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Help re. tax man, especially Canadians who own their own business

Discussion in 'The Attic' started by trade, Jun 30, 2016.

    Jun 30, 2016
  1. trade

    trade Senior Member

    Occupation:
    recruiter
    Location:
    ontario
    Hi all,

    I (or my company) has been "selected" for a 3 year tax audit. I incorporated my business in Feb. 2012 (a company of one "employee" being myself) and the audit covers 2012 through 2014. CRA (Canada Revenue Agency) will be coming to my home (where I work from) to conduct their due diligence which apparently will include measuring the square footage of my place to determine if the 20% of costs that I claim for a tax expense write-off are legitimate. (I think it's close!)

    In addition to providing my company's bank statements for that 3 year period and all business accounting from my Quickbooks, I have been instructed to produce my personal bank account statements for the same time frame. This is where I am freaking out! All of my online gaming transactions have been conducted via my personal bank account until Visa cut off such transactions earlier this spring. I don't and have never used any on-line gambling wallets. (I also haven't gambled on-line since March of this year when Visa cut us off from on-line gaming. This has been a good thing on the home redecorating/ purchasing and organizing front, but that's a topic for a different discussion!)

    An acquaintance of mine told me she/ her company was audited a couple of years ago and when I asked her about the personal bank side of things, apparently they totally scrutinize all deposits made over the period being audited and ask for a full accounting of them. She said for a period of at least a year they would randomly call her asking about for example, a $150 deposit made 4 years prior. The casino withdrawals/ deposits might be straightforward or not... but what about that lamp I sold on Craigslist which I totally forgot about, or the $500 I was paid back from a loan to a friend 4 years ago? (Not saying either were real transactions but you catch my drift... they can and will question all deposits into my personal bank account apparently.)

    Here comes my concern. Although playing on line is theoretically legal in Canada, I have been (until now!) a closet gambler. I hated having to tell my accountant that i gambled on line and although he was non-judgmental about that, if I really have to produce documentation about on-line transactions I have made over 3 years (there are a lot!) and any winnings I deposited (clearly not nearly as many but there were some, a few of which were quite substantial), I will now have to talk to my bank which also handles my business account about any such transactions. I dread this! I will have to go back 4 years to figure out where any deposits I made to my personal banking account came from, including any casino cash-ins and face the further scrutiny of CRA, if in fact they are entitled to this information. (My accountant told me the reason for them asking for personal banking info is to ensure I never received any business payment which I deposited into my personal vs. into my business account to avoid any corporate and personal taxes for earned revenue).

    I still think it is questionable that they can scrutinize my personal bank account info but apparently it is not uncommon that they ask for this. My accountant initially told me he has never provided personal banking info for his clients to CRA, but then told me to forward him this info after a further conversation he had with CRA on my behalf "in case" we really need this. My acquaintance who was audited said in her own case, she realized that accountants ultimately want to avoid being audited themselves and that in the end they really aren't looking after their client's best interest in favour of protecting their own butts.

    Has anyone been through this and if so, I would be so grateful for any advice, especially regarding providing personal bank information. It kind of feels like a gun to my head because if i refuse to provide this documentation, will it lead to further scrutiny and ultimately hassle?

    Thank you in advance for any advice from those who may have "been there"!
     
  2. Jun 30, 2016
  3. lockinlove

    lockinlove Staring into the sun PABaccred

    Occupation:
    I work :D
    Location:
    Canada
    All I can say is good luck with these people. They will want proof of absolutely everything and if you dont have it, well then they wont let you claim it.

    My best friend just went through something similar with the CRA. It was a complete nightmare. Hundreds of documents, proof, letters written of proof. They wanted more and more.

    Hopefully yours will be quick and painless.

    And since gambling is legal, well you are going to have to prove thats where the money came from. They are going to want proof for every transaction.

    My friend couldnt get proof for a few things, so the CRA simply made her pay back the tax break they gave her on them before auditing.

    If you refuse the documentation they require, they will make you pay back the money you were given a tax break on.

    This is going to be a huge pain in the ass so be prepared

    I also think the liberals have put alot more pressure on them. Ive heard about alot of this lately. My aunt had to provide a whole bunch of papers proving something about her kids. They cut off her benefits and gave her a bill in the thousands. She had to get letters, utilities bills etc and send them all to the CRA in order to get them to reverse their stance. Looks like they are really cracking down on people and demanding proof

    And btw, I suggest searching for other forums more specialized on this topic. You will probably get alot more help that way.

    Also, dont be afraid to hire a tax lawyer if it comes down to it. Meaning, if it looks like you're gonna get screwed
     
    1 person likes this.
  4. Jun 30, 2016
  5. trade

    trade Senior Member

    Occupation:
    recruiter
    Location:
    ontario
    Uggh... thanks for your advice... although I feel a little sickened by what's to come! I have heard that people going through this get harassed for the smallest things up to one year later and although I have kept pretty good (not perfect) track of things, receipts in some cases are faded and/ or missing. It's finally summer here and it's the last thing I want to be dealing with!
     
  6. Jun 30, 2016
  7. Steviedoo

    Steviedoo Senior Member

    Occupation:
    Writer
    Location:
    South
    My friend got audited too. He runs a pretty big music recording studio here in Montreal. They asked for his personal banking.. All of his and his wife's personal withdrawals and deposits were scrutinized and proof of where it came from were asked of them etc....

    He didn't have any proof for a lot of things ....however they were very nice and he wasn't hit with anything extra to pay.

    It was nerve wrecking to say the least....but all good. So a good story.
     
    1 person likes this.
  8. Jul 1, 2016
  9. me_and_ed

    me_and_ed Ueber Meister CAG MM

    Occupation:
    Selling out
    Location:
    Vancouver
    This position sucks, hopefully you can go back on your records and pull the transactions from each casino payout, there is nothing democratic about the process though, guilty until proven innocent, a bunch of years back the majority of my business was export to the US, GST payable in Canada but cannot collect going stateside, damn government almost put me out of business by withholding 800k in GST refunds, 8 long months.......pricks!!
     
  10. Jul 1, 2016
  11. barbara12

    barbara12 Senior Member

    Occupation:
    Retired
    Location:
    Canada
    I read through this real quick but I have to ask why the hell would you put gambling transactions through a business account ??? I don't even use my main personal account -- totally separate account. Did I read through this too quick and miss something? To me, it is just plain stupid (sorry I do not mean to offend you) but to use your business account is absolutely not wise.

    There's and old saying -- never mix pleasure with business. I think there's a reason for it. Sorry if I misunderstood something but I am in a bit of a hurry.
     
  12. Jul 1, 2016
  13. slotmaster

    slotmaster Meister Member

    Occupation:
    warehouse
    Location:
    stressville
    All I can offer is you better have what you claimed ready to pay back fast and if you want to fight them it will cost tens of thousands.
     
    1 person likes this.
  14. Jul 1, 2016
  15. Steviedoo

    Steviedoo Senior Member

    Occupation:
    Writer
    Location:
    South
    Our lovely government has asked them for personal banking statements. Of which they are allowed to do...
    No gambling winnings or losses were on the business bank accounts.

    Being audited sucks but sometimes it is ok. My business got audited a couple years back....and it was ok. They did not ask me for my personal bank accounts.

    When My friend got audited they asked for all his bank accounts ....personal...went through every deposit every withdrawal he ever made but it turned out ok even when he couldn't produce proof of something...lets hope it turns out for op.
     
    1 person likes this.
  16. Jul 1, 2016
  17. barbara12

    barbara12 Senior Member

    Occupation:
    Retired
    Location:
    Canada
    OK figured I missed something Steviedoo. Yeah -- our government does like to stick it to us! I am also being penalized for over contributing on TFSA. Yes, I hope it all works out well for the OP.
     
  18. Jul 1, 2016
  19. bebo67

    bebo67 Meister Member PABnonaccred

    Occupation:
    Im on Google and write. Thats all you need to know
    Location:
    Ontario Canada
    I keep 2 bank accounts, and never combine personal with business. If I ever need a business loan, which I know at some point I will. I don't want them to see gambling payments. As far as CRA. They will want to know only so they can separate what was actual business related and what wasn't. Be absolutely upfront! You won't get penalized for gambling, its legal an its YOUR business. Be sure you go over everything. Don't refuse, you can end up losing your master license.
     
  20. Jul 1, 2016
  21. trade

    trade Senior Member

    Occupation:
    recruiter
    Location:
    ontario
    Just to be clear, I never used my business account to fund online gambling or anything else personal for that matter. But, I have both my business and personal bank accounts at the same bank and they are linked. That is how I pay myself, i.e. my company/ corporation pays me as an employee which is done by transferring "my pay" from my business account to my personal account each month and that is a matter of convenience vs. having 2 different banks and setting up transfers between them. My corporation pays all my payroll taxes to the gov't. (EI and CPP) on a monthly basis. So I am not trying to dodge anything.

    I just really hate the idea that the guv or anyone else knows anything about my personal spending habits. Lesson learned... I really never thought I would be "selected" for an audit.

    But thanks for the heads up Bebo. I honestly thought that CRA has no right to look at my personal banking expenditures and since I have only had my own business for 4 years, well this audit thing was a total shock to me... I am starting to believe it is much more common place than I had ever thought, but it still sucks. My bookkeeper was here all day today to organize my files and receipts. Looking at 2012 receipts only so far, many of them are unreadable due to fading and given it was my first year in business, I was not as disciplined on the paper trail thing... In 2013 I became much wiser and had a separate charge card for business so that helped a lot on the bookkeeping side of administration (vs. expensing back to my company via an expense report to be reimbursed).

    I really appreciate the input from most of you and anyone else who has gone through this or has any insight they can share, I am all ears/ eyes!

    Thanks again!
     

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