There is a widespread believe that large companies use “tax loopholes” to get away without paying taxes. We don’t share that opinion but we do believe that there are many “tax loopholes” available to CRA to force taxpayers to pay more then their fair share. We can’t emphasize enough that you have proper tax advisers with you from the time you start in business.
A sample of these loopholes are as follows;
CRA can collect GST from you going back to 1994 when it was introduced but you are only allowed to claim input tax credits for up to the past four years. Suppose you had sales of $100,000 a year since 2000 and a cost of $90,000. If you filed your GST each year you would owe 5% (assuming that was the rate) on the $10,000 difference each year. $500 for each year for a total of $5,000 over the ten years. But if you didn’t file you would not owe $5,000 plus interest and penalties but $36,500 plus interest and penalties. This is because of the loophole for CRA which disallows the input tax credit on the first 7 years. Each of those years you would be taxed on 5% of the $100,000.
If you have not registered for GST but you should have because you have sales over $30,000, CRA can go back to the date you should have registered and assess you. However if it is to your benefit to back date your registration, CRA through another loophole doesn’t have to do it. For example if your competitor registers for GST and spends $300,000 starting his business he will receive a $15,000 refund from the government. If you forgot to register, CRA would not allow you the $15,000 your competitor got.
If you made corporate income tax installments in 2006 of $10,000 as you were required to do and then the company fell on hard times and lost several thousand dollars but made it all back in 2007 but did not get around to filing the 2006 and 2007 until 2010. You might logically think that you would get a refund on $10,000 in 2006 and that would be applied in 2007 so you have no tax liability. Not so. Again another loophole allows CRA to keep all refunds over 4 years old so there is no carried forward to 2007.
You have a Nevada corporation that pays directors fees and legal fees in Canada. Under the US / Canada tax treaty this Nevada Corporation is exempt from Canadian tax so it doesn’t file a Canadian tax return. This seems logical but again, a CRA tax loophole, means they can still squeeze money from you. Since you are conducting business in Canada, paying fees to Canadians, you must file a tax return. Now, no matter what you will never have to pay tax here as you are treaty protected. The penalty, not tax, for failing to file a return is $2,500 per year. If you have not filed for 3 years the amount you owe CRA is $7,500 plus interest.