126 King Street West - Unit 1 Stoney Creek, ON L8G 0A9   t: 905-662-9437   tracy@fiscalperformance.com

Interesting this whole business of “trust”.  I’m pretty sure we’re all familiar with trust as it applies to us on a personal level.  We trust each other.  We place our trust in certain things, events, processes and institutions.  I need not go on.

In this particular case, the trust I’m talking about has to do with business and especially our financial dealings with the government.  Many of you will know that lawyers and legal firms deal with trust accounts where money is held for specific reasons like real estate transactions and corporate mergers.  The money held by the lawyers in trust must be kept for specific purposes and not diverted anywhere else.  Real estate firms deal with the same kinds of accounts.  The penalties for diverting trust money can be severe.

In a sense, any business that collects HST or withholds employee taxes, CPP and EI for remittance is also holding this money in trust.  This is often where we see the problems.  This money does not belong to the business and must be handed over to Canada Revenue Agency (CRA) by a specific time.  The issue is often that the tax money sits in the same bank account as the rest of the company money.  It is too easy to tap into this extra money as the need arises.  When the time comes to remit to CRA, the money isn’t there.  Wait a minute!  Why not?  The excuses are many but the fact remains, it’s CRA’s money and they want it right away.  Furthermore, they have the power to levy fines and interest on late payments.

In all fairness, as I am not a big fan of paying taxes myself, CRA is very patient with delinquent accounts.  The will send notices and make every effort to get the business to pony up.  Regardless, there will come a point when even they will say enough is enough.  Here’s where it gets even better.  They can freeze bank accounts and do a host of other things to enforce compliance.  I already mentioned the fines and penalties.  Audits of the books are inevitable.  This is really not something you want to mess with.  Trust me on this.

It would almost be better if moneys collected from sales were automatically split and deposited properly in a separate account for taxes and the rest into the general operating account of the company.  That way the business would have no excuse for tapping into the “trust” account.  The money should then be available when the time comes to hand it over.  Reality doesn’t quite work that way and the results can be catastrophic.  Remember that the product or service that you sell for $100 requires you to collect an additional $13 in HST.  The $13 isn’t yours and never was.  You are just a tax collector for the government.  It’s their money.  Are we having fun yet?

Just to take it one step further, if you are paying a staff member $500, or whatever the figure may be, you must withhold some of that money to satisfy the staff member’s CPP, EI and income tax obligations.  You are paying it out of the $500 that you owe him or her in the first place.  Again, it is not your money.  Ah, but some of you are saying that the business needs to supply matching additional funds for the CPP and EI portions.  This is true.  Welcome to having staff to help you grow your business.  Again, I never said taxes were fun.  Nevertheless, all businesses are required to “render unto Caesar”.

Most businesses that we deal with are fully aware of what I am talking about and make every effort to pay what they owe in a timely fashion.  I trust you will too.  Welcome to business.

Be careful out there.