# Forced Government Income Assumption



## Xiro (Nov 27, 2017)

My friend has not filed taxes in ten years, as she has not worked an actual job in over that.

She was working two part time jobs, got pregnant, left on maternity leave, and decided to return to neither afterwards. She chose to start a self-employed business with Tupperware. She has received T4s from them so I believe that it should be on file she worked with them. 

There's no record, as far as we are aware, that she officially quit either job, as I don't know if ROE goes back that far. However, they decided to assume that for the three years afterwards she was working at one of the jobs(but not the other?) and she was simply not reporting her income for one of the two part time jobs.

So because she hasn't done her taxes, despite not working either of the two this whole time, she is being charged as if she was. 

She currently owes $7500($2500 for the three years), plus interest, so she now owes a total of exactly $10,000 to the government for "unpaid taxes".

After the discussion with revenue Canada, they told her that anything they owed her(after reporting her taxes) would be subtracted from the $10,000, and "should balance out". That does not make sense to us and it feels like something fraudulent or a way of the associate avoiding dealing with my friend. 

What can we do to dispute this? I'm at a loss completely and I don't have any friends who are familiar with taxes or the law.

Any help/advice is greatly appreciated!


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## Spudd (Oct 11, 2011)

I assume that they meant that once they have the tax returns in hand, they will know how much she owes or is owed, and will charge (or refund) the correct amount. Without the tax returns their assumption is that she owes 10k. However, once they get the returns they'll adjust that accordingly.


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## Just a Guy (Mar 27, 2012)

Well, she needs to file her tax returns. That will prove her income over the years in dispute. if the government is wrong, they'll issue you a refund. If she is wrong, she may have to pay even more.

Be aware, the CRA receives documentation from all income sources of significance. They usually have a reason for their assumptions, but that doesn't make them right. Avoiding tax returns, even if you don't owe anything, isn't the right way to proceed. I think she's just learned that and it's an expensive lesson so far. If she doesn't change her behaviour it could get even more expensive. If she changes her behaviour, she could get her money back. I'd be talking to an accountant and get to filing 10 years of back taxes.


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## Xiro (Nov 27, 2017)

Yeah, she's already in the process of getting her documentation to file. Her apathy came as a result of getting screwed over EI claims. But I'm sure she's learned her lesson now.

Hopefully it'll all be corrected from that but from my understanding of the conversation, the associate from CRA described it oddly and it seems like she might actually still be charged, at the very least, the alleged interest owed. I'm not sure. They shouldn't be able to charge her for an assumption if she submits the proper documentation, right? It seems like an improper penalty.


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## Just a Guy (Mar 27, 2012)

Depends on her undeclared income. If she doesn't owe, never made any income, then she won't have to pay. However, CRA assumes she's made enough money to live off of for 10 years without paying any taxes so they assume she probably owes something and thus will have penalties and interest.

If she submits all her paperwork and made less than the taxable amount of income, she won't have to pay anything (other than the accountant if she gets one). With 10 years to file, she'll have to submit paper filing (electronic submission is only good for a year or two I think). 

If CRA doesn't believe her submissions, she may also get audited, I think this is quite common when people don't submit for a long period, but I'm no expert. Again, if she's done nothing wrong, and claimed all her income, there won't be any issues with the audit, but it's certainly stressful, especially when added on top of he current situation.


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## Xiro (Nov 27, 2017)

I think she might owe a little from Tupperware, but I don't know how much she was earning, and I understand that there are different credits from self-employment.

From personal experience, you need to file once just to get digital CRA working for you, regardless of how long ago your documents were submitted. I have ROEs/T4s from 2011 on file, for example, but I didn't have access to the website until I personally mailed it in two years ago, and they sent me an access code a few weeks later.

I'll let her know about the audit since it seems likely to come up. I'm sure it'll be fine if she is prepared for the possibility.

Thank you both so much, you've really put us at ease for this. I'll come back if any more details arise but this information gives her a lot of power. You all have a wonderful day.


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## Just a Guy (Mar 27, 2012)

There are a lot of ways accountants use to make income disappear, especially for the self employed (legal deduction most people aren't aware of). If there are years where she made money, it may be wise to seek professional advices, especially if it was a while ago since the penalties and interest can really add up quickly.


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## AltaRed (Jun 8, 2009)

The key thing is she needs to get all her outstanding tax returns prepared and filed with CRA. I think it would be wise to use a tax accountant for this purpose. S/he will also ask some of the right questions such as all her sources of income (including EI), and some self-employed deductions she might be able to use, e.g. a percentage of the costs of operating in her home based on the percentage of the space she uses as an office for the time she was using it to earn self-employment income. It is best not to pad (reach too far) in claiming these deductions, i.e. they must be reasonable.


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## Eclectic12 (Oct 20, 2010)

Xiro said:


> My friend has not filed taxes in ten years, as she has not worked an actual job in over that ...


One problem with doing this is getting the documentation ten years after the fact may not be that easy versus how fast it would have been had she just filed them.
If I recall correctly, having outstanding tax returns may interfere with what she may have been paid from some gov't programs.




Xiro said:


> ... She chose to start a self-employed business with Tupperware. She has received T4s from them so I believe that it should be on file she worked with them.


This does not make sense to me as T4 forms are mostly for employment income. The part time jobs where she was an employee likely have T4 forms. The self-employed types that I have talked to usually have documentation through invoices of the income coming in and expenses going out ... not a T4 form.




Xiro said:


> ... they decided to assume that for the three years afterwards she was working at one of the jobs(but not the other?) and she was simply not reporting her income for one of the two part time jobs.


If the company is still around, perhaps they will write a letter confirming when she left the part-time job. 




Xiro said:


> ... So because she hasn't done her taxes, despite not working either of the two this whole time, she is being charged as if she was.
> She currently owes $7500($2500 for the three years), plus interest, so she now owes a total of exactly $10,000 to the government for "unpaid taxes".


Maybe ... usually when someone ignores the letters from CRA asking for outstanding tax returns to be filed for long enough that CRA makes assumptions, my understanding is the taxes owing, interest and penalties for not filing on time are all rolled up into the assumed grand total.




Xiro said:


> ... After the discussion with revenue Canada, they told her that anything they owed her(after reporting her taxes) would be subtracted from the $10,000, and "should balance out". That does not make sense to us and it feels like something fraudulent or a way of the associate avoiding dealing with my friend.


When my co-worker did similar where something like eight years of tax returns were owing, the tax return filed for each year was adjusting that year's tax return. Rather than "be subtracted", the documentation wiped out the tax bill which then wiped out the interest and as he taken the time to explain the delays, everything ended up being wiped out as he was owed money for each tax year.




Xiro said:


> ... What can we do to dispute this? I'm at a loss completely and I don't have any friends who are familiar with taxes or the law.


Disputing is putting the cart before the horse.

Step one is to contact CRA to get noted on the file any delays for providing the documentation and filing the tax returns.
Step two is file the missing tax returns then see what happens to the owing/penalties.

Where one knows one owes, it is better to pay off the debt as the tax return being filed will reduce the taxes/penalties but for what is actually owed, interest etc. will continue to grow while the numbers are crunched.




Xiro said:


> Just a Guy said:
> 
> 
> > Well, she needs to file her tax returns. That will prove her income over the years in dispute. if the government is wrong, they'll issue you a refund. If she is wrong, she may have to pay even more.
> ...


Not sure where the misunderstanding is ... the current charges are based on their assumptions. Filing the return to document a reduced amount, according to my co-worker will wipe out the original tax owing plus any interest/penalty (except possibly for late filing). 

After the correct documentation is filed, if there is an owing amount, the interest/penalties from the date it should have been paid to when it is actually be paid will still be charged. Say the amount owing was $1K from 2005 but CRA's assumption makes it $5K, where interest/penalties makes that particular total $8K. Filing the return to get back to the correct amount owing of $1K will get rid of the assumed extra $4K income tax bill plus whatever interest is being charged on it. 

One will still owe the original taxes of $1K plus whatever the interest/penalty is associated with it. 
It may end up being something along the lines of the assumed bill of $8K dropping to be $1.6K owing.

*Edit:*
Keep in mind these numbers are being picked for illustration purposes. How quickly the total builds over years may be different than the numbers used.

As well, the one think my co-worker did correctly was to make sure no taxes were owing before he skipped filing. It isn't the best choice as he lost use of his money but it did give him confidence that once everything was documented, any penalties would be small or be wiped out.


Not sure how it would work out but after filing the returns to be current, she can make a case to have some/all of the penalties/interest be waived.
https://www.canada.ca/en/revenue-ag...disputes/cancel-waive-penalties-interest.html


Cheers


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## Eclectic12 (Oct 20, 2010)

Xiro said:


> I think she might owe a little from Tupperware, but I don't know how much she was earning, and I understand that there are different credits from self-employment.


True ... with some links about this info.
https://globalnews.ca/news/3276924/self-employed-here-are-6-steps-to-get-your-taxes-right/
https://turbotax.intuit.ca/tips/tax-credits-for-self-employed-people-6398
http://www.moneysense.ca/save/taxes/file-taxes-when-self-employed/

Part of the challenge for her is going to be figuring out after the fact what the numbers were. Documenting it to CRA's satisfaction may also be difficult this late in the game.

As an example, where a car is being used for both personal and business, a trip log to show what trips were business may be asked for to support the car expenses being deducted. Home office expenses tend to be looked at as too many people who didn't qualify were claiming it.




Xiro said:


> ... From personal experience, you need to file once just to get digital CRA working for you, regardless of how long ago your documents were submitted. I have ROEs/T4s from 2011 on file, for example, but I didn't have access to the website until I personally mailed it in two years ago, and they sent me an access code a few weeks later ...


My co-worker called to say he's had a flood in his basement so it would speed up the process of filing the missing tax returns if CRA would send copies of the T4s and other forms CRA had. It took a while but CRA did send them. 

Online is faster but if she doesn't have a CRA my account id yet, I don't see how she will be able to get one as CRA's web site says to register, the line item confirming who you are will come from the current tax year or the previous one. By the time she gets that close, basically all the work will be done.
https://www.canada.ca/en/revenue-ag...ration-process-access-cra-login-services.html

She can call see if there is another way but likely her time/energy is better spent on the outstanding returns as well as contacting the companies she had worked for.


Cheers


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## Nerd Investor (Nov 3, 2015)

As has been noted, taxes and penalties are a function of the balance owing. If she owes nothing, they will disappear. The nasty surprise might come on CPP on self-employment (since you mentioned she was self-employed). If you make net business income of just $10K for example, you wouldn't owe any income tax but you'd still have a balance owing on your return due to the CPP on self-employment. The actual dollars on this wouldn't be the end of the worth but the penalty and interest accrual over the years would hurt.


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## twa2w (Mar 5, 2016)

Also be aware that if she does not pay or resolve this quickly, CRA may seize her bank accounts without warning.


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## kcowan (Jul 1, 2010)

I had a similar thing with GST filing. I had closed the business and notified CRA through income tax filing, but the GST folks wanted my annual returns. I ignored it since I owed them nothing. Then they arbitrarily assessed an outrageous amount to get my attention. So I dutifully filed and got my refunds and all their charges and interest reversed.

You have to pay attention to these low level robots. If you lack documentation, you will need a tax consultant to help you negotiate a settlement.


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