I recently had an issue with a client and the Canada Revenue Agency that reflected how afraid some people are of the Tax Department and as a result had issues that cost them time and money when totally unnecessary. I am hoping that this article will give you, the new immigrant, enough knowledge to seek help when needed and to, most of all, not avoid the tax department but rather use the services they offer.
Just the mention of the tax department in some countries gives one a chill and a sense of dread yet in Canada, this should not be the case. The tax department is made up of people, just like you and me, who are there to ensure that everyone pays their fair share of taxes so that Canada's economy can grow, so that our roads are safe and so proper health care is never an issue. In order to ensure that everyone pays their fair share, there are rules that all Canadians have to follow. Failure to do so, will result in fines, interest and maybe even jail time. So, what can you do to ensure you follow the rules? Ask!
There are accountants that help with the operations of a business. They work in what is referred to as "industry". In other words, they work for one particular company and help that company make sound financial decisions. There are also accountants who work in "public practice". These are accountants who can help you with your business, income tax issues and overall financial wellbeing. And there is also the tax department who have a great website as well as officers who you can call and ask questions. Unfortunately, not everyone does this and it can cost you!
A client recently came to me because the tax department was asking him for information. Unfortunately, they had been asking him for the same information for over 4 months so by the time I got involved, some damage had already been done. His issue? GST. His question - but if I filed my tax return every year why do THEY want more? I looked over the correspondence he received and had an answer within a few seconds. Because you made more than the allowable threshold. The what, he asks? The allowable threshold is a term used to describe at what level of income one has to be registered for and collect and submit GST. In his case, he earned a gross income (income before any expenses) of $15,000 for 2003 but in 2004, his income had jumped to $54,000 so the GST branch of the tax department was asking questions. I explained to him that sometime in 2004, he earned more than $30,000 and thus any income earned after that month was subject to the collection of an additional 7% (now 6% effective July 1, 2006) - the GST. In addition, any GST paid on expenses after that same date would be eligible as Input Tax Credits and thus only the net of the two amounts had to be sent to the government. To get the tax department what they needed, I would need to know when he reached income in excess of $30,000 and then pull out the GST from his expenses after this date. On the income side, he had the choice of going back to his clients and collecting the additional 7% from them now or just paying the amount out of his own pocket. I will not bore you with the technical details of how I fixed his problem but in the end, he owed GST a few hundred dollars plus penalties and interest for 2004 and a few thousand dollars for the 2005 year.
Unfortunately his excuse of "I am an immigrant and did not know about GST" did not provide him with any sympathy as far as the tax department was concerned but he did learn a lesson. Before you start a new business, before you file a tax return, before you do anything in any foreign country, ask questions. Ask friends, relatives, read books and publications and do not be afraid to ask until you are satisfied that you have all the answers you need. There is really no excuse for not being informed.
I hope that all of you will heed this advice well - it may be the difference between more money in your pocket or the governments!
This article was written by Gabrielle Loren -- a partner with Loren & Company, CGA's located in North Vancouver, BC and can be reached at firstname.lastname@example.org, at 604-904-3807 or check out their website at www.loren.bc.ca