taxdetective-Sandusky-Register

Ever wonder how some people in your community manage to live the lifestyle they do?

Here's one story...and they did get caught by their lifestyle and their banking habits!

Here's where I saw the story about the story
http://www.knowledgebureau.com/index.php/news/article/no-hding-behind-inadequate-records

And the link to the actual story released on January 18, 2013, so this really is new, and it's found on www.canlii.org which is a great source of Tax Court reading for amusement and instruction on cold winter nights!

http://canlii.org/en/ca/tcc/doc/2013/2013tcc19/2013tcc19.html

Expense reimbursements are different for either self-employed or corporate business owners asking clients to reimburse them, than they are for employees asking the business owner to reimburse for expenses.

Let's look at the employees first. Employee submits receipts, business owner pays employee back for purchases for the business. The employee provides the original receipt to the owner, possibly summarized on an expense report form, but maybe just hands in the receipt with a memo or letter asking for reimbursement.

The employee doesn't care if they keep the original receipt. They aren't a GST/HST registrant who has to keep their original receipts to prove their entitlement to the Input Tax Credit claim on their GST/HST return. The employee doesn't keep a set of books and isn't required to report the refund as income. It's just a return of money spent for someone else.

Of course, if that reimbursement was for something personal, it's going to get added to your T4, and may end up having CPP, EI and tax deducted from your pay if it's required:
http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/bnfts/menu-eng.html

Here's the list of personal benefits that might attract attention:
http://www.cra-arc.gc.ca/E/pub/tg/t4130/t4130-e.html#P1334_178946

Now let's look at the business owner. This owner could be a self-employed person working on contract, or a business purchasing something for another business. This business is required to register for the GST/HST when it's taxable supplies in any previous four quarters reach $30,000. Those taxable supplies include the reimbursement of expenses. It's required that the business owner record any reimbursements of expenses charged as revenue and that they charge GST/HST on top of the amount.
http://www.cra-arc.gc.ca/E/pub/gp/rc4022/rc4022-e.html#P303_20114

Now of course, what's obvious to everyone is that the tax was already paid. But remember, this is a value-added tax where the tax is added again at every point in the system. So when the business owner pays for the purchase, they paid tax. When they charge it out again, they charge tax. You'd think no one would care, and that this would be just a 'wash' but that isn't the case.  It doesn't matter if it is or isn't marked up, or whether an administration fee for processing the purchase and reimbursement is added, the tax is collectable again on the total charged out to the customer.

Now when this gets to be fun is where the business owner pays for expenses in Canada, and gets reimbursed by a foreign client. In that circumstance, they get the tax back and don't have to charge it to the foreign client. Someone may have told them that they don't have to register because they have foreign clients, but they can't get back the tax they paid unless they are registered.

Where it's going to be even more fun is when once again, we have the PST. Because the PST isn't a value-added tax. It doesn't flow through. It's an end-user tax. That means when you get charged the PST, you don't get it back, and you don't charge it out again unless you have to. So, when you pay the PST, you will expense it, and of course, you want to get full reimbursement of all costs, so you'll of course, add it to the amount you want back.  The clincher is that you then have to charge GST/HST on top of the entire amount invoiced, which includes the PST. For some reason, people really hate this.

And it's about to start all over again. The confusion about billing out because the PST is back April 1.

One of my videos is about Time & Billing in QuickBooks, and there's another one about Adjusting Time & Billing.  They are included in the bundle of products available for sale on my website.

If you're confused about this whole area of who keeps the original receipts, here's the rule of thumb. Employees do, but business's don't, businesses give you their invoice and should provide a copy of the original receipts paid to third parties. Their invoice is your invoice.


Please don't demand your contract workers provide you with their originals as it's so embarrassing when they have to get their accountant to call you to tell you no, they have to keep those to document their ITC claim...

and if you don't believe me, the CRA website has a Guide for Small Business just about GST/HST and receipting, not only that the business has to keep the original, but that they have to have certain information if the invoice is over $30 and over $100 even more information is required.

http://www.cra-arc.gc.ca/E/pub/gp/rc4022/rc4022-e.html#P490_40780

If you haven't been keeping your invoices, I sure hope you've got copies that will prove you can claim an expense, and the ITC claim, may be allowed if you meet the criteria for keeping electronic records.
Yes, there's rules about what records can be kept electronically and how they must be stored for access for audit.

http://www.cra-arc.gc.ca/E/pub/tp/ic05-1r1/README.html

And if you don't believe me, here's someone from CRA in video format explaining record keeping:

http://www.cra-arc.gc.ca/vdgllry/bsnss/srs-kpngrcrds-eng.html?vclp=bsnss/srs-kpngrcrds1-eng

Here's an article on the topic that may provide you with some guidance, but as always, check that your fact pattern fits with the Income Tax Act's wording.

http://www.jonesoconnell.ca/2011/07/14/when-talk-isn’t-cheap—cell-phones-and-employee-taxable-benefits-july-2011/

Many Canadians have set aside $5,000 a year for 20 years, since 1991, let's say, only to find they don't have $100,000 today.

They will tell you the intention was that this money was supposed to grow all by itself. But has it? Can they even tell? Have they kept tabs? Have they done the math? Over the past several years, they do the same thing all over again with their TFSA accounts.

They don't seem to pay any attention to what it's invested in. And I'll bet they have no idea if it's growing or not. They don't do the math because banks and brokers don't give them the tools.

There is no such thing as a guarantee that if you invest for the 'long haul' that you'll end up with more money. That's a myth. If investments aren't growing, you need to act. Now, not in 20 years.

For years I observed clients socked away money in RRSP's and they didn't care about what it was invested in, they didn't know if made money.

I had to say something because it was just so ridiculous, I couldn't stand it, so I would say something, and most of the time, once they looked at the numbers, they would make a change in what they were doing.

Most of the time, they'd forgotten how much they put in, they had no clue how much they invested or how that compared to what they now hold. They had no idea it was not insured and 100% of their capital was at risk. It was often a shock to them to find out that mutual funds invest in the stock market weren't insured. Did you know that investing in mutual funds is exactly like gambling? You just aren't doing it yourself, you've assigned someone else to do it for you. Can you afford to lose 100% of what you've invested? Because you could, it's not insured.

Your broker or bank investment counsellor, they aren't going to tell you how you're doing, they don't want you to know they've not done very well with your money. It's not in their best interest to have this conversation with you, so they'll steer you off course very quickly.

You don't have to believe me, the part about how much was invested and what it's now worth, you can check the numbers and do the math yourself.

Your investment counsellor won't help you with this. I can tell you they are probably very afraid of the truth. I once had a banker take me out for lunch to tell me how many top bank executives don't sleep because they know this and if Canadian's ever figured it out, they worry about how angry we'd be.

Here's how to check:

Sign up for My Account on the www.cra-arc.gc.ca website. That will take a week to get organized as they have to send you a letter by snail mail so you can sign in securely.

Sign in securely when the letter arrives,

Find out how much you've invested in your RRSP's and TFSA's, for RRSP's back as far as 1991 as CRA has kept track of all your investments and withdrawals. Add it up, and then add up your RRSP accounts. Is it more or less?

Here's the link to the CRA website on Help with My Account:

http://www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/myccnt/hlp-eng.html#mao.a1-1

I'm curious, let me know how that works out for you. Just tell me if I'm right or wrong.

Hmmm... CRA knows how much everyone has put into their RRSP's and TFSA's. Who says big brother isn't watching?

Inspired by this email... and I quote...

"i wish you all the Best Eileen, please go ahead...
your webinars really change my life, before your webinar i was very streesful despite the fact that i am well educated in accounting ( have master degree in accounting, Certifed Quickbooks advisor, Certified Simply accounting, Certifed MYOB) .. i was having hard time putting things together but after i watched yours it becomes  apiece of cake...you draw the line for us:))))
Regards"

For the past several weeks I've been using a new free service offered by my Credit Union. They have allowed me to email or send money via a message to a mobile device for free. It's under the Transfers Menu and it's called  Interac e-Transfer.

All you have to do is Add a Receipient, Transfer Funds, and Receive confirmation.

Add a New Recipient by entering their name, email or mobile phone #, choose a language, make up a security question and answer.

Then to Transfer Funds, choose that Recipient from the list, choose method to Send By (email or phone), enter an Amount, and add a Message. The recipient receives a message, answers the security question and adds the money to their bank by accessing their own online banking to deposit the funds.

After they receive the money, the system generates an email back to you advising of the successful completion of the transfer.

I've used it to send money to a customer who overpaid me, to pay my gardener, pay a supplier bill and to pay for a massage.

I'm thinking that if you didn't want to use PayPal or pay by Credit Card and would rather pay from your bank account, when you purchase something from my website, you could use the shopping cart to add up how much, and calculate the tax, then send me the money by Interac e-Transfer. You wouldn't get instant product delivery, but if using PayPal was problematic, this is definitely a free way around that challenge.

Of course, you would need to be prepared to use the secure online banking services offered by your own bank or credit union.

If you are interested in how this works, my banker gave me this reference
http://www.interac.ca/index.php/en/interac-etransfer/etransfer-detail

See who is participating - it's a very long list...
http://www.interac.ca/index.php/en/interac-etransfer/etransfer-participating-fis

or if you just wanted to browse my eCommerce site knowing you could pay with your banking online features... www.taxdetective.ca/eCommerce.html