Category Archives: tax arrears

7 ways the tax man is watching you

tax man is watching you

CRA is scouring your social media & donning disguises

Whether it’s through a photo on social media or a casual conversation with a friend, the Canada Revenue Agency is always watching and listening. And their investigators will pursue you tirelessly if they think you’ve been lying on your tax return. Their subject of choice? These days, it’s anyone and everyone.  “We always think it’s only the rich who the tax man is interested in but it’s the little fish they like the best,” says Paul DioGuardi, a senior tax lawyer and author of The Taxman is Watching. “The Internet is becoming a favoured weapon for the CRA to find and analyze all kinds of data so they can watch people they think are cheating on their taxes.”

Here’s five ways the CRA may be watching you that you probably weren’t aware of.

1. Your social media

Any of your open social media accounts are publicly accessible and some posts could prompt a CRA investigation into your financial life. From the CRA’s point of view this is a legitimate practice on their part because posts on social media really aren’t private. How does this work? Say you just bought a new $85,000 sail boat and are boasting about it by posting a photo of it on Facebook. The CRA could see this and then check it against what you declared as income last year. “If you declared $40,000 in annual income, or a modest amount, they’re going to be suspicious and come calling,” says DioGuardi.

2. Your sales and purchases on Kijiji, Etsy and Ebay

Is your passion for vintage furniture really a hobby? Or are you running a small business from your living room and not declaring the profits on your tax return? “To compare this data would take years in the old days,” says DioGuardi. “Now the CRA can data-mine these non-traditional sources of info in a heartbeat pretty much whenever they like. They are a collection agency with police-like powers.”

3. Your small business’s sales data

Cheating on your company sales numbers by declaring lower revenue than is actually the case?  Don’t. The CRA is able to use data to plow through years’ worth of your credit card transactions with the aim of matching your stated sales with electronic data they’re able to access.

4. Bank accounts and investments

To spot undeclared, taxable interest, dividend and capital gains income, the CRA has access to info from all Canadian financial institutions. They can also determine if you’ve exceeded your TFSA and RRSP contributions and penalize you accordingly.

5. Capital gains from condo and real estate sales

“In the old days I had to go to the registry office to find out when a piece of real estate had been bought and sold,” says DioGuardi. “Not anymore. The Internet changes the game.” Now, the CRA can look at all real estate transactions and easily flag suspicious transactions. What are they looking for? Condo flippers and real estate sales where the owner hasn’t declared capital gains and paid the appropriate taxes. Multiple property ownership where the taxpayer isn’t also declaring rental income is another trigger for investigation.

6. Your income and pensions

The CRA is hunting for disparities in retirement income. It can access info on your bank account balances and income and match it with previous tax returns. If there’s a wide discrepancy, be prepared to answer more questions.

 7. Mystery shopping

Don’t be surprised if CRA agents show up at your restaurant or other small business, in disguise to eat a meal with the intention of rooting out suspicious financial behaviour. The agents could pose as a couple out for a meal to see how your business works and what the count is for people frequenting your business to ensure it is aligned with what you have reported in previous tax returns. “It’s a big job and I think they will sub-contract a lot of this out in future,” says DioGuardi.

What does all of this mean? That the shift of responsibility is really shifting to the taxpayer and not the tax collector. In the past, the tax man simply told you what you owed.  These days it’s completely up to you to declare what you should be paying, and they have the means to check that what you’re saying is absolutely accurate. “Remember, they can search anything, put liens on your property and slap you with penalties and late fees,” says DioGuardi. “My suggestion is to always give full and complete disclosure on your annual tax return. With data mining the way it is today, if you don’t, then believe me, they will find you.”

Source: MoneySense.ca – by  

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CBC FORUM House keys sent to the bank? Your thoughts on mortgage defaults

The federal government is worried about Albertans making strategic defaults on their mortgages.

 

Some Albertans are walking away from their mortgages by putting their keys in the mail and sending them back to the bank.

It’s a phenomenon known as jingle mail — sparked by a combination of high debt and lost jobs — and was a big problem in Alberta back in the 1980s.

As a result, the federal government is watching the Alberta market closely. Jingle mail, or strategic defaults, weaken the housing market and increase loan losses among Canada’s banks, say experts.

We asked what this means to you: Does your mortgage keep you awake at night? What would make you send your house keys to the bank? Any personal mortgage anecdotes you want to share?

You weighed in via CBC Forum, our new experiment to encourage a different kind of discussion on our website. Here are some of the best comments made during the discussion.

Please note that user names are not necessarily the names of commenters. Some comments have been altered to correct spelling and to conform to CBC style. Click on the user name to see the comment in the blog format.

Many chimed in with their own mortgage advice.

  • “Sending house keys back to the bank seems very irresponsible. The banks are not going to absorb the costs — customers will be on the hook in the end.” — EOttawa​
  • “People who buy the McMansions in the hopes that someday they will become part of the upper class are the ones who should worry. Big risks have serious consequences. Good luck with it.” —Chris K
  • “No, it doesn’t keep me awake for the simple reason that we bought a home well within our means with a mortgage way lower than what the banks said we could borrow … It’s a question of common sense and priorities.” — docp

There was some discussion on who should be blamed.

  • “Lots of blame and finger pointing to go round. Bottom line, as many others have said, it falls on personal responsibility to make good decisions and sometimes circumstances outside our control force us to make tough decisions to survive — like using ‘jingle mail’ in Alberta.” — Don Watson

Several commenters even had their own jingle mail stories.

  • “My ex-husband and I returned the keys to the bank when it became clear that he was unable to maintain the mortgage payments on the home he had bought before we were married. This happened in the first year of marriage and it was a terrible blow to him. Later he declared bankruptcy.” — LinneaEldred
  • “We purchased our home within our means and have been able to keep up with the payments. We lived in Fort McMurray for four years, after they went through the downturn of the economy in the early 80s. Folks were turning in their keys then and walking away. People still don’t learn from past mistakes.” — Leslie Riley​

There were even some thoughts on the future … or lack of it.

  • “I have a mortgage and I also have a full-time job, yet I still worry about the future of my mortgage. I don’t believe that we need to point out the fact that even if you were or are smart about your money, you cannot predict your future.” — Samantha R.

You can read the full CBC Forum live blog discussion on mortgages below.

Can’t see the forum? Click here

Source: By Haydn Watters, CBC News Posted: Feb 09, 2016 12:26 PM ET

 

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Are you helping or hurting your client?

Are you helping or hurting your client?

Mortgage loans for clients with bruised credit happen every day – but the industry as a whole needs to ensure those loans are improving fiscal responsibility, and not sinking the client deeper in debt, says one alt lender.

“One of the things we try to say when talking to brokers is, ‘How are we helping the client in providing this funding?’” says Jason Provencher, the manager of business to business solutions with Bridgewater Bank. “We want to say, ‘Is this client likely to take the advice of the lender and the broker and correct this situation, or are they just trying to get money to buy a new truck?’”

It is a vital role that brokers can play in concert with lenders, Provencher told MBN, advising clients to improve their financial situation and find fiscal restraint, instead of falling prey to wanting everything right now.

“Provide the advice to the client, show them everything they need to do to correct the situation and how it will benefit them, and continue to follow up with them as part of the relationship,” he says. “It is important that these talks include future financial planning, because it isn’t just about how this money is going to help you today, but how is it going to set you up for success tomorrow.”

Provencher says that Bridgewater Bank sells the mortgage product with an eye to how it will help the client down the line, to move them into better things.

“Yes, we want to prevent bankruptcies and foreclosures; but what we hope we’re doing in the market is helping the client improve their situation,” he says.

As for the future of lending, Provencher sees a three-tier lending market where people with bruised credit may start in the private space, later moving to the alternative space, and eventually moving into the prime space.

“It is very competitive on the alt side,” he says, “and the rates really aren’t that bad – we’re talking four to five per cent for those with bruised credit or who may have been in bankruptcy before.”

Looking to the future, Provencher reflects on how much has changed since he applied for his own first mortgage.

Source: MortgageBrokerNews.ca by Donald Horne | 16 Jul 2015

Get your free summer mortgage check up now

Get your free summer mortgage check up now.  We are exactly half way through the year. Are you meeting all the resolutions you made for 2015? Are you on track to meet your financial goals? Are you thinking of:

  1. Refinancing to reduce your mortgage rate
  2. Consolidate high interest credit card debt
  3. Refinance to do much needed upgrades or renovations
  4. Cash out equity to buy a second home or investment property
  5. Cash out equity to start a business or purchase a franchise
  6. Cash out equity to give your kids or grand kids a financial gift

It may be much easier than you think to achieve your goal, so don’t procrastinate.

Schedule your no obligation mortgage consultation with the Ray C. McMillan Mortgage Team to explore your options. 

#mortgagesmadesimple

Rate hike could leave mortgage holders stretched, survey finds

Many mortgage holders in Canada have very little financial cushion and could be in trouble if rates rose or they lost a job, according to a new survey.

About 15 per cent of respondents to a survey done for Manulife Bank of Canada said they would have difficulty making payments if their mortgage payments went up. That means they might face tightened circumstances if rates have risen by the next time they renegotiate their mortgage, a likely circumstance as most analysts believe interest rates will rise this year.

Nearly half said they couldn’t manage a 10 per cent increase in their mortgage payment.

“Having your payments go up 10 per cent sounds like a lot, but if you have a $200,000 mortgage and interest rates go up one per cent, that’s a 10 per cent increase in your mortgage payments,” said Manulife Bank CEO Rick Lunny said. “So there’s not much room here for those people.”

It is likely the Fed will raise rates by one quarter of a point only this fall and the Bank of Canada may not follow immediately, but mortgage rates also could be affected by movements in the bond markets.

Oliver Roundtable 20141127

As housing costs rise, Canadians find themselves with little wiggle room after they pay the mortgage. Losing a job or seeing rates rise could leave some people in trouble. (Darren Calabrese/Canadian Press)

Faced with loss of employment by the major breadwinner, most respondents to the survey said they had a very limited financial cushion.

About 16 per cent said they’d be in trouble within a month and a total of 43 per cent said they’d have difficulty within three months if someone in the household lost a job.

The online survey was done for Manulife by Research House between Feb. 10 and 27. The survey polled 2,372 Canadians in every province, all of them homeowners between the ages of 20 and 59 with a minimum household income of $50,000.

The rate of mortgage default in Canada is very low, but as housing costs rise, many observers have warned about the amount of debt Canadians have taken on.

Manulife found the average amount these homeowners had outstanding on a mortgage was $190,000.

Albertans were carrying the heaviest debt load — an average of $242,400 on the mortgage. That’s followed by $217,600 in British Columbia, $197,100 in Manitoba and Saskatchewan and $193,000 in Ontario.

But 78 per cent of respondents to a survey said paying down debt was a priority for their household and 40 per cent had either increased the amount they pay towards the mortgage or made a lump sum payment within the past year.

Source: CBC News Posted: Jun 16, 2015 12:49 PM ET

Flipping houses? There are tax criteria to keep in mind

Many people think that a flipped house should qualify as a principal residence and therefore a sale should be sheltered from tax using the ‘principal residence exemption’ (PRE). And if not, the profit should at least be taxed as a capital gain, not business income. This is not always the case. (Aleutie/Getty Images/iStockphoto)

It’s no secret that if you sell your principal residence, you might be able to sell it tax-free, thanks to the “principal residence exemption” (PRE). The problem? It’s not always clear what should count as a principal residence.

Take Andrew Thurnheer, for example. This man’s home outside Ithaca, N.Y., consisted of a tree house 40 feet in the air, which he built in the mid-1980s, and includes a generator-powered elevator, shower and propane heater. If some lucky buyer managed to acquire this home from him, would it count as a principal residence?

Okay, tree houses aside, there are other examples where it’s not clear that a place should be considered a principal residence. Consider the example where you buy a property, fix it up, live in it for a bit, then sell it for a profit. Many people think that a place like this should qualify as a principal residence and therefore a sale should be sheltered from tax using the PRE. And if not, the profit should at least be taxed as a capital gain, not business income. It seems that, every year, there are court cases in Canada that deal with this issue. Let me share the most recent case, and how the court approached it.

Nathalie Constantin purchased six properties in Quebec over three years – 2006, ’07 and ’08. Ms. Constantin sold the properties shortly after purchasing them. She held the properties for periods ranging from two months to 11 months. The average holding period was nine months.

In this story (see Nathalie Constantin v. The Queen, 2014 TCC 327), the issue was the tax treatment of the profit she realized when she sold the properties. The question was whether to tax the properties as though she were selling capital property that she owned (in which case the profits should be taxed as capital gains), or selling business inventory (in which case the profits should be taxed as business income).

I’ll pause here to mention that, if you hope to use your PRE to shelter income from a tax gain on the sale of a property, it has to be true that the property is a capital property in your hands, and not business inventory. Further, you have to ordinarily inhabit the property in order for it to be counted as a principal residence eligible for the PRE.

Back to the issue of capital property versus business inventory. Think of a tree and fruit analogy. If you were to buy a tree with the intention of growing fruit so that you could sell the fruit to earn income, you could say that the tree is a capital property. On the other hand, if you bought the tree to flip the tree itself for a profit, the tree would be more akin to business inventory. Ms. Constantin argued that it was her intention to keep the properties in order to earn rental income from them. Normally, in this case, a rental property would be considered capital property.

The court, however, disagreed with her. The court shared the criteria that should be looked at when determining whether a profit should be treated as a capital gain, or business income. These criteria were first introduced in the court case Happy Valley Farms Ltd. (1986). Here’s what the court will look at: (1) the nature of the property sold; (2) the length of period of ownership; (3) the frequency and number of similar transactions by the taxpayer; (4) the work expended to make the property more marketable or to attract purchasers; (5) the circumstances responsible for the sale of the property; and (6) the taxpayer’s intention or motive when the property was acquired.

In addition to these criteria, the courts have developed the doctrine of “secondary intention.” That is, even when your main intention was to hold a property as a long-term investment, it might be that you had in mind a possible sale of the property for a profit if your long-term objective couldn’t be achieved. This secondary intention could be enough for a court to say that your profit should be taxed as business income rather than a capital gain. In Ms. Constantin’s case, she would have been content with capital gains treatment, even if she couldn’t claim the PRE. She lost the case.

If you’re going to buy and flip a property for a profit, take a careful look at the criteria the courts – and taxman – will consider when taxing you. If possible, structure your purchase so that you’ll receive capital gains treatment, and perhaps even the PRE.

Source: Globe and Mail

Tim Cestnick is managing director of Advanced Wealth Planning, Scotiabank Global Wealth Management, and founder of WaterStreet Family Offices.

Bad Credit 101: The Small Mistakes That Are Killing Your Score

  • <b>Credit</b> Card Application <b>Declined</b>: Why & How You Can Fix It

Source: SuccessMagazine

You just applied for a credit card, or maybe it was a new apartment or a loan, and you got denied. DENIED. Seriously? You were totally under the impression that your credit was solid—and it just sucker punched you in the face.

Did you know that lenders and landlords often consider an applicant’s credit score before approval? Well, being rejected due to bad credit is never fun—especially if you didn’t know it was less than stellar.

The good news is that the credit-scoring process is fairly transparent, and by correcting some bad habits, your score can improve.

Here’s what you’re probably doing wrong, and how you can fix it:

1. Late Payments

Paying bills late is by far the biggest drag on your credit. Payment history determines 35 percent of your FICO score, and for good reason. If someone has failed to pay his bills on time in the past, he will probably continue to do so.

You can make sure your bills are always paid on time by setting up payment alerts. If you know exactly when your bills are due, you’ll at least have the opportunity to pay them on time.

2. Using Too Much Credit

Credit utilization ratio is another major factor used to determine your FICO score and, therefore, your overall credit health. This number comes from two semi-independent figures:

1.    Total amount of credit in use divided by total amount of credit available
2.    Credit in use on individual cards divided by amount of credit available on each card

When lenders see you’re using a high percentage of your available credit, they assume you may have difficulty paying off more credit should you have access to it. This is why credit utilization ratio affects your overall credit and why maintaining a lower ratio is always better.

To prevent your credit utilization ratio from getting out of hand, consider setting up account alerts through your issuer. The reminder will let you know when the proportions are getting lopsided so you can adjust accordingly. Also, check your account manually once a week or so. Five minutes of time could save you years of headache trying to repair a bad credit score.

3. Lost Collection Account

If you pay your bills on time while keeping your card balances low and your credit is still bad, it’s time to pull your credit report. You may have forgotten about an old account in collection, but the credit bureaus haven’t. Whether it’s from a medical bill, an old credit line or perhaps from something you co-signed on years ago, unpaid debt that has gone to collections can be a major drag on your credit score, and fixing or managing this information is extremely important.

For starters, you’ll need to know specifics about outstanding debt before you can address it. All of the information used to determine your credit score can be accessed for free once a year on your credit reports at AnnualCreditReport.com. Here you’ll find credit card information, loans and, of course, any accounts in collection.

If you find any erroneous information on your report, you can:

1.    File a dispute directly with the credit bureau(s) reporting the error.
2.    File a dispute with whoever is holding the debt (bank, credit card company, collection agency, etc.).
3.    Offer supplementary supporting information to the Consumer Finance Protection Bureau.

It’s usually best to do all three to ensure all parties are not only aware of the error, but also have enough information to judge it accurately.

If the collections data is accurate, it’ll usually remain your credit report for seven years from the date of issue. During this period it’s important to make sure all credit payments are made on time, that you maintain a low overall credit utilization ratio and that you restrict opening new accounts that result in a hard credit pull.

Having bad credit will likely present certain temporary borrowing limits, but it can be overcome. If you’re smart about promoting habits that result in credit improvement, this period can be shortened dramatically, making bad credit a thing of the past.

– See more at: http://success.com/article/bad-credit-101-the-small-mistakes-that-are-killing-your-score#sthash.YE9bBuMV.dpuf