Canada Revenue Agency has shifted its focus from wealthy tax havens to the nation’s largest income bracket – the middle class has been put on notice by the tax man, particularly those who work in the service industry, or in remote regions of the country.
Unreported income from this group is adding up – the underground economy was worth an estimated $38 billion in 2008, according to Statistics Canada. Even if CRA can only get a small piece of the pie, it’s still worth billions of dollars in additional tax revenue. Let’s take a look at the actions CRA is taking for this middle class tax crackdown, along with what the tax obligations are for people in these positions.
The Taxman Cometh
The wealthy aren’t the only ones who need to be concerned about dodging the taxman. Everyday hard working Canadians should think twice about not reporting taxable income. CRA is taking the unorthodox approach of targeting everyone from servers in St. Catharines, Ontario to pilot car drivers in remote regions like the Yukon. The message is clear: pay your fair share of taxes or face the consequences of hefty interest and tax penalties.
“The big focus so far has been on high net worth projects, as well as offshore tax evasion,” says Jamie Golombek, managing director of CIBC Private Wealth Management’s tax and estate planning division. “One area (government) can always go after is compliance. Why don’t we get the existing Canadians who are not paying their fair share of taxes to comply and pay up?”
No Small Change
The two-year tax probe is only the tip of the iceberg. According to CRA, the probe uncovered nearly $2 million in unpaid taxes and led to about $500,000 in interest and penalties. Although the CRA may not have the ability to audit every single Canadian, it sends a sends a stern warning of compliance. Even Canadians in faraway locations aren’t safe from the taxman’s grip.
“If you’re out there, you should be paying your fair share of taxes, even if you are paid in cash, or even if you live off the grid in remote parts of Canada,” says Golombek. “If not, we’re going to get you.”
Understand Your Tax Obligations
As a Canadian citizen it’s important to be aware of our tax obligations. Ignorance to tax laws is no excuse. If you’re a server, you may think that you’re safe from the taxman because you receive most of your tips in cash – but not so fast. If you aren’t reporting your fair share of tips, you’ll likely set off a red flag and be audited by CRA.
Just like base earnings, waitresses need to report tips received. Even if gratuities aren’t reported on your T4 slip, it’s your obligation to keep track of your earnings. By not tracking your tips, you’re guilty of tax avoidance and face the possibility of interest and penalties. For example, if you owe tax for 2012 and do not file your return for 2012 on time, you’ll face a penalty of five per cent of your 2012 balance owing, plus one per cent of your balance owing for each full month that your return is late, to a maximum of 12 months.
Even if you sell used cards on eBay or Kijiji, you’re supposed to report the income you earn. If you’re unsure about your tax obligations, you should always keep meticulous records. By consulting a tax expert like H&R Block, you’ll be safe if you’re ever targeted by the taxman.