Back-Up Your Tax Decisions

Did your Accountant make a 'call' aka decision surrounding a few grey areas of the CRA tax rules in order to get your a better tax outcome? The answer is probably Yes... as it should be! If you don't have an Accountant who is looking out for you at tax return time of year, that's your first issue. But let's dive a little deeper here, because my guess is 98% of you reading this probably answered Yes.

Do you know what factors have gone into your corporate or personal tax decisions? If a representative from the CRA called you (no, not one of those scam calls, a real one) and asked questions about your business, would you know what answers to give to ensure everything aligns with what you Accountant did for the last 2 (or more) years on your tax return? If your answer to the first question was Yes, then you best be answering Yes to this question as well. However, my guess is that at least 50% of you reading this had a Yes-No combo of answers. This is arguably even less smart than the rare person who answered No to the first question.

I see it all too often, and even catch myself at times - we rely so heavily on professional services to make decisions for us, as 'they're the professional,' but you have to understand how everything that happens with your business is going to impact your business, now and in the future. In light of the current COVID-19 relief efforts, I am seeing it just about everywhere, or rather with every conversation I am having. Take it upon yourself to know why you are signing-up for something, how your business is eligible. As a professional in a specific field, I would certainly do my part to ensure all clients are well-aware of this type of key info. The bad-case scenario is easily preventable if you are getting the right advice, and also doing your part to ask a few simple questions.

I don't mean for this blog to turn into a scary 'you're screwed if you don't know everything about any and all tax implications' message, but believe me when I say there is a good chance that once the dust truly settles on the COVID-19 global pandemic, the real CRA phone calls are going to start to outweigh the fake ones. What with all the online 'click accept here' options being tossed around for CECRA, CEBA, CEWS, etc., you're bound to get asked a question or two. I've already had one call over the last 6 months. That's one more call than I received the prior 2 years. Side note - make sure you know how to pick-out the real CRA calls and ensure they already know information about you (which they obviously should). Toss out a few incorrect answers to their first few questions and make sure they are actually looking at your correct information on their screen, and not just soliciting your personal info from you as their 'identity/security check.' Anyway, that's just Scam 101 for you as part of this accounting/tax blog.

Back to my original topic... so you might gather from the nature of this write-up that I'm very comfortable with leaning into the truth and the story around my business decisions for tax purposes. And one very commonly addressed area is related to the relationship between a business and their labour force - and by that I mean their employees and/or contractors. Let me be clear, it's not illegal, it's just good business to make sure you know the tax rules and can play within the tax rules so they work to your advantage. I'm not here to tell you to setup offshore accounts in some sort of scheme that will eventually hit the news in a massive way like we often see. If your Accountant is well versed in knowing how to be that level of illegitimate, you've got yourself yet another problem. That or you've hired one of the best in the business and are probably overspending for legitimate tax advice.

There are many reasons why you can legitimately bring someone into your business as a contractor, while there are obviously many reasons why you can hire someone onto your team as an employee. A lot of these explanations are obvious. You can also have a great reason for switching someone from one 'status' to another at a point in time, and this might benefit both you and them for many reasons. But if you are doing this out of pure financial benefit to your business, without any factors at play that would warrant that sort of change, I can guarantee that this will get sniffed out incredibly easily by the CRA. it's as simple as a quick speed-dial down a laundry list of companies who implemented a change of status for their worker at a particular time (ahem, let's say in and around the time where wage subsidies were being offered to businesses who were paying employees during a global pandemic). This in an auditor's dream. Kind of like the feeling Parking Enforcement gets when there's a big event happening in a city that is short on free parking. Time to meet some quotas!!

This isn't the forum where I will share all the specifics around the employee vs. contractor relationship, and the factors that you need to know about. No this is not because I'm lazy or don't want to give you the goods, but it would be far too generic (just like any other article you may have seen in the past) and it always warrants a specific conversation about the specifics as they pertains to your business. You just need to make sure you're in the know about which parts of the grey area work in your favour, as well as which parts of the grey area don't work in your favour. Make sure you're working with your Accountant to align on these and the reasons why you have finalized a decision one way or the other. This goes for all 'elections' at tax time, so that you ensure you can give a good enough explanation IF you end up getting questions down the line on anything as it pertains to your business.

If you don't have the correct understanding or the correct answer to questions to support what the CRA is looking at on their end, you will potentially face a claw-back of all the tax related impacts (in the case of contractor vs. employee, this could also include paying out necessary labour law required amounts around vacation/holiday pay) and you better believe they'll try to claw it back retroactively to when these individuals would have been incorrectly categorized.

For more information, do your own diligence to look these things up, and call us to discuss, or have them with your own Accountant to keep them in check and keep you in the loop.