How To Ensure Rental Income Within Your Corporation is Active Business Income
How To Ensure Rental Income Within Your Corporation is Active Business Income May 5, 2023 Tax Question: How do you ensure your rental income within
Home » News » Canadian Tax FAQs » Top 5 Common Tax Audit Issues – Part 3
Tax Question:
Top five common Corporate Income Tax issues faced by clients: Missing Payroll Remittances
Facts:
When corporations face cash flow shortages, one of the easiest short-term measures is to stop paying remittances to CRA. This is because no prior consent is required and commonly the only cost is the interest that has to be paid on the “loan” CRA has given you. However, under no circumstances ever, should you fail to remit withholding taxes on payroll. We repeat, never, never, never fail to remit withholding taxes on payroll.
When you deduct withholding taxes such as EI, CPP and income tax from payroll you are basically holding them in trust on behalf of your employees. At the end of the year, your employees will file their personal tax returns and report that they have already paid a significant part of their personal taxes owing through their employer. Because this money does not belong to the corporation, using it to pay for business expenses instead of remitting it to CRA is viewed as a serious offence. Think of it as stealing from your employees.
CRA is very aggressive when they are aware a company has failed to remit payroll withholding taxes. They will act very quickly to collect the taxes. This can involve garnishing income sources such as customer receivables, seizing and selling assets, extracting money from the company bank account and chasing the directors of the company personally for the unpaid amounts. In addition, they will assess penalties on top of the taxes owing. CRA is a lot less willing to reach a payment plan for payroll withholding taxes than they are for other taxes such as GST or corporate tax. To help ensure you always have sufficient cash to meet payroll remittances we suggest the following:
If you would like more information on this topic, please contact a member of the Empire CPA team by filling out the contact form below.
Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.
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