Starting a successful small business takes hard work and perseverance. Unfortunately, small business owners are one of the largest groups that find themselves with tax problems.
One of the main reasons why small business owners commonly run into trouble with the CRA is because it is tough starting a business and generally in the first couple of years small businesses are not really profitable. In many cases, small business owners don’t pay for bookkeepers and simply collect their receipts all year long. Then, at the end of the year, these owners go to an accountant with what records they have or attempt to do the returns on their own.
This can result in incorrectly declared expenses and income that can end up costing the small business owner dearly in a re-assessment or audit.
Other times, small business owners misunderstand filing requirements and fall behind filing returns. In some extreme cases, small business owners do not set aside their H.S.T. and then find that it is impossible to pay it when tax time comes.
When things reach a breaking point and the CRA begins pursuing the small business owner to collect the tax debt, there are many collection methods - similar to when they collect from a consumer. Just as they can freeze a business bank account, they can also freeze a business owner’s bank account. Typically, when an individual has a tax debt and is employed, the CRA will send a wage garnishment to the employer directing the employer to forward a percentage of the individual’s earnings to the CRA. When a small business owes money to the CRA the CRA can send a notice to the business’s clients, directing them to forward the proceeds of all invoices to the CRA.
With an individual, HR departments are generally used to receiving wage garnishment notices from the CRA. For small business owners however, this can have a lethal impact on a business and a business owner’s reputation, as many clients and companies may not want to deal with a supplier who has a tax problem.
A small business owner who has a tax problem must act quickly to avoid the consequences of CRA collection/enforcement action. Tax problems are usually financial problems, requiring a financial solution. At the end of the day, tax debt is debt like any other debt, only the CRA has greater collection powers than regular creditors which creates a major sense of urgency.
If you are a small business owner with a tax problem you definitely want to come up with a plan before you face the embarrassment of having your clients notified that you have a CRA debt and are facing a possible 100% garnishment of your receivables, which can cause irreparable financial hardship. If the worst has already come true and your receivables are already being garnished you still may be able to stop it.
Working with a good financial consultant who routinely works with individuals and small businesses who have problems with the CRA is your first step towards a meaningful solution to your tax problem.
For more information about how to avoid or stop a garnishment of your receivables please contact DebtCare at 416-907-2582 or visit www.debtcare.ca.