January 28, 2010 by Dan White.

Today more than ever it is important to remember that playing games with clever schemes to avoid taxes is no longer a good idea. CRA changes the rules, new laws come up, and CRA works retro actively.

There are tons of things that can be done to reduce taxes while amassing assets…. but you have to play by not only the spirit of the law, but you have to play exactly by the law… not by loopholes.

We all need to understand that taxpayers are not the only ones who can crawl through loops and hoops, so too can CRA.

So the next time someone says… hey! there is this cool scheme to foil the tax man, think again.

Today is the time where we all need to accept, we now have to play by the book. If we accept that fundamental truth, make everything transparent to the tax man, you can still win the tax game. You just have to follow the spirit of the law, which can work in your favour.

You need to begin audit ready bookkeeping now, and save your self grief in the future.

To learn more about Audit Ready Bookkeeping go to:

http://taxauditsolutions.ca/cms/index.php/audit-ready-bookkeeping/

Below is a good article demonstrating CRA’s ability to assess retroactively.

Dan White

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No `free’ ride
Ottawa looks for ways to stop abuses of popular TFSA accounts
Published On Thu Jan 28 2010

Canada Tax Audit CRA

Get Information On Tax Audit Canada
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Paula Kulig Special to the Star

They may be called Tax-Free Savings Accounts, but the federal government is raising the stakes for those Canadians trying to get a free ride.

In an effort to prevent the use of tactics that lead to gains beyond what Ottawa intended when TFSAs came on the scene a year ago, Finance Minister Jim Flaherty announced proposed amendments to the Income Tax Act in October that target over-contributions, ineligible investments and asset transfers. The amendments apply to transactions after Oct. 16, 2009.

Although the legislation has not yet been introduced, the finance department says it wants taxpayers to file their returns on the basis of the proposed legislation. If they file under existing law, their claims will be reassessed by the Canada Revenue Agency when the amendments are passed.

“What often happens when you bring in something new is you bring out the rules and creative tax planners find ways to get around them, and then (the finance department) reacts to it and tightens up the rules,” says Bruce Ball, national tax partner of BDO Canada (formerly BDO Dunwoody), adding that the tactics at issue tend to be used by “sophisticated” investors.

“Tax-Free Savings Accounts are a huge thing. If you create a Tax-Free Savings Account balance, you’re never going to pay any tax on income or gains.”

It is clearly a concern to the government if investors are increasing those gains by breaking the rules. While it’s too early to tell if federal coffers have lost money, says Heather Evans, a partner and tax services leader with Deloitte & Touche in Toronto, “my sense is that they might be concerned about lost revenue, because that’s why they’ve unleashed the auditors. They’ve made it clear that they’re going to be looking very, very carefully at TFSAs and any `unusual’ transactions.”

Tax-Free Savings Accounts, which became available in Canada last January, allow for annual deposits of up to $5,000. If money is withdrawn during the course of the year, it can be redeposited the following year, along with another $5,000.

Like an RRSP, TFSAs can hold cash, mutual funds, GICs, bonds, publicly traded securities and certain shares of small business corporations, Ball says. Unlike an RRSP, investors don’t receive a deduction on their taxes when they open a TFSA, but in return, anything that is withdrawn is tax-free.

“Many financial advisers recommend that individuals keep a reserve fund for a rainy day. The TFSA is perfectly suited to this, as your reserve fund will not be taxed, and if you do have to draw on it, you can put the money back in a later year when financial resources permit,” Ball says

The government’s amendments include applying current anti-avoidance rules to any income that comes from deliberate over-contributions and prohibited investments, such as shares of stock in a corporation in which the investor has an interest of 10 per cent or more, and investments in entities where the holder does not deal at arm’s length.

Under the current rules, a tax of 1 per cent a month is levied on contributions that exceed the limit, an amount that was seen as adequate to balance any benefit from over-contributions. In response, Ottawa now wants income connected to a deliberate overcontribution to be taxed at 100 per cent, in line with existing advantage rules in the Income Tax Act. The same goes for asset transfer transactions, which are sometimes called swap transactions. The amendments would essentially prohibit such transactions between registered or nonregistered accounts and TFSAs – for example, shifting value from an RRSP to a TFSA without paying tax, “in the absence of any real intention to dispose of the asset” – and would tax TFSA amounts attributable to these transactions at 100 per cent.

Other amendments include taxing any income linked to non-qualified investments at regular income tax rates, and ensuring that withdrawals of deliberate over-contributions, ineligible investments or amounts stemming from swap transactions do not create extra TFSA contribution room.

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January 18, 2010 by Dan White.

This gave me a good laugh, I was in the middle of fussing about an idiot from CRA when this came in and lightened my day of dealing with tax problems.

Dan

“A lady came to see me about a legal problem.  She said a friend of hers was a former client of mine and had recommended me.  That made me feel rather good, and so I decided to stretch the compliment by asking what her friend had said about me.  The woman replied, ‘She says you’re an a$$hole but you did a good job’.”

And here’s from a judge  “I presided over a trial in which an RCMP officer testified that he was on patrol in a rural area when the car ahead of him drove into the ditch, back onto the highway, back into the ditch then across a field into a tree.  The officer walked across the field to the car and said to the driver, ‘Have you been drinking?’  The man replied, ‘Of course I’ve been drinking.  Do I look like a f*cking stunt driver?’”

Posted in Dan Jokes | Print | No Comments »

January 18, 2010 by Dan White.

 We are watching this case with great interest. This is not a case of tax problems, but rather using the tax system, to make public a social cause. Lets see how the government publicity machine stick handles this one.

For more info on solving tax problems, go to www.taxauditsoluitons.ca

Jail time could be greatest victory print this article
The Journal Pioneer

It is likely, at some point this year, David Little will head off to jail, his penalty for steadfastly refusing to file income tax returns.
David Little is willing to sacrifice his personal freedom on behalf of those who cannot speak for themselves. He is a decades-long anti-abortion crusader who vowed in 2000 he would not file another income tax return for as long as tax-funded abortions are provided in this country.
With the Supreme Court of Canada’s refusal last week to hear an appeal of his 2007 conviction for failing to file tax returns, Little could be heading off to jail as early as April. That’s around the time of the year most other Canadians are either preparing their 2009 returns or waiting for Revenue Canada to send them their income tax refund or bill.
Such timing could prove beneficial to Little’s cause. Some filers who share his position that abortion is wrong – and there are many – might choose not to file this year.
But millions, including many Pro-Life supporters, will file returns as usual, because it’s the law and because they know tax dollars fund many essential services, like health care and education.
This, however, is not a case of someone cheating Revenue Canada out of millions or even hundreds of dollars annually. This is a case of an individual simply refusing to file annual returns.
But there’s a principle here: you have to file a return whether you owe money or are getting some back.
There’s also the possibility that individuals who get caught trying to avoid paying taxes on large sums of income will end up serving less time in jail than David Little.
That’s the sacrifice David Little seems willing to make, and he’s likely to get lots of attention while doing so. In fact, he seems to be banking on that. His 2007 conviction applies to tax years 2000, 2001 and 2002. He claims he hasn’t filed returns for the subsequent years and he wants to be charged for those years, too. David Little might not be dragged off to jail kicking and screaming, but he won’t be going quietly. This is a planned campaign against abortion. He wants Canadians to hear of his cause.
Even many of those who don’t agree with his protest method are likely to possess some sympathy for a fellow whiling away his time in jail because he opposes abortion.

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January 14, 2010 by Dan White.

Top court rejects anti-abortion crusader’s tax case David Little loses his tax case, based on government funding of abortions. Too bad we as Canadians can not force the government to be accountable to how they spend our money.

It is funny how some people think that they don’t have enough tax problems, they invent even bigger tax problems by taking on lost causes.

The abortion battle has been fought and it is over. Women have the right to chose what is best for themselves, so let’s accept that and not turn to the tax courts to give rise to social causes irrelevant to the tax problems of this land.

I am sure David Little believed in what he was saying as evidenced by his move to a province that did not support abortion. Good for him. However he still pays more in federal tax than in provincial taxes, so that move seems kind of pointless.

I guess he made a good point on that we should question how the government spends our money. On that I can agree with him. And at least he does stand up for what he believes in.

Had he been successful in winning and bringing down the government. Well that would have been fun, eh?

My approach to solving tax problems suggests that to not get confused between tax problems and moral issues. In the mean time life goes on and we deal with the mean things CRA does to Canadians.

To learn more on solving tax problems in Canada, but not about social causes, go to www.taxauditsolutions.ca

Dan White

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Top court rejects anti-abortion crusader’s tax case

Janice Tibbetts, Canwest News Service  Published: Thursday, January 14, 2010
More On This Story

Top court rejects anti-abortion crusader’s tax case

OTTAWA — The Supreme Court of Canada has declined to consider an appeal from a devout Roman Catholic who refused to pay his taxes because he said he did not want his money to go toward funding abortions.

The court did not give reasons for rejecting the appeal application of David Little, an anti-abortion crusader who had unsuccessfully argued in the New Brunswick courts that forcing him to contribute to abortion funding violated his Charter of Rights guarantee of religious freedom.

The New Brunswick Court of Appeal, in a ruling last summer, concluded paying taxes does not equate to support of any particular government policy.

The appeal court also found that legitimizing Little’s claim would mean that anyone who opposed a government policy could dodge paying taxes, while still receiving public benefits, such as medical care.

Mr. Little was charged with failing to file tax returns in 2000, 2001 and 2002.

Representing himself in court, he testified that he was concerned about the moral consequences of filing tax returns, because some of his money would go toward paying for abortions, which he said was mortally repugnant to him as a Roman Catholic.

The Supreme Court’s refusal to wade into the dispute means that Mr. Little’s 2007 conviction is upheld.

Mr. Little moved last year to Prince Edward Island, which does not publicly fund abortions.

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January 13, 2010 by Dan White.

January had hit the world with a renewed assault by CRA on Canadians across this land. Audit and tax problems are becoming a part of everyday life for small business in Canada.

It is not just tax cheaters they are after,,, they are after anything that they can attack.

Every Canadian needs to learn how to protect themselves from what is coming from CRA.

To learn more about taxes and tax problems, go to www.taxauditsolutions.ca

Dan White

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Taxman has eye out for cheaters, by the Cochrane Report

As income tax time moves closer, the Canada Revenue Agency has begun its annual campaign to warn cheaters about the trouble they could be in, and how they can use the Voluntary Disclosures Program.

The CRA says it is aggressively addressing non compliance. Last year, the agency conducted over 350,000 audit and review actions, including about 17,300 underground economy audits, and more than 1,100 audits of taxpayers suspected of earning income from illegal activities.

The CRA completed 20,750 international audits and 34,111 audits of tax shelters. The CRA identified a total dollar value of $5.7 billion in non”‘compliance for international and large business and $2.1 billion for small and medium-sized enterprises.

The CRA reassessed over 20,000 individuals who had participated in at least one of 20 unacceptable tax shelter gifting arrangements.

The CRA completed 148 interprovincial tax avoidance cases, which resulted in more than $300 million worth of taxes being recovered.

“These accomplishments led to results in the courts, including significant fines and — for some people — jail time,” the agency said this week.

The CRA is a member of international organizations that work to tackle the abusive use of tax havens. International partnerships help us uncover schemes that are developed abroad and marketed in Canada. Taxpayers with unreported assets and income offshore could face penalties of up to 50 per cent of unreported tax on income and five per cent per year for any unreported assets.

The agency says taxpayers who have not reported all of their income can voluntarily correct their tax affairs. They will not be penalized or prosecuted if they make a valid disclosure before they become aware of compliance actions being started by the CRA against them. These individuals may only have to pay the taxes owing, plus interest. More information on the VDP can be found on the CRA Web site at www.cra.gc.ca/voluntarydisclosures.

* The Cochrane Report appears each Wednesday and Saturday. Items for publication may be submitted by e-mail to cochrana@timestranscript.com, or by fax to 859-4904.

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January 13, 2010 by Dan White.

This is not one of our cases, but it is a terrible injustice Audit Horror Story.

For more information on audits and how to prevent tax problems in Canada, go to www.taxauditsoluitons.ca

British Columbia’s Mr. Irvin Leroux, who has lost everything fighting for 14 years against such bully tactics by the CRA
Audit Nightmare As Published in Canada Free Press
By Kevin Gaudet  Wednesday, January 13, 2010

Imagine the Canada Revenue Agency (CRA) shows up at your door to do an audit.  As if that alone isn’t scary enough, they proceed to take both copies of your documents, originals and photocopies —without your permission.

They lose or destroy these key originals. Then they assess hefty tax bills against you because you cannot provide documents in your defense.  CRA mistakenly demands you pay $800,000 in taxes allegedly owed.  This helps ruin your business, leaving you broke. Does this sound far-fetched?  Not according to British Columbia’s Mr. Irvin Leroux, who has lost everything fighting for 14 years against such bully tactics by the CRA.

His treatment outraged his MP, the long-serving Dick Harris, who took up his cause with the former Minister of National Revenue. According to Mr. Leroux, his MP was told by the Minister that the CRA couldn’t pro-actively compensate Mr. Leroux for his loss, but that he could sue the government and they would offer a settlement.

As ridiculous as it is that Mr. Leroux has been forced to sue the Canadian government to get back some or all of what he has lost in his lengthy tax fight fiasco, not a nickel has been offered. In this case it appears the federal government made a mistake; a big one at that. They should just admit it, apologize for it, and settle out of court with Mr. Leroux. Instead, they are playing the Goliath against his David, fighting him in court and denying any wrong-doing on their part.

The latest tactic employed by government lawyers, scheduled for court at the end of this January, has been to argue that Leroux’s lawsuit has no merit as his tax case was resolved earlier.

The issue of taxes owing was resolved by a judge only after Leroux fought in tax court to prove he owed no money. The case was settled in 2005 with the CRA agreeing that he had actually overpaid his taxes. They were required to pay him a small refund.

The CRA’s attitude seems to be ‘oh well, this issue is over.’ But it isn’t over for Mr. Leroux who is struggling to pick up the pieces after CRA’s withering 14 year campaign against him.

Their campaign against him drained him of cash, aggravated by the expense of legal and accounting fees and triggered a domino effect. Mortgagees began foreclosing, and Leroux’s properties were sold off for one-third of their value. When the dust settled, the creditors were paid, but nothing was left for Leroux. Once he had been comfortably set for a secure retirement. Now he is virtually destitute, living on CPP and Old Age Security. He now has recurring nightmares about being homeless and scrounging for food in garbage cans.

While taxpayers certainly don’t want the government tossing money away unnecessarily, governments must do the right thing to correct its mistakes.

Do Revenue Minister Blackburn and Justice Minister Nicholson really not know what is going on here? Are they really condoning this attack on a tax-paying Canadian? Perhaps they simply have no idea what the government’s lawyers have been doing?

Irvin Leroux is an ordinary Canadian who trusted his government to be honest and decent towards him. He paid taxes like he was supposed to – overpaid, in fact. His government turned on him and has ruined him.

This is a case either of rogue tax collectors or of systemic abuse by the CRA. Taxpayers should hope it is the former; that rogue tax collectors were running amok and made life hell for Mr. Leroux. Why would they do this? Because they can. The powers of our tax collectors are enormous and stacked against the little guy. If you mange to get on their bad side then look out because this case shows what the CRA, when roused, can do to you.

The cabinet ministers involved should instruct their lawyers to negotiate a way out of this shameful episode. It further damages the already tarnished reputation of the CRA, and continues to punish a taxpayer who has already gone through too much.

As the end of the year approaches many people take stock of the year that was and make resolutions for the year to come. If politicians did this they first would realize that there is much work to be done.

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January 12, 2010 by Dan White.

 everyone should take note that CRA is looking for money where ever they can.

The next time you enter a contest and the question on the ballot / ticket is a simple math question that could require skill,  then that winning will likely b
Institutional links

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Forms and publications
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Income Tax Interpretation Bulletins
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IT-213R Prizes from lottery schemes, pool system betting and giveaway contests
o Other formats

Income Tax Interpretation Bulletin
Prizes from lottery schemes, pool system betting and giveaway contests

NO: IT-213R

DATE: October 19, 1984

SUBJECT: INCOME TAX ACT
Prizes from lottery schemes, pool system betting and giveaway contests

REFERENCE: Paragraph 40(2)(f) (also subsections 52(4), 5(1) and 9(1), and paragraph 69(1)(c))

This bulletin cancels and replaces IT-213 dated May 12, 1975. Current revisions are designated by vertical lines.

Lottery Schemes

1. The amount or value of a prize received by a taxpayer from a lottery scheme is not taxable as either a capital gain or income unless, due to the circumstances applying to the lottery scheme, the prize can be considered to be income from employment, business or property or a prize for achievement referred to in paragraph 56(1)(n).

2. While paragraph 40(2)(f) specifies that no taxable capital gain or allowable capital loss results from the disposition of a chance to win or a right to receive an amount as a prize in connection with a lottery scheme, subsection 52(4) states that for the purposes of computing any tax consequences after receiving a prize a winner in a lottery scheme is deemed to have acquired the prize at a cost equal to its fair market value at the time of acquisition.

3. A lottery has been defined as a scheme for distributing prizes by lot or chance among persons who have purchased a ticket or a right to the chance. If real skill or merit plays a part in determining the distribution of the prize the scheme is not a lottery (unless it is based essentially on chance and the degree of skill is minimal). Again, when the chances of a prize are obtained wholly gratuitously, as for instance, a prize awarded to the winner of a game, the scheme is not a lottery.

Pool System Betting

4. Paragraph 40(2)(f) also provides that no taxable capital gains or allowable capital losses arise from the disposition of a chance to win a bet or a right to receive an amount as winnings on a bet in connection with a pool system of betting referred to in section 188.1 of the Criminal Code. The nature of pool system betting is such that the only winnings are in the form of cash from the respective pool. Consequently, no additional capital gain or loss tax consequences could arise on subsequent disposition of the winnings and thus it is not necessary (as described in 2 above, in the case of a lottery) to deem the winnings to have been acquired at fair market value.

5. A “pool system” of betting is defined in the Athletic Contests and Events Pools Act as a pool system of betting on any combination of two or more professional athletic contests or events. The fact that a degree of skill is involved in the selection of the outcome of the contest or event in the pool betting distinguishes it from a lottery scheme as described in 3 above.

Other Schemes

6. Where a prize has been won otherwise than through a lottery scheme or a pool system of betting, neither paragraph 40(2)(f) nor subsection 52(4) will apply. The tax implications of receiving these other prizes will vary, depending on the following factors:

(a) When the prize has been received as a gift, it is not included in computing income at the time of receipt. However, the recipient will be deemed to have acquired the prize at its fair market value pursuant to paragraph 69(1)(c), so that a subsequent disposition of the prize will result in a capital gain on any increase in value since the time of its acquisition. A prize can be reasonably considered to be a gift from the viewpoint of the recipient, even though chance and/or skill may have been involved in the win. Ordinarily a gift is not considered to have been made until the donee has received delivery of the gift and accepted it in a completed and irreversible transaction.

(b) The prize will be received as income where it is received by virtue of the recipient’s employment pursuant to subsection 5(1) and paragraph 6(1)(a), received by virtue of the recipient’s business pursuant to subsection 9(1) or received in respect of an achievement in a field of endeavor ordinarily carried on by the recipient pursuant to paragraph 56(1)(n) (see IT-75R2).

(c) Where the prize is not received as income as described in (b) and is not a gift as described in (a), no amount will be included in income upon receipt of the prize and the provisions of paragraph 69(1)(c) will not apply. Such a situation would arise where the contestant has incurred a cost towards winning the prize such as purchasing a ticket or paying an entrance fee entitling the contestant to participation in the contest. In such a case, while there are no tax consequences resulting from receipt of the prize, any subsequent disposition of that prize may result in a capital gain or loss. In computing any such gain or loss the taxpayer’s cost of the prize will be the original cost of the ticket or entrance fee rather than the fair market value of the prize as used in (a) above.

It should be noted that where “personal use property” is involved, the $1,000 exemption contained in subsection 46(1) may eliminate any capital gains on disposition of a prize as described in (a) and (c) above.

7. In some instances, a ticket (or entrance fee) of the type described in 6(c) above entitles the holder to something in addition to a prize, for example, some entertainment value. Where, in such a case, the portion of the ticket that relates to the prize is considered insignificant in relation to the total cost of the ticket, the fact that a portion of the cost has been incurred towards the prize may be ignored and the prize will be treated as a gift to the taxpayer as described in 6(a) above.

8. Where the winner referred to in any of the paragraphs above is a syndicate, the income tax consequences to the individual members of the syndicate are the same.

9. Some examples of the manner in which the rules in 6 to 8 above apply are given in the paragraphs which follow.

Employer-promoted Contests

10. Where an employer who was accustomed to awarding employees with a bonus has provided a scheme or giveaway contest in which the bonus or some amount in lieu of a bonus is divided among the employees as prizes following a draw, the scheme would not be a lottery and the prizes are considered to be employment income under subsection 5(1). However, if the employees and their families account for only a small percentage of the participants in a scheme, are not given a favoured position in relation to the other participants and they are subject to the same contribution requirements (if any) towards the scheme as other participants, the value of any prize won by chance is not employment income but is considered a win from a lottery scheme. Therefore, paragraph 40(2)(f) and subsection 52(4) will apply. IT-470, “Employees’ Fringe Benefits - After 1980″ and Special Releases to IT-470 discuss holiday trips and other prizes.

Television and Radio Programs

11. The value of a prize or other award received by a person for being at or participating in a radio or television program is generally not included in income when the person is not party to an employment or business contract, and

(a) it is awarded through a draw because, for example, the person is in a “lucky” seat or has a certain brand of merchandise at home, even though the person may have to demonstrate some minor degree of skill or knowledge before being eligible to receive the prize, or

(b) the prizes that go to winning contestants, the consolation prizes that go to losing contestants or the merchandise gifts given to all participants are all that the person receives for appearing in the program. On the other hand, if a contract exists, such as may be the case where a professional actor, an entertainer or some other person appears on a television show as a celebrity and receives a giveaway prize or wins a prize by skill or chance for appearing or participating in a contest on the show, the prize will be subject to tax as business or employment income.

In all cases cited in this paragraph, the capital gains implications will be established on the basis of the particular circumstances in each case through application of the rules given in 6 or 7 above.

Free Tickets in Lieu of Volume Rebates or Bonuses

12. Volume bonuses or rebates from suppliers are included in computing a purchaser’s business income. However, where a supplier provides customers with free tickets for a draw for a prize with the winning ticket to be drawn strictly by chance, the prize is ordinarily considered a gift. Its value is not included in the recipient’s business income and the application of paragraph 69(1)(c) to the deemed cost of acquisition of the prize is as set out in 6 above. On the other hand, if real skill or merit is involved in the win, it will be a question of fact to be determined in accordance with the circumstances in each case whether the prize is a gift or whether its value is business income to the recipient.

Annuities as Prizes

13. Where the prize in a lottery scheme is an annuity, for the purposes of determining the amounts to be brought into income, the initial adjusted cost basis of the annuity is considered to be the fair market value of the annuity when it was acquired in accordance with subsection 52(4). Should the annuity be a prescribed annuity contract, as defined in Regulation 304, the adjusted purchase price of the annuity will be its fair market value at the time it was acquired. For prescribed annuity contracts and those other annuity contracts not subject to the accrual rules, annuity payments are brought into income under paragraph 56(1)(d) and a deduction from income is allowed under paragraph 60(a) for a portion of the adjusted purchase price as determined under Regulation 300. For other annuity contracts, which are subject to the accrual rules, the income from the annuity is determined according to the provisions of paragraph 56(1)(d.1) and section 12.2 in which the adjusted cost basis is a determining factor. In the case of the application of paragraph 56(1)(d.1) and section 12.2, the income calculation should be furnished by the issuer.

Posted in Uncategorized | Print | No Comments »

January 12, 2010 by Dan White.

TAX CRISIS MANAGEMENT

While the gist of this article is about the risks of evading taxes offshore, the key thing here also is relevant for whenever you are contacted by CRA. A phone call or a brown envelope means you have a tax problem and you need to treat is seriously.

When you get one of those phone calls or letters it is too late for a voluntary disclosure which in itself is a risk maneuver.

You need to be aware that CRA matters are not to be treated as anything less than a major wake up call.

The most important thing you need to know is that talking to CRA is asking to have what you say used against you. CRA has a data management system where CRA takes electronic notes that will be compared to whatever further information they collect from you.

Understand that you are talking to a very money hungry agency when you are dealing with CRA. They will go after any angle they can and will most definitely use intimidation on you.

Normally there is nothing you say that can help you and everything you say can and will be used against you. CRA does not look for reasons to leave you alone, they look for angles to get money.

Don’t think because you are an honest upright citizen who believes in paying your fair share of taxes, that you will be treated fairly. The Tax System in Canada is anything but fair.

Why do we give you this harsh warning? We do so because we deal with CRA every day in our business and we know what they are like, first hand. There are some great people who are auditors, and it is the luck of the draw whether you get a reasonable auditor or some small minded snake taking their venom out on Canadian Tax Payers because they suffer from their personal lack of self esteem.

Be honest, you are not a tax expert, so don’t act like you are. Tax Audits are a mission critical financial survival exercise where you engage the opposition in a battle for your money. So if you think you are equipped to fight the pros, you better govern yourself accordingly.Herein is an excellent summary taken from www.proinvests.com  What ti does is demonstrate the level of agression by CRA into any possible area to collect taxes.

We are not saying that you should evade paying taxes. To the contrary, we have been saying for years that using offshore to evade taxes, thinking privacy will protect you is not astute.

Offshore is great for tax avoidance, but you better be transparent to CRA or you are going to be getting some interesting calls and brown letters, from people you don’t even know.

You could be contacted by CRA for any suspicious numbers on your tax return, a disgruntled spouse, a jelous co worker or neighbor. So treat the contact seriously.

For more information visit www.taxauditsolutions.ca

 Dan White

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Tax collectors and the Bank of Nova Scotia BNS-T

are locking horns in federal court over access to the names of investors – including “six prominent Canadian business families” – behind a $1.1-billion offshore investment fund.

For about three years, the Canada Revenue Agency (CRA) has been engaged in a high-stakes to-and-fro with the bank. Tax collectors are trying to pierce the layers of a British Virgin Islands investment fund, while the bank insists it can’t force its own foreign subsidiaries to name names.

The battle escalated last autumn when, in a sworn affidavit, a CRA auditor alleged that the bank was effectively defying a 2008 judicial order. “The Bank of Nova Scotia has not provided to the CRA the information and documents it was required to pursuant to the order of this court,” Pierre C. Leduc, one of the CRA officers overseeing the probe, said in the sworn statement, which was filed in federal court in October.

The bank disputes the contention that it has not fully complied, court filings show, and it is opposing the CRA’s latest application. The bank has not been accused of any criminal wrongdoing.

None of the investors have been accused in the court filings of any wrongdoing, and CRA has merely said it is seeking to “verify” their “compliance.”

The spat is another sign of the tax agency’s ramped-up efforts to target the use of offshore investments by wealthy Canadians, tax lawyers and experts say.

During the past year, CRA auditors have zeroed in on Canadians suspected of disguising their holdings in the principality of Liechtenstein.

Just last week, Revenue Minister Jean-Pierre Blackburn threatened again to sue Swiss bank UBS AG unless it hands over the names of its Canadian clients.

The CRA’s row with Scotiabank also offers an inside look into how difficult it can be for tax officials to unmask taxpayers who are less inclined to be identified, even when the bank handling their funds is headquartered in Canada.

Scotiabank declined to make a bank official available for an interview with The Globe and Mail, and said it could not respond to a detailed list of questions because the matter is currently before the court.

Many of the identities of the Canadians behind the Caribbean-based investment fund, which is known as St. Lawrence Trading Inc., are still a mystery to federal auditors. Internal fund documents circulated to investors show that, as of 2001, “six prominent Canadian business families” owned as much as $900-million (U.S.) of the fund, which held investments in hedge funds and mutual funds around the world. CRA auditors say they have unearthed the names of 120 of the estimated 180 Canadians behind St. Lawrence Trading, and are still in pursuit of the unidentified investors.

Caitlin Workman, a spokeswoman for the CRA, said auditors have completed reassessments of 49 investors and the agency believes those people failed to report a total of $70-million in income. However, the CRA was unable to say how many investors are disputing those reassessments. One source close to the dispute said a number of investors have responded to the department with notices of objections about the amount the agency says it is owed.

“Somebody in the CRA has a bee in their bonnet and thinks they’re going to bring a fortune into the treasury and somebody’s going to make a name for themselves,” the source said.

The roots of the agency’s fight with Scotiabank can be traced back to 2002, when the bank entered into a convoluted agreement with St. Lawrence Trading.

At that time, the then-Liberal federal government had proposed changes to the Income Tax Act that would have resulted in “adverse Canadian tax consequences” for the fund’s investors, according to an internal fund memorandum that auditors have filed in court. In the end, the rules were not enacted into law, but the prospect of changes sparked a flurry of behind-the-scenes manoeuvrings.

According to the internal fund literature, the investors and their advisers devised what they thought was a solution to ensure that their investments maintained their “exclusion from Canadian tax” – the Canadian investors agreed to sell half of St. Lawrence Trading to Scotiabank in return for a note. The note is set to mature in 2016, at which point the bank would likely sell St. Lawrence Trading on the market and hand the proceeds back to the Canadian investors. An internal fund memorandum shows that investors expected to pay Scotiabank an annual “seven figure” fee in return for the bank temporarily taking the investments off their hands.

The CRA’s efforts to lift the veil on the investors via Scotiabank, however, have been met by repeated obstacles. The first barrier, court records show, was that the sale of St. Lawrence Trading to the Bank of Nova Scotia was made through subsidiaries of the bank in the Bahamas and Ireland.

When the CRA obtained its first federal court order in 2008 for the list of investors, a Dublin lawyer for the bank’s Irish subsidiary declared that the subsidiary could not hand any information because of Irish law. Scotiabank Ireland had “a duty of secrecy with regard to the information,” the lawyer, William Johnston, said in a Sept. 11, 2008, letter.

Undeterred, the auditors tried other channels. Given the vast fortunes involved in this transaction, the bank was required to perform anti-money-laundering checks on the investors, so the tax collectors asked for that material and the names of any outside firms involved in the checks.

The bank responded that, yes, Scotiabank Ireland performed such checks, and it enlisted the services of a firm in Bermuda, another country outside the jurisdiction of the court.

Auditors persisted, arguing that because the bank’s Canadian parent guaranteed the note provided to investors, there must be information somewhere in Canada about these people.

Chris Purkis, the bank’s managing director of equity derivatives, responded in an affidavit that, unless Scotiabank Ireland defaulted on the note, Canadian bankers “would not, and did not, know who the shareholders were.”

However, as part of its most recent application, CRA has brandished internal Scotiabank e-mails that show at least one Canadian bank official was part of an e-mail exchange with a Montreal businessman with an interest in St. Lawrence Trading.

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January 12, 2010 by Dan White.

Hello world, the TaxMan Cometh to those who overly complicate their tax affairs.

The more complicated things are the more complicated they become.
I am wonder struck on how complex our world has become.
In today’s world, tax planning has become such a complex matter that it requires a ton of expertise to achieve tax savings that may well be overshadowed by the cost of setting up, defending and reporting on.

Complexity opens up a great opportunity for CRA to bully their way to your money.

A basic survival rule is that you need to be able to understand what it is you are doing and why you are doing it, not to mention does it really make sense in the grand scheme of things.

Often there are better answers.

The big problem with getting involved with Trusts and Corporations as an asset and tax management strategy as the fact that the Dark Forces can and do change the rules… (Remember income trusts?)

Often tax planning ignores that what works for the goose, may not work for the gander, in other words, you may find yourself unable to have tax benefits from losses.

Anyway, unless you have great gobs of cash to throw at tax planning, you may find yourself under a tax assult by CRA. You may find that instead of being a tax winner, you are a tax loser.

If you are in a mess because you got involved with a complex structure, then contact us at info@tax-audit-solutions.com also please visit our web site. www.taxauditsolutions.ca

Dan White

The following article illustrates what I am talking about. Consider how people who set up complicated structures based on blind faith in their advisors, become vulnerable to the tax man.

Purchase of US vacation properties by Canadians
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Miller Thomson LLP
Nathalie Marchand

Canada, USA
December 22 2009
Miller Thomson LLP logo

Given the attractive U.S. real estate market, the strong Canadian dollar and low interest rates, more and more Canadians are purchasing U.S. vacation properties.

Canadians should be aware, however, of the potential exposure to U.S. Estate Tax on death. Simply stated, a Canadian owning assets in the U.S. on death (such as real estate) is liable to U.S. Estate Tax on the value of all U.S. “situs” assets and benefits only from a limited tax credit, proportionate to the value of the U.S. assets over the worldwide estate. Hence, if the U.S. property represents only a small percentage of a large worldwide estate (over $3,500,000 U.S.), the tax credit will be minimal. The U.S. Estate Tax rates range is from 18% to 45% and may create a substantial tax bill on death.

It is possible, with proper planning, to eliminate exposure to U.S. Estate Tax and it is usually preferable to implement such planning prior to the acquisition of the vacation property.

One technique involves the use of a Canadian trust. Under this plan, the Canadian would settle a Canadian discretionary trust and transfer to the trust the funds necessary for the purchase of the U.S. property. The Canadian contributor, however, may not be a beneficiary nor a trustee of the trust. Typically, the beneficiaries would include the spouse of the contributor and his or her children. If properly implemented, this structure eliminates U.S. Estate Tax exposure both on the death of the Canadian contributor and on the death of his or her spouse. It also permits the gain on a sale of the U.S. property to be taxed in the U.S. at the favourable federal long-term capital gains rate applicable for individuals (currently 15%). From a Canadian point of view, it minimizes Canadian taxation on death as the property is owned by the trust and not by the Canadian contributor and would not be subject to a deemed disposition at fair market value on the death of the Canadian contributor or his or her spouse. The trust would, however, be subject to the deemed disposition of all of its assets at fair market value 21 years after its creation, unless steps are taken to avoid this result.

Another alternative may be to minimize U.S. Estate Tax exposure by purchasing the U.S. property through a Canadian limited partnership. This planning is more complicated and raises various issues to consider (such as the need to have the partnership treated as a corporation in the U.S. and hence, subjecting any gain on a sale of the property to the higher corporate tax rate).

Finally, another option would be to use a Canadian corporation to purchase the property. The Canada Revenue Agency considers that if the property is made available to the shareholder, a taxable benefit will arise, that may not be limited to fair market value rent and might be based on the cost or value of the property. The benefit would, however, be reduced if the funds to purchase the property are provided interest-free by the shareholder to the corporation. The property being owned by a corporation, any gain on a disposition of the property would be taxed in the U.S. at the corporate rate. At the Canadian level, the shareholder (or the shareholder’s spouse, as the case may be) will be deemed to have disposed of the shares of the corporation at fair market value on death.

Purchasing a U.S. vacation property is an important decision that should not be taken lightly. Canadians contemplating such purchase should consult their tax advisors in order to properly implement a structure meeting their particular needs and situation. We can help you with this.

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January 11, 2010 by Dan White.

While one has to point out that while this scare mongering results are true, it is also true that there are often much better approaches than there are to run to the tax amnesty slaughter house.

For insight into VD, make sure you visit our web site which gives you the skinny on doing a Voluntary Disclosure or not. We do advise coming clean, but not necessarily through the VD TA program…  (Won’t you come into my parlor said the spider to the fly.)

Save yourself from getting into more serious tax troubles, by becoming an informed taxpayer.

For more info go to www.taxauditsolutions.ca

 Dan White

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Jan 11, 2010 14:04 ET
Canada Revenue Agency: Come to us, Before we go to you

OTTAWA, ONTARIO–(Marketwire - Jan. 11, 2010) - The Canada Revenue Agency (CRA) wants to make you aware of the Voluntary Disclosures Program (VDP) as we move forward to aggressively address non-compliance internationally and domestically.

Here are some examples of what the CRA did to address non-compliance in the 2008-2009 tax year:

- The CRA conducted over 350,000 audit and review actions, including about 17,300 underground economy audits, and more than 1,100 audits of taxpayers suspected of earning income from illegal activities.

- The CRA completed 20,750 international audits and 34,111 audits of tax shelters.

- The CRA identified a total dollar value of $5.7 billion in non-compliance for international and large business and $2.1 billion for small and medium-sized enterprises.

- The CRA reassessed over 20,000 individuals who had participated in at least 1 of 20 unacceptable tax shelter gifting arrangements.

- The CRA completed 148 interprovincial tax avoidance cases, which resulted in more than $300 million worth of taxes being recovered.

These accomplishments led to results in the courts, including significant fines and-for some people-jail time:

- In 2008-2009, the CRA referred 164 income tax and goods and services tax/harmonized sales tax (GST/HST) investigations to the Public Prosecution Service of Canada.

- The CRA referred 58 GST investigations to Justice Quebec.

- These and referrals from previous years resulted in 323 convictions for fraud or tax evasion (including 66 cases in Quebec courts).

- Courts across Canada imposed fines of close to $29.2 million (including $9.3 million in Quebec courts).

- The offenders were sentenced to more than 81 years in prison collectively (including 17 years in Quebec courts).

- Convictions were obtained in 98% of the cases prosecuted.

In cases of gross negligence, the Income Tax Act and Excise Tax Act allow the CRA to assess a penalty of up to 50% of unpaid tax or an improperly claimed benefit. In addition, a court may, on summary conviction, fine people 50% to 200% of the tax evaded, and sentence them to a jail term of up to two years.

The CRA is a member of international organizations that work to tackle the abusive use of tax havens. International partnerships help us uncover schemes that are developed abroad and marketed in Canada. Taxpayers with unreported assets and income offshore could face penalties of up to 50% of unreported tax on income and 5% per year for any unreported assets.

You can come to us to correct your tax affairs before we go to you. Under the VDP, taxpayers who have not reported all of their income can voluntarily correct their tax affairs. They will not be penalized or prosecuted if they make a valid disclosure before they become aware of compliance actions being started by the CRA against them. These individuals may only have to pay the taxes owing, plus interest. More information on the VDP can be found on the CRA Web site at www.cra.gc.ca/voluntarydisclosures.

For more information, please contact
Philippe Brideau
Media Relations
Canada Revenue Agency
613-957-3522
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January 7, 2010 by Dan White.

What is the meaning of life? Why are we here? It is all about paying Taxes!

In life you are fined for doing things wrong. That is punishment for wrong doing.

Taxes are punishment for doing things right. Making money is a right thing to do. Taxes punish you for rightdoing.

One would think that working hard and creating jobs and prosperity for the country is a good thing. It must not be good because we get all kinds of tax punishment for being profitable.

Small business and investors are under an ever increasing assault against their financial well being. CRA does not care what individual corporation or taxpayer goes bankrupt.

There is a Tax Fairness Provision but it is not fair.

There is Tax Amnesty, Voluntary Disclosure, but that is a horrible trap where you could find yourself in a boiling pot of tax trouble.

There is a Tax Ombudsman, but only for when you have exhausted all other options to resolve problems.

You can fight CRA in court, but normally that is more expensive than paying taxes, so the small guy is out of luck because legal justice is usually not affordable for the average Canadian taxpayer who is suffering from tax abuse.

The minister of finance claims that the aggressive assault by CRA on Canadians is to ensure fairness. That is such a load of bull. If it was about fairness then CRA would be fair when they audit. CRA does not even care if they tax phantom income (income on paper that you never actually received and may have already lost) that is just one example of unfairness, there is not enough time to go that tangent any further today…

So there we have it…. As in the days of old, the Kings of Bold, paid the serfs in gold and taxed back every ounce of gold not needed for bare essentials. They kept the serfs poor and controlled them by way of taxes.

How is it any different today? The answer is the only thing different, the only thing new is the complexity and the increased level of tax collector aggression.

Read on for what is going on with CRA today; It is really quite scary.

For more info go to www.taxauditsolutions.ca

Dan White

If you have tax problems requiring a strong CRA tax fighter, please email me;

dw@911taxes.com

_______________

Taxmen wield powerful arsenal

Whistleblower laws, exchange of information rules

Vern Krishna, Financial Post  Published: Wednesday, January 06, 2010

In this story:

Whistleblower Bradley Birkenfeld was jailed for 40 months. Getty Images Whistleblower Bradley Birkenfeld was jailed for 40 months.

Exchange of information laws combined with whistleblower legislation are powerful tools in the arsenal of tax authorities. As global economies and international trade expand, so also do the problems of tax compliance and administration. The Union Bank of Switzerland versus the United States legal saga illustrates that one man’s meat is another man’s poison.

The so-called Revenue Rule prevents nations from using conventional judicial channels to enforce their tax laws in a foreign jurisdiction. So countries use tax treaties to override the common law by providing for exchange of information and assistance through administrative channels.

For example, the United States used the U.S.-Swiss Treaty to extract banking information from UBS, after one of the bank’s former employees, Bradley Birkenfeld, blew the whistle on UBS and divulged tax-evasion secrets to the U.S. Department of Justice.

The Swiss government and UBS must hand over names of 4,450 U.S. taxpayers believed to be hiding assets in secret bank accounts. About 14,000 UBS clients stepped up to plead and negotiate tax-evasion charges as a result of the whistleblower’s information. For his part, Birkenfeld was sentenced to 40 months in a plea bargain.

The Canada-U. S. Tax Treaty also allows the Canada Revenue Agency and the Internal Revenue Service of the United States to request information from each other so that they can properly administer their taxes. However, there are legal constraints on the exchange-of-information rules. Under U.S. law, the IRS will not honour summonses unless it can show that it issued the summons in good faith. The critical question is not whether the investigation by the foreign tax authority is legitimate, but whether the compliance of the IRS with the request of the foreign tax authority is legitimate.

Taxpayers who engage in international trade and commerce can expect greater scrutiny from tax administrations. We will see more exchange-of-information legal issues as the CRA requests files on Canadians from foreign governments with whom we have tax treaties.

Birkenfeld’s fortunes change when he completes his federal prison sentence. Under the whistleblower law, he can collect 15% to 30% of the taxes, fines, penalties and interest that the IRS ultimately stands to collect. The payoff will run into the billions. The tax collector and the whistleblower are both smiling at their meat as the taxpayers drink their poison.

-Prof. Vern Krishna, CM, QC, FCGA, is tax counsel and a mediator and arbitrator at Borden Ladner Gervais and is executive director of the CGA Tax Research Centre at the University of Ottawa.

Read more: http://www.financialpost.com/news-sectors/legal/story.html?id=2409645#ixzz0bwDr3zNe
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January 3, 2010 by Dan White.

It appears that there still are people out there who think the Smith Maneuver is a good tax strategy, so I am posting a reprint  of Bob Aaron’s article that is an excellent review of the situation.

Financial planners like Ed Rempel, who wrote insulting things about me in regards to my negative opinion on this tax strategy now not only does he look like a rude jerk, but he is a prime target for some serious tax problems with all the clients he lured into this program. If Ed gets audited, so too will most of his clients.

The concept that by doing boogy woogy, suddenly your principle mortgage can be converted to a tax deductible debt should never have expected to survive in tax court. So Mr. Remple if what you said that any accountant would be able to poke holes in my argument, that would leave all accountants looking foolish. You can be sure that in the next 2 years there will be a lot of Canadians getting audited for excessive interest claims on their tax returns. I hope Mr. Ed Rempel and the other financial planners who sold people on this idea have good insurance.

There were a good number of other people who got pretty riled up about my article in REM, but Ed’s article bugged me the most. The reason it was so annoying is that he attacked my credentials instead of my argument. If his basis for being right is that he has better credentials. Again we prove having lots of letters after your name does not mean that you know what you are talking about.

Dan white

for more info on tax problem solutions, go to www.taxauditsolutions.ca
_________

Beware of Mortgage Tax Deduction Claims
Posted last year.

by Bob Aaron

Earlier this month, the Supreme Court of Canada issued a decisive ruling that clarifies once and for all that the interest paid on a mortgage taken out to purchase a principal residence cannot be tax deductible under any circumstances (unless part of the house is used for business purposes.)

The ruling in the case of Lipson v. Canada, 2009 SCC 1, relates to a complicated series of transactions put into place by Earl and Jordanna Lipson back in 1994.

Initially, Jordanna borrowed $562,500 from the Bank of Montreal to buy shares in her husband’s company at market value. She paid the proceeds of the share purchase loan directly to her husband. The next day, the couple bought a home for $750,000 and obtained a Bank of Montreal mortgage on it for another $562,500. Right after the house closing, the Lipsons used the proceeds of the mortgage to pay off the share purchase loan completely.

In 1994, 1995 and 1996, the husband deducted from his taxable income a total of more than $104,000 in interest expenses on the mortgage loan. The Minister of National Revenue disallowed the deductions and reassessed Lipson accordingly. The government’s position was that the complicated series of transactions amounted to “abusive tax avoidance.”

In this country, evading tax is illegal, but avoiding tax is – generally – acceptable, except when the avoidance is abusive. If the minister believes a tax avoidance scheme is an abuse and misuse of the Income Tax Act, the government can invoke the general anti-avoidance rule (GAAR) and deny the taxpayer’s claimed deductions. That’s what happened in Lipson.

When his deductions were disallowed under the GAAR rules, Earl Lipson took the minister to Tax Court, then the Federal Court of Appeal and ultimately, the Supreme Court of Canada. In a 36-page judgment with two separate dissents, the Supreme Court sided with the government and the two lower courts in a 4-3 ruling.

Lipson may have serious ramifications for taxpayers who use schemes like the Smith Manoeuvre to attempt to convert the interest on their principal residence mortgage to a tax-deduction.

The seductive pitch for the Smith Manoeuvre on the promoter’s website, www.smithman.net, reads, “Go ahead, make your mortgage tax deductible. Yes, it can be done. Yes, it’s legal.” The essence of the Smith Manoeuvre strategy is that each month the homeowner pays down a little bit of the principal owing on the home mortgage, and then borrows it back. The borrowed money is then invested and the carrying charges on that newly borrowed money only are tax-deductible.

But, according to Melanie and Robert McLister at canadianmortgagetrends.com, “it’s not for everyone. There are both investment risks and serious tax risks. Your (investment) returns could be insufficient, CRA (Canada Revenue Agency) could invalidate your application of the strategy, or you could wind up in a negative amortization scenario if your house value falls.” (A negative amortization occurs when the balance owing on the mortgage exceeds the value of the house.)

In my opinion, strategies like the Smith Manoeuvre are far too risky for the average homeowner. After the Lipson decision was released, tax specialist Dan White wrote me to say that taxpayers simply “cannot convert their mortgage to tax-deductible interest. The final verdict is in. … The primary purpose of an activity dictates the final results in tax deductibility. They can borrow money against their house to invest and write off the interest … so long as it is not just a manoeuvre.”

Anyone tempted to participate in the Smith Manoeuvre or other strategies to try and make interest on a home mortgage tax-deductible should obtain tax advice from a qualified accountant or tax lawyer who is not selling anything except unbiased advice. Tax advisers who make a commission from selling participation in schemes like the Smith Manoeuvre may be in a conflict of interest and their advice may not be impartial.

Above all, taxpayers should not be misled by promises which appear to make all their home mortgage interest tax-deductible.
[filed: Income tax Lipson (2009) Real property]

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