My Accounting Department: Tax Evasion Penalties

If I have self-employment income and have not filed personal taxes for three years, what can happen to me and my family?

Not filing a tax return if you owe money to the CRA (Canada Revenue Agency) is considered a crime and can lead to severe punishment. The CRA can charge you criminally and penalties and interests will be added to all amounts owing.  Penalties for not filing a tax return or other ways of evading the taxman are stiff. The CRA enforcement division efficiently tracks down and prosecutes tax evaders. The best thing to do is to come and see us so that we can assess the actual amount owing, if any. Our team will then prepare a confidential, voluntary disclosure to CRA on your behalf. This process may avoid criminal prosecution and penalties.

2. My father has passed away. Do his personal taxes need to be done and, if so, when and who does them?
When a person dies, the executor or administrator of the person’s estate must file a “terminal return” for the deceased to report income up to the date of death. The terminal return is due by the usual deadline or six months after death, whichever is later. Any tax balance owing is due on April 30 of the year after the year of death or six months after death, whichever is later. If the deceased person was paying tax by instalments, only those instalments due before the date of death are required.

3. I have my own business and I have my personal house mortgage payment withdrawn from the business account. I just received a call from CRA saying they want to audit my business and personal returns for the last three years.
Mortgage payments are considered personal expenses. If mortgage payments are withdrawn from the business account then the business can deduct those payments as a draw or director salary and they will be included in your salary for the year. These mortgage payments must be included on your personal tax return, otherwise the CRA would be able to track them down during their audit and the CRA could charge you for tax evasion. Furthermore, tax returns will be reassessed for those years and will result in additional amount of taxes owing, while penalties and interests will be imposed on taxes owing.

4. How does HST affect me as a business owner and my family?
The HST is the new tax in the Province of Ontario, which now forces everyone to pay 13 per cent on almost everything as of July 1, 2010. Previously, certain services only charged GST (five per cent) and not PST (eight per cent). This means that everyone will begin paying an extra eight per cent on things like accountancy services, gas, guitar lessons, etc.

As a business owner, you will be charging HST (Harmonized Sales Tax) instead of GST and PST. If you are a business who was not previously charging PST, you will see more changes. Businesses that were collecting PST and remitting the PST entirely must now collect the 13 per cent HST and remove the Input Tax Credits (ITCs) to pay the net amount owing to the CRA. The benefits to the business owner can be summarized as follows:
▶ Input Tax Credits (ITCs) will reimburse many business purchases that were PST-exempt but now attract HST
▶ Savings on your input costs could make your business more competitive
▶ Time and expense saved by no longer managing and remitting separate provincial tax

As a household, while some goods and services will be subject to a higher rate of tax, the tax reform package includes income tax breaks and a rebate of up to $1000 for most individuals and families. As a result, many Ontarians will actually save money initially. Ontario will also reduce its first income tax rate from 6.05 per cent to 5.5 percent in 2010, which benefits lower income earners.

5. I only see my accountant once a year and I am frustrated with not knowing how I did last month.
For a business, it is critical to have an up-to-date financial position. We accountants must separate ourselves from the day-to-day bookkeeping of our clients in order to maintain independence, so we try to leave the bookkeeping up to the client.  However, this means more work for the client, which they do not have time for. Our secret to making your business successful is simple. We have three independent teams that essentially form your internal accounting department and external accountants.  We combine the three teams with modern technology and “Walla” financial information at your fingertips, every month.

Call us at 416-762-0062 to find out how to get a $150 gift certificate and if you have a question that needs to be answered, and want us to post it in our next issue, send us an e-mail to info@accworks.ca or check us out at www.accworks.ca