Did you avoid filing your taxes this year?

stoptaxesMany accounting firms report a familiar trend every tax season. What is the trend, you ask? Clients announcing they have several years of returns to file or because they think, they owe money have not done their return. Either way this avoidance does more harm than good.

The CRA view overdue items in two distinct ways – a) compliance and b) collections. The first option requires you to file your return on time. The second results in two different charges – late filing penalties and interest. You could be liable for both if you do not file.

The strategy of avoiding filing your taxes could actually make the charges increase rather than minimize them. Filing on time will automatically save you the 5% (minimum) late filing penalty plus the 1% of your balance owing, which are charged each month (up to 12 months). These penalties actually double if it is your second offence. So avoiding filing is certainly not the answer, in fact it makes what you owe increase dramatically. For amounts owing from previous years, you will be charged compound daily interest and these payments will be applied to the previous years first.

Therefore, if you file, you will only pay what you owe at the regular interest rate, which at this time is 5%, rather than the added charges as detailed before. Don’t avoid filing and save yourself from extra payments.

5 ways to get penalties from the CRA

The taxman makes a lot of money in interest and penalties from taxpayers.  The sad thing is that taxpayers often didn’t have to incur them, but many times they do just because they “didn’t know”.  Here are some common ways that business owners will see penalties from the Canada Revenue Agency.


You don’t file the GST paperwork on time. 

I have heard companies say “Well, I paid them!”. But in the case of GST, that doesn’t matter. You actually have to file the paperwork on time, otherwise you will get a late filing penalty.


You don’t make your monthly installments for your corporate taxes.

Yes, I said monthly.  You would be surprised how many people do not know that business taxes need to be paid monthly in advance of your taxes being done.  If you owe Canada Revenue Agency more than $3000 in any given tax year, you have a requirement to pay monthly from that point forward. Failure to do so will result in interest being charged.


You file your taxes after a 3 month time period after your year end.

The tax return itself is due 6 months after the end of your fiscal year. But the taxes that you owe are due 3 months after your fiscal year end. Sounds funny that your taxes are due before your tax return is done!  But, alas!  It is true!


Payroll is late.

This is a MASSIVE and EXPENSIVE issue if you are a company. The penalties on payroll are incredibly large, ranging from 10% – 20% of the amount you owe CRA.  And every month you are late paying your payroll, you are assessed further interest.  If you have to forgo a payment, this is not the one to mess with.


Your personal taxes are not filed.

The penalty for not doing your taxes on time is a minimum 5%.  But the impact is far greater for businesses, as the tax owing amount is usually substantial.  That 5% is calculated on anything you have not yet paid to the Canada Revenue Agency.  Believe it or not, this is quite common for business owners to incur this penalty and be late!

Why do I need a bookkeeper?

Do you need a bookkeeper?  Well, we have an interesting answer.

I had an interesting conversation with a client this week and I wanted to share his perspective.

He is a small consultant, with no employees.

As we discussed his books we talked about his financial health and he asked me, “Do I really need a bookkeeper?”

It took me by surprise and when I asked him to clarify he explained, “Well I talked with some friends and they don’t spend nearly as much money on bookkeeping.”

It’s one of the first questions every small business owner asks themselves.  Do I really need a bookkeeper? It was really interesting to explain to him why he needs bookkeeping when I realized that he doesn’t really understand what all we’re giving him as a bookkeeping service and all he sees is the expense.

I think that I think this it’s actually quite important, especially to first time business owners. So, where’s the value?


Number 1:

When you have a good bookkeeper in place, the books are done properly and they’re done correctly.  This means when your tax return is done, you likely will end up paying less taxes.  So when you hear your friend saying they don’t pay that much money in bookkeeping, I would challenge them and ask how much their friend saved on their taxes last year.  Unless they had proper bookkeeping done, they may not have an answer.


Number 2:

Bookkeeping is about more than entering your receipts in the right columns. It’s about making sure you’re claiming all the right things, and all the costs are accounted for. If you only bring in eight cellphone bills, your bookkeeper should be asking where the other four are. We see an awful lot of clients forgetting to claim their insurance as an expense because they’ve set up automatic withdrawals, so without a hardcopy receipt it’s easy to miss. These are really common, and your bookkeeper should be asking you for all of those receipts, to make certain nothing is missed.


Number 3:

Your bookkeeper will know exactly what’s going on with your books and what you can and cannot write off. Just because you kept your receipt, doesn’t mean you’re entitled to a tax break. Bookkeepers know the ins and outs, and what to claim to get you the most bang for your buck.


And probably most importantly, we help other people in your industry. We often compare your books to the status quo, to see what’s going on and where any extras can be found.

Utilizing the CRA to your advantage

Canada Revenue AgencyRather than avoiding the CRA, why not utilize the online options open to you? You can track your income and previous years taxes, find out what entitlements you are able to receive and what your forecasted pension amount will be. Let’s look at how you can achieve this.

Firstly, your income details can be found through ‘My Account’ – once you are set up, it is only a matter of logging in and viewing all the details.

Your income details go back for almost a decade, giving you real information on payments and the current status of your tax situation.

Secondly, you can set up an account with Service Canada
http://www.esdc.gc.ca/en/msca/access.page not only will this give you the facts about your EI entitlements but also you will see what your CPP figures are, thus assisting in retirement financial planning.
It will also enable you to determine if you should receive a T4 or a T5 (payroll vs dividends).

Rather than avoid the CRA, exploit the free tools they provide. There is also a news feed for hot topics – you can subscribe or follow this link.

Whether you use these tools for personal reasons or for business, they give you access to relevant information as well as practical assistance. Use them to your advantage.

Are you part of the “underground economy”?

There has been some talk recently about CRA having a 3 year strategy about focusing on the “underground economy”.  I have read the material that CRA has sent out.  If you are wanting details, I have put the link at the end of this blog.  As I have a few clients that I think may be at risk, I thought I would give my humble opinion on how to minimize your risk.

First of all, CRA defines the underground economy this way:

We consider the UE to include both unreported and under-reported sales or income, which may involve:

  • failure to file or register;
  • failure to report a business activity;
  • failure to report part of a business activity or income; or
  • failure to report employment income.

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Bookkeeper vs Accountant – What’s the Difference?

Customers are often confused between the roles of a bookkeeper vs an accountant.

Although accountants have many functions, for most small businesses

  • an accountant is very focused on tax,

    and has extensive tax knowledge.  They are able to look at your business and personal situation and devise a good tax strategy.

  • A bookkeeper organizes your daily transactions

    compiles the information into a year end statement for the accountant, files your GST returns, balances your payroll, and much more. They are very focused on the day-to-day of running your business and making sure that your paperwork is done correctly.

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5 Things Your Bookkeeper Must Have

Hiring a bookkeeper can be tough and confusing!

Without knowing how to do books yourself, you may not know if you are hiring the right person for the job.

First of all, you should understand that bookkeeping is an unregulated industry. Therefore, anyone can call themselves a bookkeeper, and there is no specific skill set they have to bring to the table in order to call themselves a bookkeeper.  To protect yourself, here are 5 simple questions to ask to see if you are hiring the right bookkeeper.

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Top 5 Things to Attract a CRA Audit

The question of “How does Canada Revenue decide on whom to do a CRA audit” has been asked many times. What are the key items which CRA can look for?

While we can never predict who will become the next target for a trust exam or CRA audit, a professional bookkeeper should know the general rules how to AVOID them.

We deal with CRA on a weekly basis, and we get to see some trends around how they interact with our clients.  Generally speaking, the following actions seem to get their attention:

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Business owners are taxed differently

Small business owners often think of their cash and their corporation’s cash as the same. But you are taxed differently than your corporation.

You are two different legal entities.  The cash the corporation generates and the cash you take out are often two different accounts.  As a business owner, you often have choices about how you take your money out of the company.

During this time of year, we see a lot of business owners come to us to get both their corporate books done, as well as their personal taxes done.

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Alberta Budget tax changes

As everyone knows, the new budget was put into place. For weeks, we had heard about tough cuts.  However, when the budget was eventually released, the cuts are not really so tough (at least not for businesses).  But there certainly were increased tax items that will affect you as a business owner.

As with most political budgets, there is a lot of controversy and media sensationalism about what is good, what is bad about this particular budget. Consumers like you and I, however, just want the “skinny” on how it affects us.

The Alberta government did a great website link that is written in clear, easy to understand English.

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