Tips when Dealing With CRA Part 5

We have been discussing some of the tactics used by CRA and how to deal with them. So far we’ve gone through 5 of them. Here are some more:

6. Confusion – Because the CRA is so big and has so many departments in different cities, you may find that more than 1 person is dealing with your file or you may find your file gets passed from one department/city to another without you even knowing it. You also may find that one CRA agent will tell you one thing, but another CRA agent tells you something different. This is yet another reason to deal with CRA in writing. Putting things in writing clarifies things and can assist in holding parties accountable.

7. Coercion – CRA may Coerce you to pay even when you don’t think you owe anything. A CRA collector is just doing their job – collect from people. If you don’t agree with their assessment, appeal! If your file is in appeal, they are not allowed to collect the amount from you as it is not confirmed as owing until the appeal is completed. You can utilize the Taxpayer Bill of Rights to help in understanding your rights here.

8. Garnishees – If amounts are confirmed as owing CRA could garnish your pay cheques. If you do owe an amount to CRA, then make arrangements with them. If you make arrangements and stick to your arrangements then they will not typically garnish you. This is mostly for people on payroll (employees)

9. Liens on property – CRA may go as far as putting a lien on your property so if you ever sold it, they would get paid. To avoid this don’t own properties in the name that has the liability. If you do work that can incur liability then have your spouse own the property or own it in a trust.

I will discuss more on my next blog!

Tips when Dealing With CRA Part 4

In my next 2 blogs I would like to discuss some of the tactics that CRA uses. Some of these tactics are in phone calls and conversations with CRA, some are even done in writing. For example when CRA is going to reassess a tax shelter, they will write in the letter to the taxpayer that they are going to audit the taxpayer’s participation. Of course people will read this as if they are going to get audited, when in reality the CRA has all the details of their tax shelter participation. Tax Shelters are monitored by CRA through the Tax Shelter Identification number. This allows the CRA to monitor every tax shelter and who is participating, how much and when! People who participate in tax shelters sometimes get scared when CRA uses their tactics, but others that don’t continue on saving tax year after year. The CRA can be tricky so you must watch out for the potential tactics they try and use.

Here is a short list of some of the tactics to look for and what do to do about them:

1. Ignorance – If you don’t know the rules, too bad! This seems to be how all of our regulators work in today’s day and age, so before you start a business, acquire an asset or do anything that has a potential larger tax consequence, seek professional advice. (Kustom Design is here to assist you, so please do come consult with us)
2. Fear – They will say things to you and provide written correspondence in ways that will keep you in fear of trying to do anything that saves tax! It seems that much of our system is now keeping people living in fear. Don’t live in fear, know your rights and always stand up for yourself! Surround yourself with others that are living in freedom of fear! We are here to help you stand up for your rights!
3. Intimidation – The CRA will try and intimidate you with their position of authority. Don’t let them! They are just people like you and I. If you know your rights and know that you haven’t done anything wrong, then don’t let them intimidate you.
4. Threats – CRA collection agents may threaten you with what they will do to you if you don’t pay. If you are in this position then you must communicate with them. Typically if you communicate with them in this position you can negotiate a deal with them that will hold back any potential of threats becoming reality.
5. Delay – CRA does their work after the fact. So if you incurred income in 2007, CRA may not contact you about this year until 2009. Then they can drag it out for months and even years as they do not always have the manpower to chew everything they’ve bitten. If they are delaying things, this may or may not be good for you. In precedent setting cases where CRA has really delayed and won in court, the taxpayer typically doesn’t pay more than a 1-3 years of interest because CRA took so long in dealing with the issue. If you determine that the delay is not good for you, like if you are waiting for a refund, then contact them regularly until it gets taken care of. Contacting them regularly puts the pressure on!

Watch for my next blog as we will go through some more of the tactics that CRA uses and how to deal with them.

Tips when Dealing With CRA Part 3

In reading my prior blogs you should now understand that CRA is a collection agency for the government and that if you don’t agree with their decisions they make when “administering tax” then you can appeal their decision to the authorities (courts). The CRA never does have the final decision, unless you let them! You should also now be clear that you can’t believe everything they state on their website because of the disclaimer, and you can’t take what you get from them on the phone as fact. If you need a ruling on something that does not have a precedent set, then get it in writing. Because tax law is so complicated, you should almost always seek professional help. Kustom Design is always up to date on the current tax laws and we are here to work with you on structuring your assets and transactions. The bottom line is that you do not have to be scared of dealing with CRA, you just need to know how to deal with them.

If CRA calls you by telephone you are not obligated to speak with them. You can have them deal with your authorized representative, or just tell them to put their request in writing. As a matter of fact it is typically better that you don’t speak to them as they are under a protocol to assess any tax amount owing and charge penalty and interest…and then of course collect it. Some CRA agents may try and trap you in what they say, so again it is better not to speak with them, unless you have no other option. If you do speak with them it would typically only be in regards to something specific, like a payment plan. If you do have to speak with CRA, ensure you get their full name and badge number. If you are having difficulty dealing with the agent assigned to you, you can ask to speak with their supervisor. The majority of CRA agents are bonded and they can bring trouble upon themselves if they trample on your rights found in the taxpayer bill of rights. Unfortunately, as mentioned prior, many CRA agents do not even know the taxpayer bill of rights and neither do the people, so CRA sometimes gets away with trampling on people’s rights!

Right now Canada is in a major deficit position, which means they are spending more than they are taking in. Because of this issue we have seen the CRA become more aggressive with people while raising some penalties through the roof, creating new penalties, freezing bank accounts, putting liens on assets and more. All we see on the news is how the Government is handling the financial situation quite well compared to the rest of the world, but what we don’t see in the media is how they are doing it. The Bank of Canada is printing more currency and the government is forced to collect more and new taxes! Do we think it’s going to get any better as our government is projecting more deficits for the coming years? We must know our rights and how to deal with CRA so we can protect ourselves, our assets and our future generations. Watch for my next blogs where we will share more on dealing with the CRA!

Kustom Design finds success within Financial Boot Camp’s first week

News Release September 17, 2010 For Immediate Release Kustom Design finds success within Financial Boot Camp’s first week Fostering economic control, Kustom Design continues forward into week two of the Financial Boot Camp Calgary, Alberta (September 17, 2010) – The Kustom Design Group of Companies has studied the biblical principles of finance, and successfully identified the effective financial strategies essential for building lasting wealth. Findings from these strategies have helped Kustom Design adopt helpful financial services to provide to its boot camp members, generating the first week of camp a success. The Financial Boot Camp's second week will broaden last week’s session, and will attempt to examine how to eliminate bad debt through devising a game plan that will use the power of education and introduce cash flow. As well, Kustom Design will discuss top credit myths and provide tools for credit repair. With expert financial assistance, Kustom Design’s Financial Boot Camp members can expect to calculate payments, determine interest rates and solve for the present or future value of a loan or annuity. For more information providing about Kustom Design’s products and services, visit online at http://www.kustomdesign.ca. About Kustom Design Group Kustom Design Group consists of interconnected companies that offer a complete line of products and services in accounting, finance and tax. These services range from consulting and strategic planning to financial and tax education, helping clients save money on taxes, properly manage finances and attain financial freedom and lasting wealth. ###

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Tips when Dealing With CRA Part 2

As per my last blog, please ensure you know your rights as a Tax Payer according to the Tax Payer Bill of Rights. Here are 3 other important facts in dealing with the CRA:

1. Don’t ever take what a CRA agent says on the phone as fact. Get it in writing! They can never be held accountable to what they say on the phone, and typically you are getting a junior agent that may have just started working at the CRA!
2. Don’t take what the CRA website says as fact! (see their disclaimer) Here’s a link and below is what is written in the disclaimer:

http://www.cra-arc.gc.ca/ntcs/dsclmr-eng.html

Disclaimer: Some of the information on this Web site has been provided by external sources. The CRA is not responsible for the quality, merchantability and fitness for a particular purpose of products or services available on external sites and listed or described on our menu; nor is it responsible for the accuracy, reliability or currency of the information contained on our Web site and supplied by external sources.

3. If you don’t agree with their assessment, appeal (See further in this blog for details)

APPEALING

Number 4 on the Tax Payer Bill of Rights states that you have the right to a formal review and subsequent appeal. So, if after they review your file you get reassessed, you can appeal their Assessment if you don’t agree with it. This assessment typically comes in 2 forms, a Notice of Assessment (N.O.A.) or a Notice of Reassessment (N.O.R.A.). Either one may be appealed as long as the appeal is within 90 days of the date on the N.O.A. or N.O.R.A. To appeal a decision you should file a Notice of Objection: http://www.cra-arc.gc.ca/E/pbg/tf/t400a/t400a-09e.pdf. Once your Notice of Objection is sent in you should receive a letter stating that they’ve received your Objection and that they will be reviewing your file. If after the review is completed, which sometimes takes a considerable amount of time, they state the Assessment still stands than you can appeal to the Tax Court of Canada. Their correspondence will come with the paperwork and steps to do so, however if you need assistance in your Notice of Objections or appeals, please don’t hesitate to contact us.

Please watch for my next blogs as I will continue to give you tips and information when it comes to dealing with the CRA.

Tips when Dealing With CRA Part 1

As I’ve just finished a full series on the Family Trust I was debating on what would be my next topic to blog on. After some thinking I came to the conclusion that one of the biggest issues many people face is dealing with CRA, the Canada Revenue Agency. Formerly they were called CCRA, Canada Customs and Revenue Agency and before that they were simply called Revenue Canada. The CRA is an agency that administers tax law for Canada, which means in essence they are a big part of implementing the tax legislation put forth by parliament. This is of course not their only function as they also administer other areas of benefits and tax programs to the public and they also currently work with international trade regulation. It’s interesting that this is what they are to do, but the majority of the public sees them as being a collection agency. The appearance of CRA does not seem to say anything different when they are harassing millions of Canadians for money even when they may not owe it!

The first thing you must realize when dealing with CRA is that they do not make the final decisions in regards to how tax legislation applies. Above the CRA is the Tax Court of Canada, The Federal Court of Appeal and the Supreme Court of Canada. So, in essence, the CRA is at the bottom of the totem pole when determining the law. The real issue is that many people do not know they can appeal further than CRA, nor do they know that they have specific rights as a taxpayer. You, as a taxpayer, have many rights that could be disregarded by CRA. Part of the problem is that it is not a requirement for CRA agents to know the tax payer bill of rights, and on top of that, many of CRA’s positions are transient as many employees either leave the CRA or move departments. I’ve asked numerous CRA agents if they know about the Tax Payer Bill of Rights and you would be surprised to find that many don’t know about it, and if they do, they haven’t had a chance to read it! You need to know your rights to ensure they are being upheld, here is the link to the Tax Payer Bill of Rights: http://www.cra-arc.gc.ca/E/pub/tg/rc4417/rc4417-09b.pdf

Now that you know your rights ensure you are never walked over by the CRA. If your rights are broken then you should contact your member of parliament, contact the Tax Payer’s Ombudsman and appeal any decisions you don’t agree with. There are good people that work at the CRA, however as a whole the CRA needs to collect as much from the taxpayers as possible as Canada is in a major deficit. Where do you think they get the loans from? Obviously not the United States as they are Trillions in debt! The fact is that the Bank of Canada is able to print amounts of funds based on a number of factors, including the basis of how much tax us Canadians can pay! …and we wonder why all the reassessments and audits are so rampant. In my next series of blogs, I will go into a number of tips in helping you deal with CRA.

Maximizing your trust – other considerations

As we have been discussing trusts for the last couple of months you should have a good understanding of the basics of a trust. There are many uses for a trust and in this series of blogs we are mostly discussing the use of family trusts. There are numerous other types of trusts and they all operate similarly in the fact that they all have the 3 same factors: 1. Settlor 2. Trustee(s) 3. Beneficiaries. We will now do some recap on a few items and discuss some other considerations of having a trust.

Family Trusts are very effective when used to hold assets and distribute cash flow. We must remember that income that is left inside of the trust is taxed at the highest marginal tax rate, however the trust is allowed specific tax deductions and tax credits such as dividend tax credits, capital gains deductions, donation credits etc. Income can flow through a trust, however losses cannot typically be flowed through the trust. The losses can be used against income in the trust, carried forward, or carried back up to 3 years to apply against income of other years. If you have paid tax in the past and apply for a loss carryback you may receive a tax refund of the taxes you paid in the prior years you are applying the loss to. This is similar for individuals and corporations.

Also remember that a trust has a $750,000 Lifetime Capital Gains Exemption, which is the same as every Canadian individual taxpayer. This is key for the sale of small business shares, farm property or fishing property. Because all of the beneficiaries have the same exemption this could allow for millions of dollars in qualified capital gains which could be exempt from tax.

Another rule of most trusts that CRA has put into place is the 21 year deemed disposition rule. This rule means that 21 years after the asset was acquired you will have to claim the tax on the the current fair market value less the cost of the asset and improvements to the asset. This is done every 21 years. This rule can be avoided by distributing property to the beneficiaries before the 21^st year, or by providing in the trust that the property will indefeasibly vest in the beneficiaries prior to the disposition.

One last thing to discuss is the option of a trust acquiring a beneficiary’s principal residence. The sale should be a real sale with actual funds changing hands. There is typically no tax advantages to selling your principal residence to a trust as you do not pay capital gains tax when you sell your principal residence. The only reason you may want to sell your principal residence to the trust is for the potential of liability protection. Other real estate however should be sold to the trust or a corporation owned by the trust. This property that the trust acquires can be almost anywhere in the world as the trust can also have non resident beneficiaries.

There are so many ways to plan using a trust and we have discussed a lot of the basics. Please do inquire with questions on trusts, structuring and planning. We look forward to hearing from you!

Getting Money and Assets out of a Trust Part 2

In my last blog we discussed some of the ways to get money and assets out a trust. As we can see the 2 main ways that people use are loans and income from investments or businesses. In the case of loans you must remember that loans need to be at the current prescribed interest rate or higher. It is very important that you look up the current rates when you are doing a loan to or from a trust, corporation or spouse to make it a compliant loan. Prescribed rates are typically much lower than prime. Recently we’ve seen the prescribed rates 1% and lower. As discussed prior, loan interest must always be paid one month after the year end of a trust, which is almost always December, except in the case of some testamentary trusts. Thus most loan interest is due January 31^st.

Getting money and assets out through income is the other main method people use. This can be extremely beneficial in income splitting, capital gains splitting, multiplying the capital gains exemption, utilizing dividends and more. Some income may even be able to be given to minors, however planning is key as special tax could apply.

The trust may own assets and these assets can be given to beneficiaries. For example if the trust owned a property the trust may choose to give that property to one or more beneficiaries. If the trust owns other assets or investments the trust may choose to distribute a portion or all of the assets to beneficiaries. It is again up to the trustees discretion if it is a discretionary trust. This can be done on a tax deferred basis if the beneficiary provides collateral or if a Rollout is used, however if a rollout is used, the trust may close and the beneficiary can no longer be a beneficiary.

It is key to plan with advisors when it comes to maximizing the use of your trust. Kustom Design, our associates and our advisors are all here to assist you in your planning. Please don’t hesitate to email us with any questions or contact us to book an appointment. Initial consultation is always free, and if you are on a Kustom Design package then you have lots of hours of included consulting. In my next blog we will be wrapping up our series on maximizing the use of trusts.

Kustom Design Strategies Inc. launches new service

In efforts to provide clients with more options to succeed financially, KDSI now provides CanEquity Mortgage services Calgary Alberta (September 3, 2010) – Kustom Design Strategies Inc. has collaborated with CanEquity Mortgage and is now offering clients comprehensive mortgage consulting services. Recognized for being a national Canadian mortgage brokering company that provides Canadians with mortgages that have the best rates in Canada, CanEquity has access to over 75 major lending institutions across Canada and is able to offer home loans in all provinces and territories, as well as Lines of Credit and commercial lending. Focusing on providing distinct client service and extensive expertise and education, Kustom Design Strategies Inc. has extended its services to provide clients with the service and mortgage options needed at the best rates possible while shopping the mortgage market. The majority of CanEquity’s mortgage services are provided for free by the company’s mortgage brokers, who are all qualified and licensed independent professionals. To find out more about CanEquity please visit www.canequity.com. To book an appointment with one of KDSI’s associates visit us online, send an e-mail to info@kustomesign.ca or call (403) 219-0602. About Kustom Design Group The Kustom Design Strategies Inc. is a self-motivated accounting firm that strives to build lasting relationships of integrity through quality client service and widespread expertise and education. Click here to download this News Release as a PDF

Getting Money and Assets out of a Trust part 1

Ultimately the Trustee is in control of what happens with the assets of a trust. We’ve already discussed assets and money going into a trust. A trust may retain the assets or the income or it may distribute the assets and income to beneficiaries at the trustee’s discretion. Many people use family trusts to flow through income to beneficiaries while holding assets such as shares or real estate.

A trust is very effective in flowing income through to beneficiaries. When income is distributed to beneficiaries it can typically retain the characteristics of the way it came in. For example if the trust receives dividend income, then the trust may flow dividends to the beneficiaries. If the trust receives capital gains income, it could also flow capital gains to the beneficiaries. Since this income is not retained by the trust the trust will not be taxed on the income. The income distribution is reported on a T3 Slip and the tax is calculated on the tax return of the beneficiary. This is of course very beneficial for tax planning!

A trust may also give loans. In many cases a trust would not loan to a trustee or beneficiary of the trust, as always consult with professionals when considering major transactions. Loaning funds to and from a trust can be an effective strategy. A trust that has capital may provide a mortgage to a corporation to buy a property. A trust that has capital may provide a loan to another entity to make an investment. There are many effective examples of trusts providing loans to build more Wealth.

If a trustee wanted money from the trust they may charge a Trustee’s Fee for overseeing the affairs of the trust. This, as with everything else the trustee does, should be in the best interest of the beneficiaries as the trustee has the fiduciary responsibility to the beneficiaries. A trust may also pay for tuition and education for the benefit of a beneficiary who is a minor and it will be considered a payment from the trust to the beneficiary.

In my next blog we will look at more ways to get money and assets out of a trust.