Owing Money To The CRA: Tom’s Story Part 1
Tom Johnson runs a successful sole proprietorship in Toronto, Ontario. He buys consumer goods that he finds online for cheap, and then re-sells them in his store turning a quick, but small profit. At times Tom sells his goods for cash, and doesn’t charge GST/HST. Tom also does not report the cash as income when he files his tax returns to the Canada Revenue Agency (“CRA”). In this article, we’ll explore Tom’s story with regards to owing money to the CRA.
Every year Tom sends all of his receipts, purchases, and bank statements to his tax preparer Ryan, so that his tax filings can be completed on time. Tom has never filed late, and he typically owes CRA anywhere from $5,000 to $10,000.
One year, after Tom sent his information to Ryan, Ryan gave him a call to discuss a tax shelter opportunity that could significantly reduce his taxes. Ryan tells Tom that instead of owing CRA $9,200 this year, CRA would have to issue Tom a refund of about $5,000. That is, if Tom decided to participate in the tax shelter. Tom is a little hesitant and wants a few days to think it over. Ryan insists that most of his clients have been involved for a few years and have never had a problem. Tom decides to get involved, thinking, what is the worst that can happen? Maybe CRA will deny my refund, but surely this won’t create a tax debt.
So Ryan completes Tom’s tax return and sends it over for review. Tom takes a look and there it is, he is owed a refund of $4,992. Tom looks through the return and doesn’t see anything wrong with it, so he signs on the dotted line and sends it back to Ryan. Ryan files Tom’s return a few days before the deadline.
A few weeks after Tom’s tax return was filed, he receives a refund cheque in the amount of $4,992. Tom is so happy that he sends Ryan a bonus for convincing him to take part in the tax shelter.
Fast forward one year and Tom has a letter waiting for him when he returns from work one day. It is from the CRA. Tom opens the letter thinking it must be the usual statement of account, or CRA asking for instalment payments. Tom can’t believe his eyes when he reads the letter and he learns he is being audited for the past two years!
Tom immediately calls Ryan to tell him what has happened. Ryan tells Tom not to worry, he will handle everything and Tom won’t even know an audit is taking place. Relieved, Tom tells Ryan that he is happy that Ryan is on his side, and if anything comes up to let him know right away.
Tom does not hear from Ryan for three months so he thinks the audit must have gone perfectly, and there was nothing to worry about. Unfortunately, that isn’t the case. Another month passes and Tom receives a letter from CRA. The letter says that CRA has completed their audit, and Tom now has a tax debt of $27,000!
Owing money to the CRA will be continued…
Owing Money To The CRA: Tom’s Story Part 1
Owing Money To The CRA: Tom’s Story Part 2
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
