# Post your strange tax questions here



## MoneyGal (Apr 24, 2009)

I was glad to see StarDancer posting today - I have a tax question that I need input on. 

(People come to me with bizarre tax situations, and I sometimes don't know what to tell them.) What would be the right thing to advise in this situation? 

The couple in question has not filed tax returns since 2005. The wife has a (small) business and the husband works in a well-paying job. 

The wife started the business in 2005 but they "put it in the husband's name" because she didn't want to jeopardize her EI payments. 

Now they want to file every subsequent return - from 2006 onwards - with the business in the wife's name. Wife claims she paid husband $5000 (at some point?) to purchase the business. 

The business has inventory. The $5000 appears to have no relationship to the inventory, it seems to be an arbitrary number and I think it needs to be treated as goodwill. 

Any insights? 

Also - for this same couple - I honestly don't know the answer - what is the likelihood that CRA will pay back CCTB and UCCB? I know the Service Canada website says they will only go back 12 months. Is that true, in peoples' experience? I have zero experience with this and can only repeat what the Service Canada website says.


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## Charlie (May 20, 2011)

I'm guessing the business is not incorporated.

If so...'putting it hubby's name' really doesn't mean much if she was the one doing the work. It's her income.

I'd ignore the $5000 payment between spouses. I can't see the benefit of a $5000 goodwill bump to the wife -- nor any real business reason for the payment given she was always the one providing value to the business. Without knowing more background or how the amount was arrived at, it seems like it's just their attempt to shift the income. Given he has a good paying job, and CTBs are still an issue, I'm guessing this isn't a hugely profitable business?

I've seen CTB go back 2 yrs. But no more. You file the returns and see what they assess. 

2005 is your issue. And their EI fib. I'd record it always as her income -- and see what the effect is on EI clawback. They could record 2005 as his income and 2006 fwd as hers -- but they'll need a much better story on why it was originally his bus...and then hers. It's too cute for my liking, and I would council strongly against it.


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## MoneyGal (Apr 24, 2009)

Charlie, thanks for your response. I honestly don't know what to advise about how/why the business was originally his, and is now hers. 2005 is done and filed (in 2006, presumably). So from CRA's POV this is "his" business, the last CRA knew. Do they simply file it as "her" business for 2006 onwards? What paperwork would CRA need to see about how the business changed hands? 

Or they could keep it as "his" business from 2006 onwards...but, as you've said, this isn't any better - it is (and has always been) her business, and it's her income.


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## Homerhomer (Oct 18, 2010)

I don't like this his business her business thing either, you may consider to continue the business being in his name and him paying her for provided services, assuming there is no HST issue.


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## Charlie (May 20, 2011)

MoneyGal said:


> Do they simply file it as "her" business for 2006 onwards? What paperwork would CRA need to see about how the business changed hands?
> .


I think so. And 2005 is likely statute barred so they may have got away with it.... I don't think there's any paperwork to file for a change...just commence as hers. If CRA questions, they'll be asking to justify that it's genuinely hers. And that's the easy part -- because it's true! And since you're not involved with the 2005 you should be OK too. File 2006 fwd as they should be filed.


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## MoneyGal (Apr 24, 2009)

Thanks for all the input. These kinds of situations give me the heebie jeebies. 

One final (I hope) question - how do I treat the payment from her to him "to buy" the business? She paid him an amount "for goodwill" and a separate amount to cover the cost of inventory.


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## Charlie (May 20, 2011)

I would ignore it if they were ok with that. It was always her business. Unless they've an agreement that says differently and a reasonable rational and the business profitability warrants it, I just don't see the business purpose of the payment. Even if it were truly his business in 2005 and she took it over in 2006 there's no need to buy/sell. And it's a payment between spouses.

Alternatively it might be a 'consulting/finder' fee (100% deductible to her/100% taxable to him) or goodwill (worse case)-- eligible cap property -- 50% taxable to him/long long long term deduction for her. 

Now my oddest tax question????

A new band, which went on to fairly good success. Convinced they should be allowed to deduct certain pharmaceuticals and other groupie expenses as they were required to maintain a certain image. All documented and summarized. I did not open the envelope to look at the receipts....


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## ghostryder (Apr 5, 2009)

Charlie said:


> I think so. And 2005 is likely statute barred so they may have got away with it....



If they haven't filed, there is nothing to statue bar.


Massively late filed returns + self employed = audit


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## stardancer (Apr 26, 2009)

I would file 2006 and on as her business, but warn them strongly that they may be audited, especially if the business shows a loss for those years. As for the $5000 payment, unless they have the old receipt documenting the payment, then CRA will laugh at it.

Re the pharmaceuticals: I would not declare them; I doubt that they would be accepted as a legit expense. If they go under advertising, then it's illegal to be in possession of so many drugs. If they go under entertainment, they are not legit, as wooing groupies is not the same as wooing record company monguls.

There is a limit as to how far one should go to hang on to a client.


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## MoneyGal (Apr 24, 2009)

uuuuuuuuugh. I am so uncomfortable with the whole thing. I do prepare taxes for people but at this point it's just very close friends and family members - and I don't have questions about the integrity of any of those returns. 

This woman approached me through a friend. My "let's help people!" reaction kicked in. My husband thinks I should just package up the materials and return them with a "sorry -I can't help" message. I don't want to be implicated if/when they are audited.


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## Four Pillars (Apr 5, 2009)

MoneyGal said:


> My husband thinks I should just package up the materials and return them with a "sorry -I can't help" message.


I completely agree. I thought you were just giving some general advice to these people about how to approach their problem. I wouldn't be doing actual tax work for them.

They need to go to a professional tax accountant, pay the proper fees and get things sorted out.

I'm not suggesting that the tax accountant will do a better job than you, but they will charge the appropriate amount of money, can handle the liability and will charge more for the inevitable audit plus whatever other problems occur.


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