taxdetective-Sandusky-Register

Bravery, Responsibility, Integrity and Tenacity.

I'm borrowing the new Britannia HS BRIT acronym this morning because it definitely applies to anyone tackling a backlog of tax returns for a family.

Bravery
The act of starting anything requires a plan. Being willing to plan and execute something of this magnitude when you're this far behind, you're very brave.

Responsibility
Canadian are responsible for filing their own tax returns, and for understanding what those rules are. Not taking responsibility can be very expensive, could cost in penalties and interest if you owe tax, or in lost benefit programs. What programs could you lose out on? I can think of three right off the cuff but there's many programs that require the provision of Net income calculation. 
1) CPP, OAS, GIS top up for old age pensioners
2) Pharmacare
3) Premium assistance reduction on BC Medical plan premiums.
For sure your banker won't provide you with financing if your tax returns aren't filed and tax paid

Integrity
The loss of integrity that comes with non compliance can cause you to lose sleep. Being in integrity means sleeping at night. It's that simple. Out of integrity? You aren't sleeping.

Tenacity
Remember, when tackling a backlog of anything, it isn't going to take any less time than it would have taken if you'd done the work every year. If self-employed, your bookkeeping may take 4-5 hours a month. Multiply that by 60 months for five years backlog, and you're looking at a significant commitment in time, and the cost of assistance by someone qualified to help with the planning, organizing and execution of compliance.
Tenacity is sticking with it.

Catching up may take a few months.
You may choose to request a voluntary disclosure if you meet the criteria. You may need legal assistance. It just got more difficult to communicate with Canada Revenue Agency about disclosure as they no longer accept phone calls due to the volume of work in the system.

It's necessary to complete a form, send it in and expect, that if it's not completed correctly, to get the whole thing back in the mail. In the mean time, if you receive any demands to file, your ability to disclose voluntarily is lost.

Be prepared to be complete
It's necessary to meet all four criteria, especially to estimate how much is owed, and be prepared to pay what you owe.

Oh yes, you only get one kick at the can, so be prepared to deal with not only your taxes, but your GST/HST, and payroll disclosures.

Penalties for non compliance can be significant
An approved voluntary disclosure will eliminate all the penalties but only if you qualify. Voluntary disclosure won't forgive interest. But there is a Taxpayer Relief program that in limited circumstances may be helpful.

For more information about voluntary disclosures
http://www.cra-arc.gc.ca/gncy/nvstgtns/vdp-eng.html

For more information about Taxpayer Relief
http://www.cra-arc.gc.ca/E/pbg/tf/rc4288/

For rates, dates, and penalty information, scroll down to the relevant links
http://www.taxdetective.ca/whatsnew2009.html

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Used to be that if you stored investment income information, stocks, bonds, investment account papers or business contracts in your safe deposit box you could claim the box rental as a deduction from either investment income or business income.

For individuals that would be 2014.

For corporations, for years that begin after March 20, 2013.

This denial is placed in the same section as personal or living expenses and use of recreational facilities or club dues... that means you can't write it off on the T2125 or on the corporate books either, and bury it in bank charges or storage charges.

It's a named item that you can NOT deduct after 2013.  So commencing 2014, no safe deposit box fees are deductible... and you can't prepay it to get around this.

S. 18(1)(l.l) is a general limitation in computing income of a taxpayer from a business or property
http://laws-lois.justice.gc.ca/eng/acts/I-3.3/section-18.html

It was passed before Parliament Prorogued in Bill C-60
http://www.parl.gc.ca/HousePublications/Publication.aspx?Language=E&Mode=1&DocId=6249902&File=38#3

Gov't needs money, and they are looking to tighten up where they perceive there is potential.

Did you know there's a Not for Profit risk project under way?
http://www.cra-arc.gc.ca/tx/nnprft/nprp-eng.html

Apparently NPO's have been receiving CRA audit letters advising them that they are off-side, but that they won't be penalized this time.

A few years ago now, I organized a one of a kind panel discussion on NPO compliance for my CGA chapter. I doubt I could ever get those experts together all in one place again. They each put in a supreme effort and participated in an impressive, and professional manner.

At that time, I called CRA, to ask who was responsible for NPO's. I was looking for a speaker. After all, if an NPO earns income, they do have to file a T2 and pay tax on that portion of their income. I wanted my audience to hear about it from those who enforce that rule.

When I called, I was direct to Charities. After all Charities are a form of NPO, so that made sense.  But Charities said no, that would be Business. So I called Business. Business said, you guessed it... no that would be Charities.

At that point, I called Ottawa. Ottawa called me back. Well someone there, that I'd met years ago at Deloittes in Vancouver who works in Ottawa for CRA now called. He was very interested in one statistic I had found, that about 12% of the GDP was from NPO's. That's a lot of GDP. As for who was responsible for all that NPO business? No one.  Well it seems that someone took an interest in my question. Nice to see that CRA listens when you ask questions. BTW, there were many CRA employees who stepped up, in fact we had to select only a few, because so many had something to say. See the panel report on my NPO links page for what they had to say.

If you want to learn more about NPO's and their requirements for compliance and governance, I put together a page of useful links and at the top of that page, there is a summary PowerPoint PDF of the panel discussion key points. There aren't very many resources about NPO compliance, so the University of the Fraser Valley NPO Mgmt program linked to this particular resource, and it gets the most hits of all the pages on my website. If you're an NPO manager and haven't got certification, this program at UFV is run in conjunction with the Province of BC.

http://www.taxdetective.ca/Nonprofitlinks.html

The phone rings. It's a friend. She has a friend. A friend who is trying to get the record keeping done using QuickBooks, not a current version of the software, by the way. I've had so many of these calls this year that this time, I am writing out the answers.  I love getting calls from friends, but really? Why does everyone think that because they used to keep books that they can deal with a QuickBooks mess? Once it's a mess, drop it like a hot potato, that's my first advice.

It's the usual, this friend got permission for me to look at the books, but nothing is working. The bank isn't reconciled. There are all these entries in the bank register that aren't reconciled. But someone did bank reconciliations. They just ignored everything in the register that wasn't reconciled, yes, they left it there, to hang out, if you will. And they are using Journal entries everywhere, even to record payments for Amex for business expenses. They have a bank account set up as the shareholder loan account.

If this sounds familiar, its why your books are a mess. The chart of accounts is meant to be used properly. If that isn't happening, and you aren't naming every transaction, there's not going to be a complete, accurate set of books because it won't make any sense without names, dates, choice of the right types of accounts, and items being used to match sales and cost of sales.

The deposits were entered at journal entries and somehow journalized out again to create sales. Invoice forms weren't used, Items weren't used, everything was done by journal entry.

The opening balances, well, the friend of the friend, she didn't know to ask for the trial balance.  She has the financial statement, and the T2, and the comparatives aren't completed by the previous accountant.

What would I recommend?

Get some training on how to use QuickBooks properly. By properly, I mean how to use Items, Forms, how naming works, how to reconcile accounts. What a register is, and why you'd look at the register to fix it so that the reconciliation really is a reconciliation. I have videos and sample data files to help you with this phase. And this phase will likely take a concentrated two weeks. The software may be called Quick... but it's not quick to learn. It's quick to use once you know how. That's why I love it.

Become an expert. It takes at least 100 hours to learn how to use the software properly, and about 1000 hours to become even remotely expert. Most people who are already bookkeepers or accountants are watching my videos 3 times over, and there's 20 hours of basic course, and another 5 hours of how to use the report writer to reconcile accounts and create working papers. They watch the video, starting and stopping it, and play with the sample data file that they restore from my free stuff on my website.

Start over. Ditch the old file.  Keep it to refer to if you think there's anything there that would be helpful. I doubt there is. After 2-3 bookkeepers have been at it, and you're third up to bat, it's pretty much a write off.  It's going to take about three or four times longer to fix the mess than it is to do it right by starting over. And while you're starting over, check that the entity you are accounting for is actually a corporation or self-employed, or a partnership, by checking the documentation. Don't just take someone else's word for it.

Watch my best practices videos. That will show you how to enter the opening balances and balance up to the trial balance so that you have what you need to download the comparatives for the T2 schedules S 100 and S 125.

Take the last trial balance, reconcile the T2's since inception of the incorporation to make sure there's no dividend/ retained earnings fraud that needs to be fixed,

Create a new QuickBooks data file, start with the opening balances, download the bank transactions, coding all deposits to Customer Names by using the Payment window and grouping deposits, adjusting for credit card charges, then code all the payments to AP.  Watch my video on YouTube on the TaxDetective channel for how this is should be done. it's called It doesn't matter how it was paid.

Do full accrual accounting the way it's meant to be done, on a daily basis, using the right dates for invoices, purchases, deposits and payments, reconcile everything properly. And post the adjusting entries to the end of the last year, not the first day of the next year.

Oh yes, and if you think you need to get your hand held, it's going to cost you thousands of dollars to fix this.  Or, you could purchase my video series bundle of products and start with the first video, for under $300. Business owners who start to get it after the first couple of thousand in consulting fees swear that they should have listened to me from the beginning and bought the videos for their office, themselves, their spouse, and made everyone watch it.

email me for more info eileen@taxdetective.ca

Lately I've been turning down far more work than I've been taking on. Here's why.

It starts with a phone call where someone introduces themselves, says they heard me speak to a parent support group somewhere in Canada. They live somewhere, many miles from me, but they'd like me to look at their taxes because I know about medical and disability. They haven't filed in a few years (usually this means 5-8 years) and they know they can claim the disability amount, but haven't applied for it yet. They don't believe anyone locally can help them. I have no idea if that's true or not.

Inevitably the conversation turns to what do I need to see in order to help them with their taxes. I advise that before we can start the work, they'll both need to meet with me for three hours to confide in me about what they and their spouse/family own, owe and where their money comes from and goes to, and that I won't take it on hearsay.

Further, I'll require proof. They'll have to provide me with transactions, as in all their bank account statements. Not only statements, but the details about their deposits, if the deposits are not self-evident and add up to the T-slips they will have to report their income from pensions, CPP, OAS, other investments, working income, etc. I want to see that the deposits equal their reported income. If not, I want to know why not. CRA audit will go through that same process, so I'm just going their first. I think that's a completely reasonable thing to require if I'm going to help them stay out of jail. Remember, if you don't file your taxes, you can go to jail and get fined.

Then there's those who have a self-employed past, and have either wound it up or it hums along at a few thousand a year. They'll need their historical records in order to bring forward any amounts that CRA does NOT track, like home office costs carried forward for years when there wasn't enough income to claim all of the costs.

Oh yes, they'll need the capital assets history for those assets in the CCA schedule for the last year the business was filed, and if that business ceased, those assets had to be sold back at fair market value and the appropriate entries made to account for the ceasing of the business.

Have I lost you yet? Probably.

Then there's the rental suite, and most families who are trying to make ends meet with a person with a disability will have had tenants. And there's the history of that tenancy, and the potential for a capital gain on that portion of the principal residence to consider. And the calculation of the cost basis adjusted for their home for that portion that's been rented, and for how many years, and what improvements were made on a capital basis, and were they written off when they shouldn't have been...

If there's been a partial change in use and then the rental isn't occupied any longer, there's been a deemed disposition, which may require tracking when the house is sold. Do they know a real estate appraiser they can call?

Whew.. I know they aren't going to come see me by this point unless they are incredibly determined. Either that, or they tuned out and have gone to their happy place while I've been rambling on and on.

Yes, I may as well work for CRA. But they wouldn't have me. I'm too old, too irritating and they are downsizing their staffing needs anyway. Sometimes even for my clients who really don't believe I'm telling them the real story. They think I make this stuff up to scare them. It can't possibly be true.

Then, if they are still convinced they need to see me, I'll tell them to start gathering their transactions and historical records, and that I have a workbook for a measly $3.95 that sells on my website they can use to help them organize everything I'm going to need, and oh if they have investments with a broker, I probably need to see their taxes back at least to 1994, if not 1988 and in some cases back to 1971.  Why 1971? That's when capital gains and losses started being tracked. If they have capital losses carried forward that they want to write off against capital gains prior to death...

the good news? You can write off those carry forward losses against other income on your date of death return, but the bad news? You won't be the one doing it, it will be your executor. Your executor is going to need to be able to prove those losses existed when they are claimed against gains or other income. CRA didn't care if you reported losses back then because they knew that they could ask you to document your loss when you tried to claim it against a gain at any time in the remainder of your life or after your demise.

Remember, I'm Canadian, and I do Canadian tax. I got a shock this summer. Someone that called me actually paid me for the $3.95 workbook from a US bank account (they claimed they own property in the US, which they never told me about, and there's tax consequences and filing requirements for that too...) They lied about their whereabouts (or maybe they went to the cottage just to get out of paying the $.20 cents for GST. I know that's totally grumpy, but I'm supposed to charge PST as well as GST on those booklets.

BTW, I plan to self-remit because my shopping cart isn't liking that only some things I sell require PST. So now, I'm not only on the hook for the PST, but for the GST. It's not a big amount, I know that, but you know that saying about how it's the principal of the thing?  It was the principle of the thing.

Can anyone tell me would they ever trust anything these people had to say to me from here on out?

Too weird, they actually called me expecting I'd see them and couldn't believe that I'd care if they didn't pay the tax.

Please don't call me to help you cheat and lie on your taxes and if you're buying something from me and you're Canadian, don't use your US PayPal and claim you live in the US. I'll know.

I'm really tired of paying more than my fair share because of those who don't pay theirs.

Sigh.