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Do taxes have to be paid on income generated outside of Canada?

Expert: Hank Bulmash

Said asked:

I have registered my GST number and have an import/export license that I received from the Canadian Revenue Agency (CRA). I buy cars from dealers and privately, I mostly pay for them in cash and do not receive any receipts (some have bill of sale). My question is, if I pay cash and buy cars and export them out of the country do I need to pay any taxes? And/or do I pay taxes on the income that I have generated through this business, which I or my partner has generated outside Canada?

Hank Bulmash answered:

Based on your business model and your accounting, you're setting yourself up for real problems with Revenue Canada. If you don't get documentation showing the cost of the cars you purchase, you'll have very difficult time proving to the CRA how much you paid for them.

That means if you're ever audited, you're very likely to end up paying taxes on more income than you earned. If you have a cash business and don't report income for tax purposes, you can be charged with gross negligence on your tax returns. That means in addition to owing tax on income as computed by CRA, you can be subject to very severe penalties.

In short, you're playing with fire. You should get some professional advice immediately on how to deal with these issues, including how to set up a bookkeeping and documentation system that will generate real (and easily auditable) numbers to determine your income for tax purposes.

And finally, you do have to pay tax on income whether you earn it on sales in Canada or through exporting to another country.

About the author

Hank Bulmash
Bulmash Accounting Professional Corporation/CPA
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