story telling project

New for 2011:  not just men with hammers will have to report based on T4A's

http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/rtrns/t4a/nw-cds-eng.html

Watch for more details

Register now for “Shake Out BC”  @ www.shakeoutbc.ca

When I signed up there were 230,000 people signed up already.

Put a note on your calendar now so you remember on the day!

CRA provides for taxpayer relief, a special program you have to know to apply for if your situation warrants it. This used to be called fairness, or administrative relief. 

Voluntary Disclosures is another program under the programs and services banner on the CRA website.

Just last month, in August 2011, the procedures for requesting relief from penalties, or fairness to collect refunds for beyond 3 years changed. 

There is an interesting new form, RC4288 that sets out the terms and conditions for a request, providing instructions and examples of supporting documentation required. 

It isn't mandatory to use the new form, but it seems like it might be useful to make sure you've adequately addressed all the possible questions that might be raised and pin point exactly what you are asking for in an efficient manner.  I'm impressed.

If you are in business, and are faced with catching up and keeping current with record keeping, I have a solution for you. In March, 2011, I presented a series of ten sessions online for a live audience over two weeks.  The host was the Institute of Professional Bookkeepers of Canada. 

In BC, if you haven't been looking at your cash register tapes, you might wonder if you bought certain products, why there's a 5% tax and a 12% tax on your cash register tape.

That's because there's a reduction called a "point-of-sale rebate" (click for more details) for certain limited types of items, a primary one being books and motor fuel.  Children's clothing and feminine hygiene products qualify too.

The store is allowed to either charge the full amount and then credit you back, or just charge the net 5%.

This morning I had someone email me that their mom had a cash register receipt from Wal-Mart that had both 5% and 12% on it and the store manager didn't want to explain why.  If they had done the math, they would have found tax on the books was not charged at 12%, but rather at 5%.

In 2005 the Minister of Finance decided to add amendments to many of the medical expenses to require 'certification in writing' in order to make a claim for most of the 150 medical expenses.  Now that's easy when it's a prescription for a medication that pharmacist fills, because pharmacists and doctors have figured out each other's writing. They have a code by which they communicate in writing.

Not so much between CRA and those doctors, whom CRA has give the title of "Qualified Medical Practitioner".

In mid 2005, I volunteered to advise CRA about disability administration and was invited to Ottawa to meet with a committee of like minded souls.  We met with about several senior administration finance related teams, Benefits Admin being chief among the teams. In early 2006, that and every other committee advising CRA was terminated due to budget constraints, so we approached the Benefits Admin team to ask if we could continue to meet at no cost by teleconference. We met until the end of 2010 until the team leader for that team retired.  During that time the discussion about medical expense certificate in writing was brought up many times.  We wanted to have templates for each 'certified in writing' to communicate correctly what needed to be said, if indeed it should be said at all, and to clarify for non tax professionals when it was appropriate to attempt certification. 

You see, what needs to be communicated, is exactly what the Income Tax Act requires be certified, otherwise you don't have a claim.  Judges in tax courts write about this in their deliberations.  The content, context and purpose of the Income Tax Act is held up to the mirror with it's facts of the case, and the facts must fit the Act or there is no claim. 

But the Medical Expense claims section at CRA who would have no part in this discussion and felt that this was an infringement on their right to interpret what they received.  Maybe they felt it would taint the doctor's communication to know what was actually expected to be received. 

To me, this attitude seemed disrespectful of qualified medical practitioner's ability to understand what is to be communicated and it's expensive.  It is, I believe the cause of much time, time for Finance Rulings officers, Tax Court, Appeals and up to the Supreme Court.

Where doctors and taxpayers don't understand what the requirements are, how can they reasonably be expected to meet those requirements, or to in their own minds decide that their fact pattern doesn't fit the situation and not even begin the process in the first place? 

Here is an example from the Child Care expense claim world.. If mom is 'infirm' a condition which has no definition, but takes it's common ordinary meaning from the dictionary, dad may on T778 claim the child care expenses if mom has no income to claim again, if the doctor were to write a letter that said exactly this and I quote from the Income Tax Act: S. 63(b)(i)(B)(II):

"(II) was in the year, and is likely to be for a long, continuous and indefinite period, incapable of caring for children, because of the person’s mental or physical infirmity,"

Now the doctor could choose to elaborate, but they don't have to, it's enough that they have written and signed this statement.  If they chose to elaborate, but didn't say this exactly, it likely might mean that the claim could be denied if their description of what was going on didn't seem to exactly fit with these words.

I believe we should respect that the 'qualified persons' being asked for certification have enough intelligence to figure out that they can't sign off on the wording if it's not appropriate, but first, we must actually share with them what that wording is. 

For more wording of what's exactly required, the qualified medical practitioner currently must access the Income Tax Act, and it is accessible for free on the Justice Minister's website and S. 118.2 can be found here;
http://laws-lois.justice.gc.ca/eng/acts/I-3.3/section-118.2.html

There are devices and equipment mentioned in this section under the sub-heading (m) and those can be found in Regulation 5700
http://laws-lois.justice.gc.ca/eng/regulations/C.R.C.,_c._945/page-121.html#h-292

There are over 150 medical expenses plus devices and equipment, many of which require 'certification in writing'.  Most of the time this certification is required to be by a 'qualified medical practitioner' but there are time when it is required by 'an appropriately qualified person' as in the case of S. 118.2(2)(e) care or care and training at a school, institution or other place. 

How should you handle information about people who cheat on their taxes? Report the offenders. We are afraid, or too nice, or can't be bothered unless it affects us directly.  

People who cheat on their taxes do affect us directly, we pay more taxes at higher rates to cover deficits in funding our government programs for schools, roads, health care, education, and other programs because not everyone is paying their fair share.

It's funny, we let people get away with cheating unless we're angry at an ex-spouse, of course, then we're all over calling it in!

Contact CRA to report activity you are aware of.  CRA listens and when they catch a couple of these people and the resulting tax court case are completed, they will get a great deal of publicity. We do have an Informant Leads Program to call with just such stories and the stories about successful cases is published on the CRA website.  Just type in the word "convictions" on the CRA website at www.cra-arc.gc.ca to read about the story and the consequences of not complying with tax legislation.

What else should be done?  Please contact your Member of Parliament to share this blog and the story that prompted this post so they can bring it up to question the Finance Minister about why S. 212(1)(b) was eliminated:

CRA auditors have some tools at their disposal already.  They should be asking for documentation about any foreign receivables and checking information under exchange of information agreements (treaties)! 

Recommended actions by Finance Minister :

Reporting requirements must be reinstated if this is the result of those requirements being taken away:

The Finance Minister should have a requirement that banks to report all interest earning balances held by non-residents where a Canadian resident has Power of Attorney or any signatory on any accounts held by non-residents

The Finance Minister should be considering whether it's appropriate to reinstate NR-4 reporting for non residents where annual interest payments to non-residents exceed a threshold of say $5,000 or where the bank knows of any relationship between non-residents and residents and there are multiple accounts to get around the requirements to report by utilizing affiliated, related, or connected parties with multiple accounts.

I heard a story last week from another accountant about how people think they can get around the withholding rules. 

I really didn't like this story and sincerely hope that this change in administration of foreign account reporting (click here to see third part of the link) will address this unfortunate situation by seeing through the non resident's ownership to the real ownership by the immigrant.

I hope the intent of this change is to force banks disclosure when there is actual interest by a resident in an account. What I heard about how this works, is that new immigrant all claim they sold their business before moving to Canada and have a receivable of about 5 or 10 Million for this sale that isn't going to be realized for a few years.

They move here, under our new immigrant programs, but claim to have no money because it's all receivable.  They arrange with other non residents to open bank accounts, depositing millions into a Canadian bank that earn interest. Then, they have the non resident give them Power of Attorney over the accounts.

Why would they do this? Because as of this year, there was no longer a requirement to withold and issue NR4's to non residents with bank accounts in Canada. So no one is paying tax on the interest earned in those accounts. Even at 3%, that's still a lot of interest income, $30,000 per million and we're talking multi-millions, at least Five Million.

They live in Canada, in million dollar houses, with millions in the bank, with no income to report, because there are no bank accounts in their own name. 

How NOT cool is this?  If this is true, we are allowing people to immigrate here who don't contribute towards the cost of our health care systems, who use our roads and schools, while not contributing to the tax base.  If this is true, who was asleep at the switch?

The other part of this story is these same immigrants are only claiming enough assets to qualify for the immigrant programs and not disclosing the full extent of their foreign holdings.  Heaven help them if they get caught by our foreign reporting rules.  There are huge penalties for not reporting foreign assets.

In Canada, we are not being honest with ourselves.  Our self-assessing tax system is not effective in dealing with dishonesty, and that includes the dishonesty rampant in Canada by ordinary Canadians who don't report all of their income from cash sales, tips, trading and barter.  It's everywhere, so you can't just blame the immigrants, they are just trying to fit in with the population, many of whom don't report all of their income either. Merchants in the malls tell me they don't report all of their income.  If they did, they say, they wouldn't be able to stay in business.

We really need a simplified system that is fair, easy to administer and audit, plus one that people can trust that they are paying their fair share and where they feel like they can comply and still make a decent living. 

.. It may be time to take a very close look at meal and entertainment claims, before an auditor does... The word on the street is that CRA's stance is that meals are only allowed on travel out of the area.

Did you know that net gaming proceeds were 33.33% in 1999 when the original agreement was signed, and have dropped to 12% in 2010?

If this matters to you, there's a deadline of September 15th to get in your presentation, no matter how humble.

Check out the BC Assoc for Charitable Gaming

CRA provides guidance on complex topics

Donations of Gift Certificates or Gift Cards

and you'll find more here...
What's New in Gift Giving (Charities)?

Free CRA sessions

CRA's explanation of the changes, yet again, another example of how complexity is overwhelming us.

CGA Canada Media Release

Issues in Focus: paper

Accountants really do try to explain how things work.  We find the explanations unbearably complex.  In fact, we often live in horror of having to explain the rules. For example, what's a GRIP account?  Are my corporate dividends eligible or ineligibile? (see previous post on dividend links)

It's comforting to know that someone out there with some clout (at least one hopes they do) has noticed that we suffer under this burden of complexity every day.

I am positive the people who write this stuff never talk to real people.  If they did, they wouldn't use the language they use, they wouldn't keep adding to the complexity and they definitely wouldn't disseminate the rules by scattering the various parts of any given topic all over the place by putting the rules in places where they think people will look, rather than under the topic itself.  The rules on any one topic can't ever be found all in one place on the CRA website.  They try, but for example, vehicles rules that apply to employees, employers and self-employed persons are all different.  You'll never find the crossover to compare to see what the differences are.

How on earth can our self-assessing system survive the complexity?  It's no wonder people give up and don't even report their income.

Have they ever really looked at the complexity of rules for capital cost allowance, capital gains, vehicle expenses, home office expenses, meals and entertainment and heaven help us, medical expenses, with over 150 types?  I've been attempting to explain it ever since about 2005 and at times it overwhelms me.

It really is time to simplify.  Between 1980 and now, when I first started studying tax, the complexity has caused the Income Tax Act to go from an inch thick to about 3 inches thick and to expand outwards in all directions from the small book it once was.  Now it's only possible to hold it with two hands and one must take care to make sure the spine doesn't break.

 TaxLinks sample

TaxLinks Subscription for the remainder of September 2011 $2.49

Found this fabulous link last week somewhere in my travels...
http://www.canadabusiness.ca/eng/guide/1610/
backing up one more... a whole bunch of links relating to regulations for specific business activities:
http://www.canadabusiness.ca/eng/126/156/

The following Legislative Proposals Notice of Ways and Means Motions and Explanatory Notes has just been posted on the Finance Canada Site.