Welcome to the Mad Hatter’s Ball

by Elvena Slump

     If you are an employee in an ordinary business when income tax time rolls around, you likely don’t give it much thought. You might grumble a bit about taxes, but it’s fairly painless and straightforward.

     Seventy-five percent of all employees work for small business. Small business spends many hours satisfying the requirements of different government tax departments with myriad complicated regulations.

     Regular audits are conducted. This would not be a problem if the company keeps good records and the civil servant is professional and objective.

Or would it?

Unfortunately we are living in a tax dream world with 90 percent of taxpayers lulled into thinking all is well.

But what if CRA uses different standards across the country or even different within one province? How would you know or find out? How could you protect your financial interests from unfair taxation?

     One case brought to my attention, involves a rogue auditor disallowing legitimate business expenses. This auditor preferred to use personal preferences as a guideline. If she didn’t like it you couldn’t have it. It had nothing to do with validity. An example out of many is when the taxpayer bought an expensive specialized saw. The following year he purchased another saw. The auditor disallowed the deduction because he didn’t prove why he needed two saws for his business. The taxpayer bought wrapping material for mail orders. Disallowed. Auditor opinion: for personal use. The auditor’s mishandling of the audit has cost this taxpayer many years of grief. CRA could have disciplined the auditor treated the taxpayer fairly redone their audit. Instead the taxpayers’ found themselves on an expensive five-year odyssey through the courts. This has taken a toll on their health and their business aside from the deleterious effect on needed cash flow. CRA subsequently tried to persuade them to declare bankruptcy. This ploy is regularly used by income tax officials in contested cases. They claim they are doing you a favor because you shouldn’t be in business. Civil servants should not have the power to decide whether you should be in business. That decision is best left to the marketplace.

     Our government has to take responsibility when the actions of their employees bludgeon helpless taxpayers so unfairly.

     How do you know if CRA taxes you differently than others in a similar situation? We have a taxpayer Bill of Rights and if you survive all the court battles heavily slanted in favor of the Crown and are still capable of demanding your rights you can complain to the Ombudsman. But before you know you are treated unfairly, you need to be able to compare your situation to that of other taxpayers. The Privacy Act will not allow this. So that leaves the will and ability of government to enforce rules of appropriate behavior upon a compliant civil service.

Is CRA compliant; does government have the will?

If you live and work in the transportation industry in Ontario and Quebec and were audited this year for your 2004, 05 and 06 tax years you were allowed the full civil service rate, though sometimes it meant contesting the audit. Expectations are the practice will continue for the 2007 tax year, whether you are an owner operator, a sole proprietor or a trucking company employee. The income tax departments in those two provinces should be commended for realizing that contrary to court rulings in the Class Action on Meal Allowances, all taxpayers should receive comparable tax-free allowances. ($79.30 vs. the transportation a percentage of $51)  

     In March 2007 the federal government set out a new graduated system of meal allowances for the transportation industry, increasing the daily meal and incidental rate over the next few

years from 60-to-75 percent of $51 per day.

     Those government changes in deductibility for meals for transportation employees left a loophole. CRA began to back audit for three years denying sole proprietors’ deductions allowed for the past decade. Receipts were demanded claims were denied.

     The civil service rate for meals and incidentals effective October 1, 2007 is: Breakfast $13.45; Lunch $12.65; Dinner $35.90; Incidentals $17.30, totaling $79.30. Currently truckers in every province except Ontario and Quebec are allowed only 60 percent of $51 which is $30.60 for their daily meals and expenses, sole proprietors need receipts.

Welcome to the Mad Hatter’s Ball. Alice in Wonderland would feel quite at home. There is a reality-disconnect between our elected representatives and CRA. Who is running this country; CRA or the federal government? Does it not matter that lives are ruined; people and businesses forced into bankruptcy at the whims of CRA employees?

High standards of work behavior for government employees hired in agencies such as CRA must be set and rigorously enforced. All taxpayers should be treated in a fair, equitable sane manner.

We are overdue for a drastic overhaul of the present tax regime to a simple fair system. It will take a determined government to make that change.

CRA operations in Canada are predatory; rogue auditors too often unchecked; federal tax departments operate independently provincially, with a fiefdom mentality; cohesive control on a federal level is lacking.

If you think this doesn’t affect you consider this. No one is safe and secure when a government department sets its own rules; arbitrarily changes rules at will; is generally unaccountable; further complicates a too complex tax act; fails to automatically overrule and correct audit abuses; further complicates the issue by pursuing unfair audits through the courts.

     The onus on the taxpayer to prove his case leaves him with few options: hire a lawyer; spend $20,000; cave in to CRA unilateral demands even if unfair or stumble through a five-year-long fight through the courts, on their own. Too many choose to just pay up.

     Until taxpayers begin to understand the injustices perpetrated against their fellow taxpayers, nothing will change. CRA is busy chasing the transportation industry so you likely won’t be next. However, be wary eventually CRA will need to find new targets. In fact you might just look around one day and find you are the last person left standing.