Last Minute Tax Advice

by Mr. Cheap

With the Canadian tax deadline looming (Apr 30th), what should a tax payer do if they’ve encountered a situation with their taxes that they don’t know how to handle? Every accountant worth their salt will be working overtime now so who to turn to for advice?

How about Revenue Canada? I haven’t often come across the idea of calling them when you have problems, but I’ve done it a few times over the years and its very easy. The contact numbers are available here, they work extended hours leading up to tax time, and I’ve found them to be helpful and polite (although less so after you’ve called them “money grubbing soul suckers” as I had to learn by experience). A couple of years ago when I asked whether an external hard-drive should be treated as a expense or a capital cost allowance (CCA) they were able to promptly answer (CCA), and when I asked them what class number of CCA, they put me on hold and got back to me within a couple of minutes (class number 10).

The benefits are that they’re readily available (I’ve never had a long wait when I’ve called) and free.

The drawbacks are that if anyone is going to be a stickler for tax laws, its Revenue Canada. They’re CERTAINLY not going to give you any tax planning advice or suggest better ways to structure your finances. Additionally, they’ll interpret any ambiguities in their own favour. The flip side of this is that you never know what will be the outcome if your accountant gets too creative, so playing by the rules is a good idea (Mr. Cheap doesn’t fear much but he does fear Revenue Canada!).

This being said, I’ve found that accountants I’ve worked with in previous years weren’t particularly helpful either (which is why I’ve gone back to doing my taxes myself). Apparently tax preparation and tax planning are very different activities (accountants charge FAR more for tax planning: if you hire them for preparation that’s all you’re going to get).

The other drawback might be if you’re doing something illegal, you might draw attention to yourself. I’m not, so that wasn’t a consideration for me (if you have numerous accounts in the Cayman Islands perhaps calling them isn’t a good idea :-) ). Asking them what expenses are valid for a grow-op might be a bad idea too. They’ve never asked me for identifying information (SIN or tax id or anything) – so I *THINK* its anonymous information (maybe they trace telephone numbers – who knows?).

What has your experience been dealing with Revenue Canada? Are their benefits / drawbacks I’ve missed?

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{ 15 comments… read them below or add one }

1 Four Pillars

I’ve found the same as you – they are good for specific bits of info but anything more complicated or “grey” and you might not be getting the proper advice.

2 Leslie

You also aren’t guaranteed the information they provide is correct. Particularly when dealing with an ‘interpretation’ of the regulations, a response offered by a CRA employee (who may have been hired on contract for the busy tax season) may be inaccurate or open to another interpretation, or as CRA calls it a ‘revised’ interpretation. CRA regulations are so vague that it is obligated to issue interpretation bulletins–from time to time CRA may revise these, effectively changing the rules. This often happens after a taxpayer successfully challenges an interpretation bulletin (being cynical here). If they give you incorrect information and you act on it, they can still come back later and demand the money. The best thing to do is always act in good faith, following the rules and consulting a tax expert when you’re concerned about whether something could be considered tax planning rather than tax avoidance or evasion–both no-nos to CRA. http://www.taxresolutions.ca/Articletwo.html

3 Mr. Cheap

Very interest page you linked to Leslie, thanks!

4 Nicolas

Great post.

Just a little terminology comment I remember from tax law. According to the courts, evasion is fraud and avoidance is your duty. But don’t tell that to CRA.

Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase ones taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands: Taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.

– Honorable Learned Hand, U.S. Appeals Court Judge, Helvering v. Gregory, 69 F.2d 809 (1934)

5 Re: money

I call Revenue Canada all the time, sometimes with silly questions. They’re never rushed and will mull over various scenarios with you. All legal and above board, of course, but they’ve told me stuff I didn’t know a couple of times.

I don’t mean that they will give you accountant type of advice, but they’ll comb through all published forms and try to fit a scenario to you. If you’re unsure, they’ll direct you on how to get a specific ruling for your situation.

I really like them :)

And my THREE experiences with accountants have been pretty unsuccessful. They were becoming progressively more expensive (from $70 to $260 to to $1,900) but in all cases I got about the same service. So I’m disappointed with them.

6 NeverStopBuying.com

Benefits of having a brother who is an accountant. Any tax question, just ask him

It is my 1st year to pay CRA, instead of CRA pays me though. -$400 instead of +$2000 tax refund, sigh…

7 Quick Lunar Cop

Great article, but you might want to update your terminology… The Canada Revenue Agency (CRA) hasn’t been called ‘Revenue Canada’ in quite a while! ;-)

On November 1st, 1999, Revenue Canada became the Canada Customs and Revenue Agency.

On December 12, 2003, the Canada Customs and Revenue Agency (CCRA) became the Canada Revenue Agency (CRA).

8 Mr. Cheap

Quick Lunar Cop: Good point. I like to keep things old school ;-).

9 Khrystyna

You’ll have to be very patient to get through to CRA last minute; also, although polite folks, their tax knowledge levels vary greatly: you’ll often find yourself getting different answers from different reps to the same question. Though this may help you along, if used creatively. Too late for this year, but best to start early, read all relevant CRA publications, call them often, and, yeah, DIY! (So easy to say!) Best wishes to all!

10 Sean

My question is regarding moving within Canada and what is a valid move. I was given advice over the phone from Revenue that if a spouse moves to be closer to family that are sick, then it would be considered a valid move, and we would be able to claim costs associated with that move. Is this true, and if so, do we need to provide proof of a sickness etc. Thanks.

11 Mr. Cheap

Sean: If the Canada Revenue Agency told you that over the phone, I’d say its pretty safe to use (although they expressly say that advice over the phone isn’t binding, even if you’re told something it MAY turn out to be challenged later – the plus side is they wouldn’t view it as tax evasion, since you were doing what they recommended, all they’d do is make you pay back whatever the tax savings was plus interest).

Maybe call them again and ask what evidence you need?

12 Debbie

Hi,
My question is related to earning additional income while being a stay at home mom. I am about to quit my job to stay at home with my little ones. I’d like to continue to make a little money on the side (buying and selling used toys) but am concerned about the tax implications. First of all, how much money can I earn before I have to declare that income? Secondly, how will any income I earn affect my husband’s ability to declare me as a dependant?
Please advise.. thanks,
Debbie

13 Mr. Cheap

Debbie: I am not an accountant, tax lawyer, government employee or anyone else who’s opinion should be taken very seriously. My understanding is the first dollar of income you make in your used toy business must be declared (if you live in Canada you don’t have to register for a GST number until you are no longer a small provider – http://www.moneysmartsblog.com/2008/01/02/how-to-start-a-business/).

Your husband’s ability to declare you as a dependant will shrink as your income grows. That being said, even if you’re paying more taxes, remember that your HOUSEHOLD will be earning more money! There’s no reason to avoid income because a part of it will be paid in taxes. With progressive tax systems, the situation never occurs where you earn more money, resulting in higher taxes that LOWERS your take home pay.

As well, since you’ll have a low income, you’ll pay a very low tax rate on any earnings (potentially nothing). Your take home cash will be far more than any reduction in his tax deduction for you as a dependant.

Good luck with your business!

14 Four Pillars

I agree with Cheap – you should declare all the income.

In Canada you aren’t a dependent but your hubbie can get the spousal credit which is prorated depending on your income (it gets zeroed out when you hit about $10k in income).

15 Greg

I am a canadian resident who lived and worked in the USA from 1997 to 2005. I purchased stocks in our company, a US company from 2000 to 2005. I am now selling some of the shares. Is the ACB (cost) of my stock the value of the stock when I moved back into Canada, or the actual cost when I purchased them.

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