Business Owners: Steer Clear of Trouble with CRA

Beth Graddon

There are big penalties for businesses who don’t remain above board with the taxman. Fees paid to professional bookkeepers and tax accountants can be well worth it, as a self-employed taxpayer in the construction industry recently found out.

In September, the CRA resumed their crackdown on sole proprietors who don’t follow the rules. They audited a business owner from Alberta in the construction industry who intentionally underreported taxable business income by $573,563 for the 2011, 2012, and 2013 tax years. The business owner attempted to keep this income under the radar by operating a cash-based business to avoid creating bank records. No bank account was maintained, and financial transactions were conducted through a payday loan company, which included paying subcontractors with money orders and cashing client cheques.

In addition, this revenue was underreported on GST returns, leading to a failure to remit $44,474 for the same three-year period. The consequences of these tax evasion tactics? A total fine of $157,403 and a 12-month condition sentence.

Tax evasion clearly doesn’t pay…but the evaders do! From April 1, 2019 to March 31, 2020 there were 32 convictions and 13 taxpayers sent to jail for a combined total of 18.5 years for evading a cumulative $7,427,090 in tax.

The CRA also has a message for small business owners: claiming earned income correctly also ensures that businesses have access to benefit programs to which they’re entitled, including those introduced to deal with the effects of the COVID-19 pandemic. However, the CRA also cautions that ineligible claims for COVID-19 benefits can lead to repayment of benefit amounts and other penalizing actions.

Bottom line:  With the CRA resuming audit practices and new challenges being created by the pandemic reporting and eligibility requirements associated with the emergency response benefits available to businesses, it’s increasingly important that tax, bookkeeping and payroll professionals step up to proactively help their small business clients before year end.

Knowledge Bureau can help with training staff or providing you with new credentials in these areas:

• Basic Bookkeeping in a Digital World
• Accounting for Multiple Business Profiles
• Advanced Payroll for Small Business

Additional educational resources: Help business owners avoid these pitfalls as an MFA™-Business Services Specialist.