We solve serious CRA tax problems

Proving The Source of Your Funds – The Importance of Documentation

There are two facets to successful financial transactions. The first is doing only what the law allows you to do. The second is being able to prove what it is that you in fact did. Many people think of the first and end up getting hurt by the second. When challenged by the Canada Revenue Agency, it doesn’t matter whether what you did and how you reported what you did were correct. Because the CRA can make assumptions and then require a taxpayer to disprove those assumptions, you must also be able to provide proof of what you did. Failing this, penalties, interest, and additional taxes apply.

Let us consider the example case of Mr Bourmand (see the summary Here). The taxpayer’s family member died (a non-Canadian resident relative) and Mr. Bourmand received an inheritance. We all know that inheritances, in Canada, are received free of income tax (income tax and other taxes may apply to the estate of the person who died, for example, Ontario’s EAT). Mr. Bourmand, knowing this and being on the right side of the law, did not report the amount he received from a foreign nation as income because these amounts were his inheritance payments. The CRA challenged him and, after conducting a net-worth audit assessment, assumed that all the amounts were income from a foreign business. This meant that all of receipts were taxable income; not tax free.

This case highlights the importance of being able to provide proof that is acceptable in court. Without the right documentation, the Court has no choice but to rule in favour of the Canada Revenue Agency. The CRA had assumed that over $3.6M was income and, by not getting all the necessary documents in order, Mr. Bourmand ended up having to pay hundreds of thousands of dollars in taxes, penalties, and interest. Lack of documentation, not just for the transfer for but for many other aspects of financial dealings, were what lost Mr. Bourmand his case.

When dealing with significant amounts of money coming from foreign sources, make sure to consult with a tax expert. This way you know what kinds of documents you need to prove your position. An ounce of prevention will save you and your family money and stress. Faris CPA has experts who can advise you on the types of documents you need to obtain and keep so as not to get yourself into tax trouble.

pro-tip

Pro Tip

ACCESSING THE SMALL BUSINESS DEDUCTION IN YOUR BUSINESS

The Small Business Deduction gives businesses a tax deduction on the first $500,000 of income. This saves an eligible corporation around up to $50,000 in income taxes. There are a number of conditions that have to be met to be eligible for this deduction.

Testimonial

Sam Faris reduced the significant unreported income based on net worth audit to be nil. Sam’s approach in fighting these types of complex audits is unique and sophisticated. He found countless mistakes made by the auditor which were rectified when Sam appealed the audit decision. Instead of owing significant amount of taxes, Sam reduced it to zero. I highly recommend to hire Sam for this type of audits and any CRA problem.”

E.M., Ottawa
pro-tip

Pro Tip

ACCESSING THE SMALL BUSINESS DEDUCTION IN YOUR BUSINESS

The Small Business Deduction gives businesses a tax deduction on the first $500,000 of income. This saves an eligible corporation around up to $50,000 in income taxes. There are a number of conditions that have to be met to be eligible for this deduction.