Does the CRA Actually Prosecute People for Tax Evasion?

People often ask “does the CRA actually prosecute people for tax evasion.” Scarily, it happens all the time and convictions are actually posted on the CRA website.

Here is a great example of a man who owned a viable business and let his tax problem get out of control, resulting in the CRA prosecuting him for tax evasion.

In December of 2012 an Ontario businessman was fined $116,000 for tax evasion. The fine represented 75% of the taxes evaded. In addition to having to pay this massive fine the taxpayer’s company was ordered to pay back taxes, interest and civil penalties totaling more than $800,000.

The taxpayer was in the lumber business and the prosecution ensued as a result of an investigation that had taken place with respect to the taxpayer’s 2005 and 2006 tax years. The debt arose because the taxpayer had deducted expenses he had incurred building a home on his company’s tax returns.

This is an extreme example of something that happens all the time with self-employed individuals. It can be very tempting to write off personal expenses like travel or work on your home on your business’s tax returns, but doing so can result in severe consequences. In Canada in 2013, 43 taxpayers have already been convicted of tax related offences – and these are the cases that made it through tax court.

The more likely scenario that occurs and what thousands of taxpayers face is that the CRA will simply levy interest and penalties so massive to penalize you for non- compliance that they do not always prosecute as well. They can then leverage enforcement remedies like wage garnishments, freezing your bank accounts, placing liens on property and more… This is often easier for the CRA because they don’t need to go to court or to have a court order to take these enforcement actions against you. 

But you cannot gamble with your freedom and turn a tax/money problem into a criminal record and jail time.  We all know that CRA will prosecute all different types of tax offenders just to keep the pressure on taxpayers to comply.

If you know that you filed a return with the CRA where you were aggressive in calling personal expenses business deductions you can ask us to help you take the CRA carrot and avoid their very big stick (and having to look over your shoulder for years to come). Come clean with the CRA as soon as you can and avoid penalties and prosecution. This pathway is only available to taxpayers who have not been contacted by the CRA about the tax year(s) in question.

If you are in a situation where you have income you would like to declare or the CRA has assessed you and you have a huge tax debt, you can recover but you will need a plan. Seeking professional consultation with a company specializing in helping taxpayers deal with tax problems is the essential start.  As we have written elsewhere, this is dangerous ground when you go to the CRA to confess to your offences and ask for forgiveness and understanding.  We have sadly seen too many well intentioned taxpayers make matters worse only because they or their accountants are not experienced in this particular field. The faster you commit to dealing with your tax problem, the faster you can put it behind you.

If you have a tax problem and you need help, please contact Tax Solutions Canada at 1-888-868-1400 or visit www.taxsolutionscanada.com.

Be Careful Who You Hire to Deal with Your Tax Problem

In March of 2013 the CRA reported on their website that a Brampton tax preparer who they had prosecuted was sentenced to house arrest for a tax fraud scheme.

From 2005 to 2010, Adegboyega Adenekanad Adebukunola (whom we will refer to in the rest of this blog as AAA) operated a business providing tax preparation services, financial planning and accounting services. AAA was discovered by the CRA because he had made over $858,000 in false charitable donation claims on 129 income tax returns. These fraudulent claims included fraudulent receipts and the false claims resulted in a collective tax debt to the taxpayers involved of over $245,000

On March 1, 2013, AAA plead guilty to one count of fraud over $5,000.00. He was sentenced to 6 months of house arrest and three years of probation.

When you hire a tax preparer or accountant to prepare your tax returns and they suggest risky ideas to reduce your tax liability or increase your refund – tread lightly, especially where charitable claims are concerned.  As always if it seems too good to be true it likely is.

If you have claimed false expenses (maybe having received credits or rebates from the government) you can be subject to serious consequences. Returns are frequently re-assessed resulting in a much higher tax debt because of interest and penalties. And it could get worse.  If convicted of tax evasion the court may issue a fine of up to 200% of the amount of the tax evaded and you can also be sentenced for up to five years in jail.

Even if you went to a tax preparer like AAA who becomes a convicted criminal, you are still responsible for what has taken place and any tax debt that results. If the CRA thinks that in any way you knew or were a part of any tax scam they can are required to look into criminally charging you.

If you know or suspect that you have had returns that were prepared using “aggressive accounting tactics”, you can come clean with the CRA and avoid prosecution, penalties and interest. The Voluntary Disclosure Program is a program available through the CRA where you can disclose income you did not declare or expenses that you claimed that you should not have been entitled to, and if your application is accepted it will include the CRA’s promise not to prosecute you or charge penalties on the assessed tax debt

If you want to make an application under the Voluntary Disclosure Program then it is important to consult a professional. To qualify under the Voluntary Disclosure Program your disclosure must be voluntary. You cannot qualify for this program if the CRA has already contacted you. Also, disclosure must be complete so you must be prepared to come clean about all non-disclosures you are aware of.

A tax professional with expertise in making applications under the Voluntary Disclosure Program can help you identify if you qualify. If you do, they can help complete the application, and if you don’t they can help you come up with another plan to deal with your tax problem.

If you are being pursued by the CRA because you had your tax returns prepared by a sketchy accountant, please contact Tax Solutions Canada at www.taxsolutionscanda.com or call 1-888-868-1400.

 

The CRA Financial Disclosure Form – An Invitation From Your Enemy to Shoot Holes in Your Own Feet.

The CRA financial disclosure form is a dangerous form that the CRA routinely sends out. If one is provided to you by the CRA, it might be time to acknowledge that they are getting ready to take collection action against you (if they haven’t already).

The CRA financial disclosure form is a few pages long and asks you for information about where you work, information about your spouse’s income, information about your household income and expenses, information about where you bank, what assets you have (this could include your home, vehicles, investments like RRSPs), and more.

The most common instance where the CRA will ask the taxpayer to complete one of these forms is when the taxpayer is trying to negotiate a payment plan with them. Here is why this is a dangerous CRA form.

For example:

·        You have a tax debt of $45,000 and based on your budget you propose to the CRA a payment plan of $750.00 per month.

·        The CRA says they will consider your offer if you fill out a financial disclosure form.

·        You fill it out and include all of your expenses, like your car and credit card payments. Once all is said and done you have $750.00 per month of income left over and so, on that basis, you are offering it all to the CRA.

·        Once the CRA receives the financial disclosure form they advise you that their payment should come before all other creditors so the amounts that you pay to your loans and credit cards should be added to the $750.00 per mo. you are offering and that they want you to pay $1500.00 per month.

Well, if you did this you would ruin your credit because you would not be able to make payments to your other creditors. The problem now is that you have completed a financial disclosure form and provided the CRA with all the information they need to garnish your income, freeze your bank account and place a lien on your property.

Once a CRA tax debt is owed it can be very difficult for the taxpayer to negotiate directly with the CRA and that is why, when the CRA starts sending you forms like a financial disclosure form, you should seek out a professional opinion and even representation.  Even if you think the CRA agent seems nice or friendly, they are not your friend – they work for the government and it is their job to collect the tax debt you owe and close their file. A company who has expertise representing people with these types of tax problems should have no problem negotiating a fair repayment plan that you can afford and that the CRA will accept and also limit what information is disclosed to the CRA about you.

If the CRA is asking you to fill out a financial disclosure form or you have a tax problem and need help, please visit www.taxsolutionscanada.com or call us at 1-888-868-1400.

 

CRA Can Make You Pay Another Person’s Taxes! Say Hello to Section 160 of the Canadian Income Tax Act

Hopefully as a spouse, family, friend or business associate you never get a letter that goes like this:

“Dear Mr./Ms. “X”, you received an asset from a taxpayer who knew or ought to have known he/she owed money at the time you paid less than full market value for the asset. We, the CRA, deem you to now stand in shoes of that taxpayer and we order you to pay the amount of the tax $BIG plus interest immediately”.

If you owe money to the CRA and have transferred assets into the names of loved ones for any reason (but often to protect them from creditors and on the advice of uninformed lawyers and accountants) then this article may disappoint you, and if you are the person who received the asset then this article may terrify you.

When you have a tax debt and then transfer assets into the name of another, like transferring your home into the name of your spouse for example, the CRA can use Section 160 of the Income Tax Act to transfer your tax debt to the name of your spouse and still attack not only the asset but your spouse as well. The Canadian Income Tax Act outlines all of the federal provisions and regulations regarding personal and business taxes for the country. It outlines what is required by all taxpayers in Canada.

What is Section 160 of the Canadian Income Tax Act? Section 160 is a portion of the Income Tax Act which relates specifically to the transfer of property from one individual to another. It states that if a person with a tax debt owing to the CRA transfers property to a spouse, common-law partner, someone under the age of 18, or someone not dealing with the individual at arm’s length, both the transferee and the transferor are responsible for a portion of the transferor’s tax debt. This means that, if property is transferred to you, you may be liable for their tax debt.

In this case, the Canadian Income Tax Act says:   

The recipient of the property can be assessed the lesser of:

      1.  The tax debt owing by the transferor; and

      2.  The difference between the fair market value of the transferred property and the consideration received by the transferor.

This means that, if you have not given fair market value to the transferor, you are liable for that amount and can be assessed based on that amount – ultimately you could be on the hook for that portion of the transferor’s tax debt.

This transfer of property seems to be a common go-to method for those attempting to deal with their tax debt without having to pay. However, it is easy for the CRA to investigate and assess the transferee for a tax debt under Section 160 of the Canadian Income Tax Act.

The best thing that you can do if you have a tax problem is deal with it - before the CRA starts going after your property. The earlier you deal with your tax problem, the less interest you end up paying and the better to avoid penalties, and if you attack the problem before the CRA takes enforcement action, you will have more leverage when negotiating with them.

The Excise Tax Act has very similar provisions for HST/GST.

If you have found yourself assessed for someone else’s tax debt under Section 160 of the Canadian Income Tax Act and need a solution, please contact Tax Solutions Canada by calling 1.888.868.1400 or visiting us online at www.taxsolutionscanada.com.

Tax Slips – The CRA Knows More Than You Think

Every time you receive a tax slip, the issuer sends a copy to Canada Revenue Agency (CRA).  So just because you don’t report your income, whether it was taxed or not, does not mean that the CRA is not aware of it. These tax slips are issued for employment income, contract income, an RRSP that you cashed in, investment income, etc.  This means that even if you moved and didn’t receive a tax slip and forgot to include it on your return the CRA has it. This can lead to a tax audit or investigation.

Sometimes misreporting or failure to report income is intentional; more often it is not. For example, many individuals are unaware that they must report any withdrawn RRSPs for a given tax year. Since this is income, you are required by law to report it – specifically because you are taxed on this withdrawn money. If the CRA finds out that you failed to report withdrawn RRSPs, not only will you be assessed to pay the tax debt but you will also be assessed penalties and interest.

Even that income that you think will never be reported might have been. If you own your own business or work as a contractor, and tax you extract from others has to be reported. For example, a contractor is hired for home renovations. He charges the property owner HST. The property owner will claim the HST as an input tax credit – meaning that even if the contractor did not remit the tax HST to the CRA, his client triggered the connection back when the client made the claim. This means that the CRA, thanks to this claim, is well aware that you have income and an HST debt, even if you have not reported it.

Tax slips are not the only way for the CRA to find out about your earnings, regardless of whether you report them or not. Another common tax audit trigger is when someone else, having paid you in the past, is being audited. If a supplier or client is being audited, a thorough investigation of their tax filings, income and expenses will be conducted. This means that they can uncover payments for invoices or invoices issued to you and if they have questions it could lead to you being audited.  CRA auditors are usually well trained and follow the trail – from your client’s/supplier’s books to you. 

Some contractors don’t realize that if they earn more than $30,000 in a year that they have to collect and remit HST. When attempting to file on-time many are stunned to learn that they have a large HST liability.

The CRA Snitch Line is also another important factor in the CRA’s arsenal of discovery. Anyone can call the CRA Snitch Line and report an individual’s or business’s behaviour as it relates to non-compliance and their taxes, so even if no tax slips have been filed, or no one else is being audited, it doesn’t mean that your past tax mistakes are going to remain a secret from CRA.  Ex-spouses, ex-tenants (say you rented the basement), ex-business partners and any other disgruntled person you had business dealings with can turn on you via the Snitch Line.

Protect yourself from being audited as a result of submitted tax slips, the audit of other people or the Snitch Line. Fix your tax problems before it gets to this point because once CRA catch you your opportunity to resolve fairly goes way down.

For more information about protecting yourself from unknown tax slips and being audited, please contact Tax Solutions Canada today by calling 1.888.868.1400 or visiting us online at www.taxsolutionscanada.com.

 

Beware – the CRA Snitch Line is Not a Myth

The tax deadline is behind us, and even though you may have filed your returns online, there is always a chance that you incorrectly claimed expenses or miscalculated earnings. These can be remedied through various tax solutions like the Voluntary Disclosure Program, which, for example, allows you to amend and re-file returns and declare errors and non-disclosure that has occurred on a past return.

Maybe the issue occurred on a past return and some years have passed so you are thinking it is best left alone. Well, the problem with this is that the CRA has a number of resources (including the CRA Snitch Line) to catch up to you – and you cannot qualify under programs like the Voluntary Disclosure Program once the CRA has contacted you because disclosure will no longer be voluntary. Penalties and interest will be assessed and, depending on how much time has passed, interest and penalties can double and even triple the size of your tax debt.

Just because you don’t file your taxes or don’t report earnings, that doesn’t mean that the Canada Revenue Agency doesn’t know about them. Any earnings reported by employers, clients, etc. are taxable, and just because you don’t make the CRA aware of them, doesn’t mean that others haven’t. And even if no one reported your earnings, that doesn’t mean others have not reported you. The CRA Snitch Line does exist – and people use it.

What is the CRA Snitch Line? The CRA Snitch Line is a direct link to the CRA where individuals can call anonymously to report others who have not reported earnings. And the CRA takes these tips very seriously, critically investigating any calls they receive.

Take this example. You own your own business and earned some cash income that you didn’t declare on a return. You think that you are safe because the CRA has not contacted you and you think that because there is no record of the cash exchange it will be difficult to prove that you earned the income. Then you and your spouse split up and she is demanding alimony and a lot of additional support. She knows you had some cash income so not only does she tell her lawyer, she also reports you to the CRA Snitch Line.

Ex-spouses, ex-business partners, disgruntled accountants, suppliers and even past clients have been known to call the CRA Snitch Line to create problems for someone they have a dispute with. Say for example your books are clean – a call to the CRA Snitch Line can result in an audit and high costs to you to hire audit representation.

Don’t think that just because your income has not been reported that you are safe from CRA audits or enforcement action. The CRA Snitch Line exists for a reason. Don’t get caught up in a CRA audit after having been reported to the CRA Snitch Line. Settle your tax problems now by working with an organization experienced with and committed to resolving them and who can leverage resources like the Voluntary Disclosure Program to mitigate your tax liability. 

For more information about the CRA Snitch Line, please contact Tax Solutions Canada by calling 1.888.868.1400 or visiting us online at www.taxsolutionscanada.com.

What is Tax Amnesty in Canada?

What is tax amnesty in Canada? Tax amnesty is when the government allows a taxpayer to declare income or amend a mistake on a past return and agrees to accept a defined amount, and in exchange for this disclosure agrees not to charge the taxpayer penalties or to prosecute (as in criminal) the taxpayer for tax evasion.

In Canada, tax amnesty is administered by the Canada Revenue Agency (CRA) under the Voluntary Disclosure Program, also known as VDP.

If you have filed a return in the past where you failed to declare income, declared more expenses than you were entitled to, made an error that incorrectly reduced what you owed, or are behind filing and the CRA has not requested that you file, you may qualify to apply for tax amnesty under the Voluntary Disclosure Program.

Under the Voluntary Disclosure Program, one can make a VDP application if:

1.       The income being declared is at least one year old.

2.       The income being declared would have been subject to a penalty.

3.       Disclosure must be voluntary.

4.       Disclosure must be complete.

Number 1 and 2 are pretty self-explanatory, but number 3 and 4 are where the water gets muddy. This is why, if you want to make an application for tax amnesty under the Voluntary Disclosure Program, you should do so through a professional that specializes in the field.

When the CRA says the disclosure must be voluntary, that means that the CRA must not have contacted you about ANY tax issue on ANY type of tax at all; not by phone and not by mail. If the CRA has contacted you, then your disclosure is not considered voluntary.

When the CRA says the disclosure must be complete that means that if you are making a disclosure about your 2010 return, and then there was also an issue in your 2008 return that you did not bring up or address in the VDP application, you will not qualify for tax amnesty.

The voluntary disclosure application process works as follows:

1.       A letter is sent to the CRA describing the tax disclosure that you want to make, the type of tax and the tax years in question.

2.       If based on the information in the initial letter your application is initially accepted, the CRA will reply and assign both a VDP number and a CRA VDP officer to your application.

3.       You will then have 90 days to get all of your amended or late returns prepared. This is time sensitive and MUST be done within 90 days.

4.       After 90 days and once your returns are filed, then the CRA will give you final confirmation that your VDP application for tax amnesty was approved.

If you do not qualify for tax amnesty, the route taken to solve your tax problem would be a completely different one, which is why it is important to always have your tax problem reviewed by a professional and then go from there.  Do not waste money on a program that cannot work for you.  Tax Solutions Canada has expertise in a variety of programs including VPD.

For more information about tax amnesty or if you would like to see if you qualify, please contact Tax Solutions Canada by visiting www.taxsolutionscanada.com or call 888-868-1400.