As a software development consultant, I thought I was doing things right when it came to filing my small business taxes.
I had been an employee for years, and becoming an independent contractor seemed fairly straightforward. Just file a tax return, claim only reasonable expenses, and keep receipts for a “rainy day”, right?
What I did not know is what caused me over two years of stress and aggravation with CRA. Dealing with the CRA auditor was a horrible experience in trying to reason with an unreasonable bully. It all started with an innocuous phone call from an auditor. She seemed friendly at first. I answered her questions, even the vague and misleading ones. My “Spidy Senses” started tingling when the auditor informed me that my business deductions would not be allowed and that I had to go into their office for an “initial interview” with all of my records, deductions, receipts, journals, invoices, personal credit card records, bank account records, and more. I’m an honest person, but I’m also usually somewhat disorganized. Unfortunately, it would be that honesty the auditor would try to use against me! I knew I was going to need some serious help otherwise I might lose my legitimate business deductions!
I searched the net for tax accountants and tax lawyers–anyone who might be able to offer some advice on how to get organized. I read articles about audits, postings on forums and tax literature on the CRA website. This only amplified the anxiety! Apparently, quite a few people weren’t satisfied with the outcome after engaging accountants or lawyers, because these professionals were generally paid hourly–and not necessarily to see their clients’ audits through to the end. Then I found Tax Audit Solutions (TAS) and engaged their services, mainly because they had a wealth of useful information on their website and I somehow felt comfortable they wouldn’t “gouge” me at a time when I was most vulnerable, but would help me fight for my rights to a conclusion.
When I called the auditor to let her know that I had hired a Tax Representative, she adamantly claimed that I would first have to come in for an interview with my books and records; only then would I be allowed to elect a representative to correspond with her. Believing this was true, nevertheless skeptical, I called my Tax Representative who clarified that the auditor had misinformed me and it would be very wrong to bring my records without getting them audit ready first.
The auditor then took the position that I was not entitled to any deductions because my home was not my principle place of business.
Being disorganized doesn’t make you a bad person, but it sure doesn’t help. And I was disorganized–receipts in boxes, utility bills had been thrown out or lost… there was a lot of work to do to recover and organize bank statements, utility statements, receipts and so on, to get my books ready for the auditor. TAS requested some additional time to prepare. CRA chose to expedite the audit by narrowing the scope of the audit to check for invoices and proof of income only, and not even look at my home and vehicle expenses–instead they just disallowed them all. TAS filed a notice of objection on my behalf. The appeals officer agreed with the auditor and confirmed the assessment.
TAS filed an appeal to the Tax Court of Canada. The Department of Justice insisted that CRA was right, and refused to back off. The DOJ refused a settlement offer.
TAS took the matter to court. It was an all-day case in front of Justice Boyle. The DOJ put up a valiant fight but in the end after Dan White presented his summary and request to the Justice Boyle, the DOJ admitted that we were right and that in fact my home was my principle place of business and my expenses were allowed.
It seems ridiculous that one has to fight that hard for what was clearly right from the first place. This case was more about bullying than about disputed taxes.
My experience tells me that firstly I need to keep audit ready books and secondly, even when a taxpayer is right, their chance of beating CRA is very small. It takes a serious heavy weight to fight for you if you want to win.
TAS prepared all my records, my defence, they spent hours and hours with me… they took an entire evening until 11PM reviewing my case with me, putting my mind to rest. The bottom line is: Tell the truth, be sure of what you know and don’t guess at anything you don’t know. Be clear on the question you are answering. This holds true for the auditor as well as their lawyer in tax court.
It felt good to have my say in court, and I honestly believe that if I tried to do this on my own, I would have lost.
I now know that being right is only a small part of winning a case against CRA. True to their word, TAS saw this through to the end, and didn’t charge me extra. Julie and Dan are an organize-and-execute dynamo and I have a great respect for them and what they represent.
CRA is denying more and more small businesses (e.g. independent consultants) a right to deductions. They know this demographic is vulnerable and seem to be having a heyday right here in Calgary. I find this trend ludicrous! There was recently a documentary on W5 about small business taxpayers having to fight their way all the way to tax court in increasing numbers to get justice. My testimony is yet another example of this, and I consider myself one of the more fortunate ones.
I would recommend anyone who gets a call or a letter from CRA to contact Tax Audit Solutions before speaking to CRA. CRA is not your friend. If you are honest and trusting, you are vulnerable. You cannot trust them to be fair or reasonable.