If you are a stakeholder in a business, your responsibility continues beyond just being fair in your dealings and checking the business’s financial registers. A hidden aspect can cause problems for you even if you have no fault. That aspect is the company’s tax compliance.
Even if you are an honest customer, partner, or creditor but the company you are dealing with is not abiding by Canadian Revenue Agency’s tax compliance rules and regulations, it can have severe repercussions for you.โฏ
The following is a discussion on how you can stay informed about the tax compliance status of your partner company and how to avoid any pitfalls.
Following are the indicators that a company is non-compliant with tax laws:
Following are some of the ways you can ascertain whether the business you are dealing with is complying with the income tax laws:
Credit statements of a business are documents that detail loan and repayment activity. Such documents should be of particular interest for stakeholders. You can ask the relevant company to provide you with its credit reports. After looking at it, you can understand their financial matters. It is possible that the credit reports do not give you the all the information that you need. Still, as a matter of general assessment, the company’s tax situation may be dire if they are not doing well with their repayments or are financially struggling.
You can find some information in the public domain. For example, if a company has recently filed for bankruptcy or there are legal notices related to it published in the newspaper or online. Similarly, if there are any liens or account garnishing notices, you can assess the overall situation of the company you will deal with. Because often, such issues arise out of a company’s tax debt.
The CRA provides a Business Number (BN) lookup tool on its website. This tool can verify whether a business is registered with the CRA and check its tax compliance status.
Another way to ascertain it is to check the Lien Registry. Some provinces in Canada have these registries where you can search for any outstanding tax debts associated with a business. You can check with the provincial government where the company operates to see if such a registry exists.
It is possible that the Canadian Revenue Agency may not be legally authorized to disclose personal information and private details about a business. However, you can still check with them, and see if they can assist you by providing some tax-related information about a company.
The experts in the field can look at the overall profile of a business and tell you whether there are any red flags. Moreover, they will be able to provide you with more detailed information about what to watch in your circumstances. Similarly, they might tell you how to manage your affairs in the future while dealing with a particular company.
If you’re a customer of a business that is a tax defaulter in Canada, it might not directly affect you in terms of your transactions with the company. However, there could be potential indirect consequences:
If you are a customer, you expect the best of the services in the market. However, if you deal with a company with a tax debt, the quality of service may be significantly compromised over time.
A company in tax debt may significantly reduce the resources it allocates to customer service delivery, affecting the quality of your customer experience. Similarly, the products it offers may also become affected.
The Canadian Revenue Agency (CRA) may take legal action against the business for tax evasion or non-payment of taxes. This could lead to disruptions in their operations, such as asset seizures or closure, impacting your ability to engage with them.
Tax defaulting can tarnish a business’s reputation. Customers might lose trust in the company, affecting its long-term viability. This could lead to decreased customer loyalty or even boycotts.
In extreme cases, if the business fails to rectify its tax issues, it could face closure or bankruptcy. This would impact your ability to continue using their services or purchasing their products.
As a customer, you might not have direct legal implications. Still, if the business engages in illegal activities related to tax evasion, authorities might investigate its dealings, including transactions with customers. However, you shouldn’t face legal consequences if you’re not involved in wrongdoing.
Involvement in a tax-defaulter business can make it challenging for stakeholders to engage in future business ventures or obtain financing. Similarly, lenders, investors, and business partners may hesitate to collaborate with individuals associated with financial misconduct.
If the business is heavily penalized or faces legal action, it may be subject to restrictions or even shutdowns by government authorities. Such limits can disrupt business operations and lead to further financial losses for stakeholders.
Being a stakeholder of a tax-defaulting business might not affect your business transactions directly. However, in the long run, it can cause severe damage to your finances, reputation, and long-term plans. So, keeping your eyes open and being aware of any pitfalls is essential.
