Wednesday, June 30, 2010

Tackling the Taxman

From first-hand experience, I can tell you that dealing with the Canada Revenue Agency (CRA) can be bewildering. I would have to say that just about all the CRA people I have spoken to seem motivated to help me, but they all seem to disagree with each other. In his book Tackling the Taxman, Alex Doulis gives a host of examples where CRA employees don’t seem as willing to be helpful as I’ve found them to be.

This book may actually be mistitled because most of the CRA people I’ve spoken to are women. However, given the tone of this book, my guess is that these women don’t mind being left out of the accusations.

It’s clear that Doulis knows a great deal about income taxes and the dispute process between CRA and taxpayers. The parts of the book that explain these matters are very useful. However, the bulk of the book is a collection of stories of serious misdeeds by CRA employees. These stories are entertaining, but they don’t have quite enough detail for the reader to figure out exactly where the truth lies. Have a read and decide for yourself.

One important point Doulis makes is the distinction between an audit and an investigation. If you are being audited by CRA, you are required to turn over information related to your income and deductions. This information is not supposed to be used to lay charges against you. If you are being investigated, then you aren’t required to be as forthcoming with answers to investigators’ questions.

For those who move around from country to country, it can be difficult to determine which country should collect income taxes. An important difference between the US and Canada is that the US “bases taxes on citizenship”, and “Canada bases tax liability on residency.”

Doulis claims that “tax collection is a business” and that tax collectors don’t like to spend time on a particular case unless the amount of tax recovered is likely to be above a threshold amount. Once a CRA employee invests time in you, he or she is then motivated to find some reason to demand more taxes. Doulis says that for this reason, you should try to end an audit as quickly as possible.

Some CRA misdeeds: “It doesn’t seem to matter that CRA has been told not to use audits to seek third-party information, pursue high-profile Canadians, or have investigators masquerade as auditors; it is continuing as you read this.”

The book finishes with a strong pitch for a flat tax. One thing that I’ve figured out about the various people who advocate a flat tax system is that they all seem to mean something different by “flat tax”.

Most people would prefer not to get into a dispute with CRA, but if you do, you’ll want to understand some of the things this book explains about the dispute process.

Big Cajun Man also reviewed Tackling the Taxman.

2 comments:

  1. Interesting remark about the "flat tax". I thought the term was relatively unambiguous (everyone pays the same percentage in income tax). What kinds of different interpretations are there?

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  2. @Patrick: Flat tax proposals I've read differ mostly on the degree to which deductions are eliminated. Some people propose leaving everything the same except for the removal of tax brackets, while others eliminate all deductions including business costs and RRSPs. In the most extreme versions, businesses pay taxes on their revenues, not their profits. So, a guy who matches up roofers with homeowners pocketing $500 for his trouble might pay income taxes on $60,000 in our current system, but would pay a flat tax on $1 million revenue.

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