Entrepreneurship & Small Business

4 years of back taxes... suggestions on damage control?

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  • Jun 27th, 2015 12:44 am
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Newbie
Oct 3, 2013
5 posts
Toronto

4 years of back taxes... suggestions on damage control?

Hey Redflagdeals!

I’m receiving a lot of conflicting data, so I figured I’d post my question here.

I have a videography business. It started with a partner about 8 years ago. About 4 years ago things went sour, we separated and I began to neglect the responsibilities that the partner was handling (taxes, receipts, etc.).

I’ve been putting it off (of course), but now I have 4 years of back taxes to take care of and I’m perplexed with all the options I have available. I have very little financial knowledge so I basically need to find someone I can pay as much as it takes, and put my trust into maximizing my return so the government doesn’t beat me to death.

My income was about 75 - 90k for the 4 years, but 80% of that went right back into the business. Unfortunately I’m terrible with receipts and most of my expense documentation are from credit card statements and Mint summaries which I’ve heard are both a total “no no”, and “totally ok”.

I’ve also been charging HST, so that’s going to tack quite a bit onto the total owing.

I was referred to two independent financial wizards, one is the friend of an acquaintance, who’s a CPA financial analyst at a mid-sized corporate holding company. The other is a freelance accountant that apparently “played the system” to nearly eliminate my other colleagues back-taxes. It’s hard to trust a stranger when I feel like I’m going to owe over 50k, but I’m quite desperate for options, don't know much at all about taxes, and I feel like choosing the wrong representation is going to seriously damage me.

My options:
1. Go to a local tax office (A colleague recommended - http://www.artbooks.to)
2. Trust the financial analyst freelance accountant. (He suggested already that I'd be owing 50-70k)
3. Trust the “play the system” freelance accountant.

Of course, I’d love to get the “play the system” accountant, as 50k is going to seriously ruin me for a few years, but I’m trying to mitigate risk. Perhaps there’s a solution here?

Please don’t rub in how foolish it was not to nip this in the bud sooner. I’m trying to find an actionable plan so I can stay productive and move forward with my business.

Thank you!

-


TL/DR; 4 years of back taxes, trying to minimize penalties. Looking for recommendations on action plan / damage control.
11 replies
Deal Addict
Jun 12, 2015
2551 posts
1071 upvotes
Ontario
Pretty sure you just need to file those returns, pay your late penalty and be on your way. You may quality for self disclosure with cra where they may reduce penalty interest. No need for tax lawyer, just go to a ca/cpa who does tax
Deal Fanatic
Nov 17, 2004
7311 posts
1672 upvotes
Toronto
Generally I find the CRA is quite reasonable in most instances but without actual receipts it will be hard for them to cut you some slack even if they wanted to. You can try to sneak in your expenses without the actual receipts and just using your visa statement, if they run an audit on you then you are screwed but you can plead ignorance and probably forgo any criminal prosecution, I mean technically you do have legit expenses backed up with you visa statements. The straight forward path is just to file your tax returns with the receipts you do have and stomach paying 50-75k for taxes owing. Just put yourself in the CRA's position, expenses with no official receipts, what would you do?

Edit: If and when you talk to the CRA, be sure to pick your words carefully. I had a tax issue back a few years ago, I talked to someone from the CRA and he asked me what my general margins are, I just said a number that I thought was correct but in reality was a big overestimate and they started to tax me based on the margins I told them over the phone.
I workout to get big so I can pickup bricks and ****.
Deal Fanatic
User avatar
Nov 18, 2002
7041 posts
652 upvotes
BC Interior
toalan wrote: Generally I find the CRA is quite reasonable in most instances but without actual receipts it will be hard for them to cut you some slack even if they wanted to. You can try to sneak in your expenses without the actual receipts and just using your visa statement, if they run an audit on you then you are screwed but you can plead ignorance and probably forgo any criminal prosecution, I mean technically you do have legit expenses backed up with you visa statements. The straight forward path is just to file your tax returns with the receipts you do have and stomach paying 50-75k for taxes owing. Just put yourself in the CRA's position, expenses with no official receipts, what would you do?

Edit: If and when you talk to the CRA, be sure to pick your words carefully. I had a tax issue back a few years ago, I talked to someone from the CRA and he asked me what my general margins are, I just said a number that I thought was correct but in reality was a big overestimate and they started to tax me based on the margins I told them over the phone.
Correct. Be very careful about what you communicate. Overall it's not end of the world type of affair. File 4 years of returns and HST and pay the fines.

Although credit card statements are still not 100% a good tax lawyer if it ever comes to that can easily argue those on your behalf with the cra or in court if needed. Depends on the amounts claimed.

If you can't afford this I highly recommend you discuss payment plans with the cra first otherwise they'll come after you for full amount once you've filed.
Member
User avatar
Oct 23, 2012
418 posts
146 upvotes
Montreal
so you were invoicing and collecting HST and then not reporting it? :facepalm:
Sr. Member
May 29, 2012
624 posts
256 upvotes
Southern Ontario
If you're a gambler go with option #3, you will win big or lose big
I suggest option #1, go to a accounting office that handles this kind of stuff or get areferral from a friend and just let them handle it , you won't be the first person they've helped in this situation.
Its a mess but not the end of the world, just get your boxes of random receipts out and organize them, the one you are missing I would still submit and if it doesnt fly then it doesnt but include them in the beginning. Hand it all over to you accountant and let them do their job, they should ask you all the important questions.


good luck
Newbie
Oct 3, 2013
5 posts
Toronto
Hey guys, thanks so much for the help. Much appreciated!

Ichpen - your note about a good tax lawyer arguing credit card statements (if it comes down to that) fills me with confidence.
Dave - yes, I've been collecting HST and not reporting. Pretty brutal, I know. I have a lot to learn.

I'll definitely need to be put on some sort of payment plan. Do you folks recommended any tax offices for creatives in Toronto?

Thanks again.
Deal Addict
Dec 10, 2012
3886 posts
1527 upvotes
Canada
good luck, you'll need it
Deal Fanatic
Aug 21, 2007
6055 posts
853 upvotes
Markham
basically you need a proper accountant who can do a vdp...id go to a proper office/firm and a freelancer unless they have experience with vdps...they arent particularly complicated but its too much money to mess around with

on the pro side, vdp filing should pretty much avoid any penalties and interest...not sure how much assistance you'll get with the payment plan though...cra i find plays hardball on payment plans.

PM me if your interest in referrals

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