An avoidable mistake
Even when a business is completely inactive, and not generating any income, the owners should still file the required returns with the Canada Revenue Agency (CRA) to avoid issues, including potential penalties that can arrive years down the road.
A common misconception that exists amongst business owners is that if the organization is not generating any revenue, and therefore no profits, there is no need to file income taxes with the CRA; this misconception often leads to major unexpected penalties that can have significant implications for individuals, corporations and their directors.
If there’s no revenue, do I still need to file returns?
If a business has previously generated an income, and then suddenly stops reporting to the CRA, the Agency can draw an assumption that the individual and/or business has continued to generate the income and can arbitrarily assess for income tax and HST.
If I prove no income do I still have to pay?
Within certain time frames you can still file late or outstanding tax and HST returns to set the record straight regarding your income and tax, however, this may not get people off the hook completely. CRA has the ability to assess individuals and corporations for non-filing penalties for a percentage of the amount owing or for a fixed sum of money if the tax debtor is grossly negligent. That’s right, even when it is proved that no tax was generated a bill from the CRA can still occur because there are laws that require the filing of taxes even when there is no tax owing.
Recommendation: Close your business number with CRA if your business is inactive
This may seem obvious but its not. We see many clients who come to us with a lot debt as a result of arbitrary assessments resulting from the non-filing of income tax and HST returns. This can be avoided by advising CRA to close your business account numbers that are not active. Check out this link for more info: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/lf-vnts/clsccts-eng.html
Am I expected to know this?
The reality is that there are many rules and regulations set out in the Income Tax Act and Excise Tax Act that people don’t know about, and of these rules, many are innocently broken or misunderstood – that’s why accountants and tax lawyers exist to assist individuals and corporations to be compliant with the rules. In many cases, if an accountant or tax lawyer can’t assist you as the debt is too large for you to pay, a Licensed Insolvency Trustee is a valuable and trusted advisor, who can offer education and advice on how to solve problems relating to income tax and HST debts.
To learn more about the CRA, and particularly about the kinds of risks that might exist for you or your clients, give me a call and let’s book a discovery meeting.