Category Archives: Personal Finance

Avoiding Tax Problems in Canada

A number of Canadians have problems with their income taxes, or corporate or other business returns, whether they haven’t paid them; haven’t filed; unknowingly (or knowingly) filed incorrect information; or have been notified of an audit.


These problems are common, and most can be avoided; if it’s too late for avoidance, they can usually be fixed or at least handled a bit easier with a bit of knowledge.

Note: If unsure of any aspect of your taxes, it is wise to consult professionals such as accountants and tax lawyers.

Unfiled or Unpaid Taxes

Not filing your taxes is illegal. Not paying them is not recommended, but it is not illegal, according to tax lawyer Dale Barrett, author of Tax Survival for Canadians: Stand up to the CRA.

If taxes are owed, but the taxpayer hasn’t filed, Canada Revenue Agency (CRA) will assume the taxpayer wants to evade payment. Tax evasion is a criminal offence, and the easiest way to avoid a criminal record, along with penalties, fines, or imprisonment, is simply to ensure taxes are filed on time and the numbers are correct.

If taxes have been filed but not paid, there are ways to schedule payment and/or request taxpayer relief under the Taxpayer Relief Program.

Incorrect Information

Some people intentionally fail to declare all their income as a way to avoid owing taxes on that income. Some people make unintentional mistakes. CRA makes a decision whether to accept the return as filed, correcting any obvious errors, and sending a Notice of Assessment back to the taxpayer. If the taxpayer agrees with the assessment, everything proceeds as normal. If not, further steps may be taken to appeal.

Audits

Some audits are conducted on people who are chosen at random, and some are conducted on people who meet certain risk criteria through a targeted selection process.

According to Barrett, these risk criteria are factors that increase a taxpayer’s chances of an audit:

  • Professional income
  • Audit of one’s spouse
  • Audit of one’s business
  • Audit of one’s business partner/associate
  • Farming or fishing income
  • Partnership income
  • Investment income or tax credits
  • Real estate purchase or sale
  • Dividends from private corporations
  • Support payments and alimony
  • Moving expenses
  • Clergy residence deduction
  • Adoption expenses
  • Medical expenses
  • Disability support payments or disability tax credits
  • Research and development expenses

Other criteria that may convince CRA to audit include self-employment income, child care deductions, home office deductions, any evidence of criminal activity, prior audits, discrepancies between GST/HST returns and income tax returns, rental income, shareholder loans, and of course, tips from informants.

There is a chance you will be audited if you meet any of the above criteria, so be ready by knowing your rights and obligations. Do not offer more information than the auditor asks for, and always ask why an auditor is asking for certain information or documents. If an auditor is looking for evidence to have you prosecuted, this is no longer a CRA issue and he or she may need a warrant; contact a tax lawyer immediately.

What to Do about Tax Problems

It is never a bad idea to avoid as many problems as possible up front by hiring professionals to do your taxes.

If you have a problem later on, there are processes that can be followed; for example, if a taxpayer disagrees with an assessment, he or she may file a Notice of Objection within 90 days to appeal the decision.

If ever in doubt, consult a tax lawyer.

For more information on tax problems in Canada and how to avoid them or legally deal with them, consult Canadian tax lawyer Dale Barrett’s book Tax Survival for Canadians: Stand up to the CRA.

About Tax Survival for Canadians: Stand up to the CRA by Dale Barrett, tax lawyer, is a helpful resource for Canadian taxpayers, outlining rights and responsibilities for individuals and businesses. Find it in our store:

in print, or

as an ebook.

and visit Visit Dale Barrett’s blog.

When Should Canadians Invest in RRSPs?

RRSPs (Registered Retirement Savings Plans) are considered an important part of retirement for Canadians; they enable people to set aside money for the future while lowering the amount of tax payable in the year in which the money was deposited.

But just when should you start investing in RRSPs? And how much should you put in? That depends on several factors.

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Canadians Flocking to Arizona

Last year, more Canadians moved to Arizona than any other year in recent history. A bit ironic given the state is going through one of its worst economic crises since the Great Depression. But it is, in fact, one of the biggest reasons there is such a Canadian boom.

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US Tax Law Changes in 2012

Congress is making some major tax law changes now that will impact American taxes for many years in the future. One of the biggest changes will occur after 2012 and will involve a 3.8 percent Medicare tax on investment income. First, this new tax will apply only to those single taxpayers who earn at least $200,000 and any married couple earning at least $250,000 ($125,000 if filing separately– just another example of a marriage penalty in our tax code). The tax also applies to estates and trusts (but not to any charitable trusts that are otherwise exempt from paying taxes).

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Should Couples Have Joint or Sole Finances?

Unlike couples of the Baby Boomer generation, where sharing a bank account was nothing out of the ordinary, young couples today have quite different financial needs and attitudes toward their accounts. According to a poll conducted by RBC in Canada near the end of 2009, only 10 percent of Gen X/Gen Y couples between 18 and 35 hold all of their financial accounts and products jointly. Is this the right way to approach couples’ finances?

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Knowing How to Talk to the IRS Is Key to Avoiding American Tax Problems

Due to the inherent complications of tax legislation, it’s extremely difficult for Americans to fully comprehend how the Internal Revenue Service (IRS) operates and, ultimately, how to deal with tax issues.

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Uncover the Myths to Get on Track Financially

Personal finance is a constant area of struggle for Canadians. It is often pushed to the bottom of our list of priorities to be dealt with later, while other problems are tackled first. Individuals often procrastinate in dealing with their monetary problems. This can be a result of a lack of financial knowledge, a feeling that there is not enough time, or simply not having the right tools.

Whatever an individual’s reason, people tend to look for a quick and easy way to fix these financial issues and get misled by myths along the way.

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Year-Round Financial Prioritizing

Every new year, many of us begin thinking about our finances. But should we continue to make resolutions for better financial management—resolutions that often aren’t kept—or should we consider revamping our budgets entirely, once and for all?

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