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The Client

An independent contractor without employees had a corporation for over five years through which all work was contracted, performed, and invoiced to several businesses. The corporation was generating more income than she needed for living expenses. She had been getting corporate and personal tax returns and T4s filed by a tax preparer.

The Business Challenge

Every year she had significant tax balances to pay and was assessed instalment interest and payroll penalties that she could not understand. She came to see us because, in her conversations with friends, she heard that we did things differently and that salary payments could be planned, with tax and CPP remittances being made throughout the year, and without large tax balances owing at the time of filing.

How We Helped

The first meeting with this client was all about understanding her business and her concerns. Prior to our meeting, the client sent us electronic copies of the last three years of financial statements, corporate tax returns, and personal tax returns a couple of days prior to the meeting so we could review items prior to the meeting. She also granted us access to the corporate and personal CRA accounts under the Represent-a-Client function, so we could review the detailed transactions under the income tax, GST, and payroll remittance accounts. In my discussions with the client, I determined that the current tax preparer had encouraged the client to 'just take out money from the corporation whenever she needed it' and that all the 'tax calculations would be completed and paid at the end of the year', to keep things 'simple'. The client had selected this tax preparer because the fees were affordable. I also determined that this client is a planner, had money to invest, and would be disciplined to make regular payments if advised to do so.

Prior to the meeting, I summarized all interest and penalties that had been assessed by CRA in a schedule to present to the client. I also determined that RRSP and TFSA contribution limits had not been utilized. And I found that the business was eligible to register for the GST-Quick Method, which would simplify the GST reporting and reduce the GST payable to the CRA. I also had prepared the fee estimate for our firm and the list of services that included an annual payroll payments plan, with monthly remittances to CRA, and planned RRSP and TFSA payments. In the meeting, I showed her that the higher fee we charged was less than the current fee plus the interest and penalties paid to CRA for the lack of planning. I also explained that, with this plan, all the payments for the whole year could be scheduled in advance by scheduling them on her online banking system, so she would not have to remember to pay them each month. And, if something changed partway through the year, we would adjust the schedule and the bank-scheduled payments. She and I also met with her financial planner to ensure all registered and non-registered investments were optimized for after-tax dividend, interest, and capital gains income. Over the course of the next year, the client paid less tax by investing in RRSPs and by optimizing her investment portfolio so that the forms of income earned in the registered or non-registered account for the best after-tax outcome. She also was not paying any interest and penalties to the CRA. The overall value of our higher-priced service outweighed that lost investment income and higher tax, penalties, and interest that she had paid in the prior years.