Need Advice dealing with Revenue Canada - Retroactive Charges

[dipmicro]

In May 2014 CRA did payrol audit and later ruled one of my subcontractors is an employee. The auditor setup an appointment end of August to sort this out. 

At the meeting she did some calculations and I apparently became liable for CPP+EI source deductions retroactively to 2013. My subcontractor already paid those with 2013 return. Of course there is an extra 100% CPP and 40% EI contribution by employer.

But they assigned interest and penalties for failing to deduct. In August 22, 2014, retroactively to Jan 1, 2013.

I agreed with a ruling about subcontractor being an employee and did not appeal. Paid all assessed debts except the 2013 interest and penalties portion. It is little under $500 so not sure if it's worth retaining a tax lawyer.

The auditor was probably junior and it was obvious she had very little to say into the process. She suggested to file "REQUEST FOR TAXPAYER RELIEF", which is basically begging CRA to drop the penalties and interest due to extraordinary circumstances. But I am afraid that by filing this form I formally recognize the debt.

CRA has not yet returned the contributions paid by my subcontractor with her 2013 return. When I asked if they will pay my subcontractor the same interest they are trying collect from me, they refused.

[dipmicro]

My accountant is of opinion CRA cannot charge penalties and interest retroactively if ruling was made this year.

Pierre, you worked for CRA, what do you think?

[vintagenorth]

You have nothing to lose by filing the "Request For Taxpayer Relief". However, before filing it is suggested (by someone who was a CRA Manager until last year) that you go on the CRA website and look up the criteria for filing the request in order to get a clear understanding of the arguments you will need when filing the request.

Also, it is probably not worth your retaining a tax lawyer. However, I would ask your accountant why he did not give you the correct information about your employee that you thought was only a subcontractor.

[mr.elmwood]

I worked for Revenue Canada a looooooong time ago in a low level capacity. The way tax collection was explained to me, is that it is up to the individual to pay as little as possible. It is not up to CRA to make you pay as much as possible.

Use all appeals.

The line between employee and sub contractor can sometimes be tenuous. Agreeing that this person is an employee is not the same as agreeing you were trying to get away with something. As an honest interpretation, why should you be punished?

[dipmicro]

vintagenorth:

My accountant did correct return at the time. Main argument is that ruling declaring her an employee in 2013 was in May 2014. Charter or Rights section 11g and h protects me from retroactive penalties. Second argument: How serious is CRA about this ruling if they keep sitting on money that 4 months ago they declared as received in error?

mr.elmwood:

Exactly! I don't mind having this person as employee, because I intend to keep her as long as I can afford her.

Ok then, thank you. I will appeal the assesment. It's been done in August 22 by auditor and formal notice of assesment is dated Sep 12, so still very appeal-able.