During more than a decade as a senior enforcement officer with Canada Revenue Agency, I acquired a breadth of experience dealing with thousands of Canadian taxpayers. People often ask me questions about how to handle sticky tax matters. The problem with these sorts of questions is that they’re usually asked with certain presuppositions.
Most folks are under the impression that there is a singular rationale to decision making and application of tax policy. This isn’t the case. The Tax Act is administered and enforced by people with all of the quirks and foibles one expects when dealing with human beings. One auditor or collector may see things very differently than another. Different perspectives often lead to different decisions. So what do you need to know if you find yourself in an audit or collections scenario? Here are some observations from an insider perspective.
Government is about Maximizing Revenue
When it comes to taxation, the government is as much about maximizing revenue as any private sector business. This usually results in a tax system that targets the low hanging revenue and avoids the pursuit of high cost targets with lower yields. Most individuals and businesses fall into the category of low hanging revenue because they are relatively easy to audit and collect from.
What does this mean to you? It means that you should consider the tax strategies you employ, very carefully. Certainly no one wants to pay more taxes than they have to. But by the same token, don’t make yourself attractive as an audit prospect by taking unreasonable liberties with the Tax Act. Your three-year old daughter’s finger painting is unlikely to be taken seriously as a $50,000.00 charitable donation to her non-profit daycare. Such a deduction claim would be like planting a sign on your own lawn declaring that you’re among the low hanging revenue waiting to be harvested.
Do Not Ignore Communication
Canada Revenue Agency has revenue collection tools that are inexpensive, powerful and very effective at harvesting low hanging revenues. Garnishees, Writs of Seizure and Sale, and Personal Property Security Registrations are issued by Collections Officers from their desks. They take minutes to prepare and cost next to nothing. You can usually avoid these kinds of actions by being available and forthright with a collection officer. Don’t avoid their phone calls and don’t ignore letters, particularly legal warning letters. Most collection officers are reasonable human beings. Of course there are always exceptions. It’s probably easier to struggle through a payment arrangement with the C.R.A. than it is to explain to your landlord, creditors or employees why their cheques bounced after your bank account was garnisheed.
Collection officers have large inventories of unpaid tax accounts that they are responsible for collecting. Generally, collectors spend the bulk of their time chasing down individuals or businesses that are taking steps to avoid payment. If you send in a series of post dated cheques prior to being contacted by the department, more than likely the officer in charge of your account will process your cheques and move on to more challenging accounts. Unless your cheques are obviously inadequate in reducing or eliminating your tax debt in a reasonable time frame, chances are the collector won’t bother contacting you. The truth is, collectors have so many uncooperative taxpayers to deal with that time for cooperative ones is limited.
Make the Auditors Job Easier
If you’re being audited, make it easier for the auditor by being helpful, and keeping orderly books and records. This approach goes a long way in preventing audit mistakes and the need to use the appeals process. Believe it or not, auditors do have a latitude when it comes to assessment of taxes and penalties. Ask yourself, is a collector or auditor likely to give some leeway if I’m belligerent, defensive or appear to be avoiding them?
Collectors and auditors will take their cues from you. If you’re straightforward and pleasant, they’ll usually be straightforward and pleasant. Keep in mind, they are human beings who make mistakes and have bad days just like anyone else. Unfortunately if they’re having a bad day, with very little effort they can make your life very difficult. You can avoid this kind of nightmare scenario by making their decision making process easier. Keep orderly books and records; be honest and forthright about your tax matters or financial circumstances.
Be Honest
If an auditor or collector sees that you’re not hiding anything, they’ll usually be more amenable to helping you through a difficult situation. Some of the decisions they make about your tax file are based on how they perceive you. This can mean the difference between very aggressive collection methods, or a comfortable, do-able voluntary payment arrangement. It can mean the difference between iffy deductions being allowed, or massive gross negligence penalties being applied. Collection and administration of tax policy isn’t nearly as black and white as Canadians might like to believe. Understanding this is key to successful dealings with Canada Revenue Agency.
Frank Flynn operates Taxpayer Relief Letters, a niche consultancy specializing in the writing of narrative content for Canadian taxpayers who are applying for relief from penalties and interest on tax liabilities. He also provides consulting services to people and companies who are under collection action by C.R.A. Frank Flynn has published plays, essays, and letters internationally and holds a joint major Bachelors Degree in English Literature and Cultural Studies. He is currently completing a Masters Degree in Creative Writing. His website can be found at www.taxpayerreliefletters.ca
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