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CRA TARGETING CONTRACTORS IN THE CONSTRUCTION INDUSTRY

By Fraser Simpson

CRA TARGETING CONTRACTORS IN THE CONSTRUCTION INDUSTRY

Special audits have confirmed the pervasiveness of tax evaders in the construction industry, and the CRA is cracking down

The Canada Revenue Agency’s continuing campaign against the underground economy has come to roost in small-town Canada, where special audits have confirmed the pervasiveness of tax evaders in the construction industry. This is all part of a CRA focus on the underground economy that has been a priority for several years, ever since the construction sector was identified as being of concern for unreported income

In a special tax audit, CRA investigators recently reviewed 8,396 municipal building permits, the review identified 2,751 unregistered building contractors from whom the CRA collected some $4.5 million in taxes. Tax investigators also targeted installers who work for hardware and home improvement stores. The audit of 93 hardware stores in 19 different communities found that seven per cent of installers were income tax evaders, from whom the CRA collected some $4.5 million in taxes, $559,000 in interest payments and $843,000 in penalties.

The CRA’s methodology in these cases, is both interesting and unusual: “What we’re seeing is out-of-the-box thinking by CRA that is very clever.” Computerization and data mining are aiding the underground economy initiative. It used to be that CRA had to grind through the numbers manually, but now there is a great deal of computerized data that allows them to deal with tax evasion more easily.

It’s all part of a strategy in which the CRA has increased the use of third-party information to detect underground economy activity. In an email, CRA spokeswoman Jelica Zdero said the third-party approach yielded $10.8 million in taxes, $1.5 million in arrears interest and $2.1 million in penalties in the 2010/11 and 2012/13 taxation years.

The CRA has targeted several industries. More recently, it has resorted to casino audits as an indirect way of assessing individuals’ income and net worth. The Agency is looking at casino records to identify heavy gamblers, then auditing them to see whether their reported income is capable of supporting their gambling habits. If you are reporting an income of $30,000 I would not be spending thousands at the black jack table!

Taxicabs and Uber have also come under scrutiny by way of indirect audit verification. The auditors work back from gasoline purchases to determine the miles driven, and then calculate how many of these miles have been reported. CRA investigators are examining restaurants’ food and liquor purchases, determining an “average cost per meal,” then adding notional markups to determine what actual sales should be.

Even waiters and waitresses have come under the microscope. Several years ago, an investigative blitz involving some 150 wait staff in various restaurants in St. Catharines, Ont., revealed that the vast majority were under-declaring their tips. What we’re seeing is out-of-the-box thinking by CRA that is very clever.

Since the launch of Voluntary Disclosure Program (VDP) we have been able to help many individuals dealing with a variety of different financial and personal challenges to navigate their way through this program and successfully accomplish getting their taxes up to date.

To encourage individuals to become compliant this program was created by CRA and currently has benefits such as not having to file or pay for any back taxes for 90 days giving the taxpayer time to have these returns properly prepared and submitted, for the years that were not filed.  However, coming this January the rules for this program will be changing dramatically, making it, according to the CRA, a “fairer system”. In reality, it will make it more difficult for the taxpayer both in registering for this program and if needed negotiating a payment arrangement needed to pay off a tax debt.

Revenue Canada looking for non-filers using updated technology, backed by new powers provided by Trudeau.

The proposed “draft” Information Circular (we are fairly certain it is a done deal!) is now out on the new VDP rules. The taxpayer must include payment of the estimated tax owing with their VDP application.

When the taxpayer does not have the ability to make payment of the estimated tax owing, a payment arrangement supported by adequate security may be considered in extraordinary circumstances with approval from the CRA collections officers. In these circumstances, the taxpayer must make full disclosure and provide evidence of income, expenses, assets, and liabilities supporting the inability to make payment in full.

If an application is made prior to December 31, 2017 payment is not required.

Revenue Canada will continue to go after non-filers and with the improvement of the tools, technics and technologies being used they will eventually catch you.

If you have not filed your taxes in a few years or longer let us help you.

Whether it is a tax return audit, a tax lien, income garnishment, bank accounts frozen, CRA personal or corporate penalties and interest, payroll tax issues, late in filing….whatever it is contact us, email David Harris at david@taxmechanic.ca or give us a call. We offer a free 30 minute consultation to help assess your current situation and develop a strategy.

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Mr. Simpson has been active in income tax consulting, residential and commercial real estate development since 1985. Prior to founding the Tax Mechanic, he held several senior management positions, including Director of Land development for a real estate investment company (John DiPoce Management) and Controller of Communicorp Multi Media Inc., a TSX listed company. Mr. Simpson obtained his Bachelor of Arts degree from York University, Toronto, and qualified as a Chartered Accountant in 1993. He has also completed the Canadian Securities and Partners, Directors and Senior Officers courses.

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