Can't pay the C.R.A, how f*cked am I?

[kingtravel]

Well, the calls from the CRA have officially started. About once a week right now, looking for some anecdotes or professional advice on what my best course of action is.

Bullet notes:

• Oilfield contractor living in Calgary, first year of incorporation was 2014.
• Have never missed a filing in my life as an employee, never been audited.
• Earned ~85k gross last year, over about 120 days of work.
• Collected 5% GST on that sum.
• That money has been all but spent, paying off debt/expenses.
• Have not filed personal, or corporate returns for 2014 tax year.
• Am "laid off" and working menial jobs to just keep the lights on.

Should I answer their calls and tell them I can't pay/file yet?
Is the CRA coming after me? (soon?)

Also, am I correct in understanding a GST bill can be "reduced" like income can? (IE; I owe $4000 in GST but I spent $1500 in GST over the course of the year, does this reduce my GST bill to $2500?)

Any pertinent info or experience in a similar situation would be very welcome. Thanks in advance.

 

[kimmie81]

@kingtravel Talk to them. If you don't it's more likely they will freeze your accounts. Seriously. Happened to a friend.

You need to file your corporate and personal taxes. You need an accountant to do your corporate financial statements. They'll be able to advise on the most tax efficient way to pay yourself from the corp, i.e. account for the money you took out (probably dividends). Hopefully you kept proper records (book keeping), as that makes your input tax credits (for GST) easy (yes, gst you pay the gov is net gst, I generally get a refund as my work is 0 rated).

GST has to be filed quarterly (to the best of my knowledge for a corp). You must have been ignoring the GST letters.

You need professional help. As a corp you should have had an accountant line up already.

Why did you choose to incorporate? Between the legal and accounting fees it is a lot more to maintain.

 

[kingtravel]

@kimmie81 I appreciate the response, and good points.

This is the second company I've started. I incorporated a business and was bought out by a parter about 10 years ago, did OK on that one. So I have some experience with the corporate workings, but back then I wasn't directly responsible for the filings/record keeping, etc. So I'm having to re-learn a bunch.

• Definitely have an accountant, had a very good one for years doing my personal stuff. He charges $2000+ for a corporate filing, money I didn't have at the deadline.
• Have been paying myself quarterly dividends, will likely report that structure when I do get around to filing.
• Good to know RE: GST, that's what I had figured, I wasn't sure if it was a 1:1 write-off for GST spent to collected though.
• Business is setup to pay GST annually.
• Incorporation was suggested to by colleagues who do the same type of work as me. Gross pay in my line of work is MUCH higher as a contractor, and with the amount of expenses I have (all legal, and well within the tax code) I found that I would make a lot more money at the end of the year.
• I had GST collected as well as money set aside to pay taxes with, however I got hit so hard with the drop in oil that I have used almost all of those funds to survive. Not smart, and I do know better, and I was in the process of setting up emergency funds and failsafes before this completely unforseen downturn.

Thanks, and looking forward to some more replies. Namely, what kind of window am I looking at to make good to the CRA? I've had people tell me they won't garnish/touch your accounts for a year or two, I should have everything squared back away by the end of the year I hope.

 

[resjudicata]

@kingtravel

Namely, what kind of window am I looking at to make good to the CRA? I've had people tell me they won't garnish/touch your accounts for a year or two, I should have everything squared back away by the end of the year I hope.

You MUST talk to them to work out a payment plan. Otherwise they can and may well take an escalating series of actions that can end very badly for you. CRA has extraordinary powers of seizure, way beyond what other creditors have.

Just pick up the phone and start talking. Do this EARLIER rather than later because their goodwill dials down quickly.

 

[kingtravel]

@resjudicata Fair enough, I definitely will this week. However, since I don't know how much I'm likely to owe (just some "back of the napkin" calculations right now), I'm not sure if I'm far enough along to start discussing a payment plan.

Any advice on how to approach talking to them?
"sorry, I got laid off and couldn't afford to pay, I should be able to settle the GST bill by the end of the year" ?

As far as I know they're really concerned about the GST first and foremost. Have colleagues that have delayed filings for 2+ years and not been bothered by the CRA, although I do realize every situation is different and they could easily start yanking cash from my accounts sooner than later.

 

[resjudicata]

@kingtravel The thing is: if they are calling you, they are in fact concerned about your tax situation. The fact that other people who haven't filed haven't been queried isn't really germane to your situation.

Anecdote: someone I know hasn't filed HST returns since 2012. CRA just notionally assessed him for $50K in outstanding GST returns, plus penalties and interest, including a special "repeated failure to file" penalty.

 

[kimmie81]

@kingtravel OK, so incorporating definitely made sense with how much you could make. I don't think 85K is quite at the break even, but obviously you were expecting to make more. So that makes sense.

If you keep the corp running it'll have to pay GST more frequently (after they get the first filing).

$2000 sounds like a deal for corporate filings. He must be independent.

No real clue on the how long to garnish etc, but if you don't talk to them my guess is it'll force them to take higher action to get you to contact them. I only know one person that had accounts frozen. 10s of thousands owed in taxes and he was avoiding them. Then the contact at the CRA went on vacation (2 weeks before xmas), leaving him with no way to get money for food or rent. Really bad situation. Would not recommend.

Another person I know ran into not realizing they'd owe taxes come year end (missed that day in realtor school where they tell you no one is doing withholding for you.. I guess). Paid my accountant to do his taxes for him, and he worked out a payment plan with the CRA. A year later he's doing fine and to the best of my knowledge is now paying on time. Paid some interest, but that's the cost of paying late. How long would it have been until the CRA took action? Who knows, but dealing with it meant they didn't.

 

[scotteugenehamill]

@kingtravel Your accountant isn't as good as you think. Anyone worth the money you pay them should have made you aware of your reporting requirements. I'd find someone new. But if you're only being quoted 2k the quality of work you're getting is probably quite low. That is H and R block level of fees.

Ask for a T2 only return / GIFI return which is no financial statements and only the corporate tax return and GST and personal taxes.

 

[scotteugenehamill]

@kimmie81 FYI GST can be annually quarterly or monthly. It depends on the thresholds you're hitting.

 

[brineheart]

@kingtravel Definitely don't ignore them. Its really easy for CRA to garnish your paycheque and your bank accounts - especially if you were on direct deposit for refunds. I worked there for 8 months as a co-op student. Also they don't have to go to court to put a lien on any assets, it was really easy to do.