November 30, 2010 by Dan White.

In the never ending attack on the wealth of Canaians, now CRA wants witholding tax based on employees exercising their stock options.

What this means is that by exercising your options, you will need to come up with the cash to pay  the tax liability on your phantom income.

So if you have an existing stock option, you should do some serious tax planing before January 1, 2011.

For more information on tax challenges, go to www.taxauditsolutions.ca or click here. 

Dan White

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Phantom Income Strikes Again on Exercising Stock Options.
Tax withholding on stock option benefits: will you be ready on January 1, 2011?
Stikeman Elliott LLP
Andrea Boctor and Ramandeep K. Grewal
Canada
November 23 2010
Beginning January 1, 2011, virtually every stock option exercise by an employee or director will trigger employer tax withholding and remittance requirements. Stemming from the March 2010 Federal Budget, new rules were introduced into the Canadian Income Tax Act earlier this fall which “clarify” that, effective as of the new year, source deduction requirements apply to stock option benefits. These and other proposed amendments relating to taxation of stock options are summarized in detail in our related Tax Update. The change in policy in respect of withholding and remittance for stock options brings the Canadian tax regime essentially in line with the regimes of other countries, including the U.S. and U.K.
These developments impact both employers and those receiving stock options or similar compensation. Every corporation and every mutual fund trust that sponsors stock option plans to which these rules apply should review the existing terms of its plans, and related administrative procedures, to determine whether tax withholding and remittance can be accommodated in accordance with Canada Revenue Agency (CRA) rules. For public companies, existing stock option plans and agreements should also be carefully reviewed to determine whether shareholder approval is required for any necessary amendments.
The following series of questions and answers reviews these and other common issues that employers may face in dealing with these changes.
Do the new rules apply to our company?
The new rules generally apply to all Canadian employers, including non-Canadian employers who make stock options available to Canadian employees, subject to specified exceptions.The main exception covers Canadian-controlled private corporations (CCPCs) as defined in the Canadian Income Tax Act.
When will the new rules apply?
Withholding will be generally required for non-CCPC options exercised in 2011 or after, regardless of when the option was granted.
Are there any exceptions?
There is an exception for options granted before March 4, 2010 at 4:00 PM EST, where the options included a written condition to the effect that the optioned shares must be retained by the optionee for a period of time after exercise. Another exception also exists where the optionee donates the optioned shares to a registered charity within a short period of time after exercise.
What are the withholding rates applicable to stock option benefits?
The tax rates applicable to withholding on stock option benefits are the same as for regular employment income. Where an option is eligible for the one-half income deduction on the option spread on exercise, only one-half of the spread will be considered for purposes of determining the amount to be withheld.
Our stock option plan does not currently specifically address withholding or sale of shares on the employees’ behalf. What should we do?
Stock option plans or agreements may include general terms that permit withholding and remittance as required by law or may include specific terms governing how withholding and remittance requirements may be satisfied. Such specific terms may, among other things, either permit the sale by the employer on the employee’s behalf of a sufficient number of issued shares to satisfy the tax liability or require that the employee pay an amount to the employer equal to the withholding obligation as a condition of exercise. The viability of available alternatives depends on a number of factors, including implementation from an administrative perspective (as discussed below) and the ability of optionees to fund their portion of the withholding obligation. Plan or agreement provisions should be carefully reviewed to determine if the appropriate alternatives are sufficiently covered, otherwise an amendment may be necessary. For public companies, such amendments would generally trigger shareholder approval requirements under stock exchange rules if not permitted under the existing amendment provisions of the company’s plan or agreement. In this regard, the TSX has confirmed in its Staff Notice 2010-0002, dated November 12, 2010, that it will generally consider amendments to option plans and agreements resulting from these rules to be of a “housekeeping” nature. This acknowledgement means tax-related amendments, where necessary, may generally be made under existing provisions that allow the board or a board committee to make amendments to plans or agreements of a “housekeeping” nature without shareholder approval. The Staff Notice further clarifies that if the plan does not contain such amendment provisions, the TSX will still allow companies to amend their plans and option agreements to comply with these rules provided that: (i) the amendments are limited to compliance with the Income Tax Act, (ii) the company adopts proper amendment procedures in its plan; and (iii) the amendments are submitted for security holder approval at the company’s next meeting. Public companies are also reminded that in either case, option amendments will still be subject Section 613 of the TSX Manual, which includes pre-clearance by the TSX and disclosure in proxy circulars.
How do we arrange for shares to be sold in the market to cover the optionee’s tax liability
Depending on your particular circumstances, the alternatives include arranging with a broker to sell the shares on the employee’s behalf or arranging with a third party service provider (such as a trustee or transfer agent) to administer the plan. Implementation of necessary procedures will need to be tailored to meet your specific needs and those of your optionees. In any case, discussions with all third parties should be initiated in advance to prepare for the January 1, 2011 deadline.
Instead of issuing all of the shares under option and then selling a sufficient number to raise cash to remit to Canada Revenue Agency in respect of the withholding obligation, can the corporation simply issue fewer shares to the employee and remit cash to CRA?
Satisfying the withholding obligation in this fashion may jeopardize the tax characterization of the option award, including the timing of taxation of the option award and the availability of the one-half income deduction on the option spread on exercise. We do not generally recommend this as a method of satisfying the withholding obligation. If the more common alternatives discussed above are not viable for your company you should speak with a tax advisor to consider other alternatives.
Do the new rules apply to directors of Canadian corporations who are not resident in Canada?
Although an individual’s tax situation will depend on a number of factors and can turn on specific facts, generally, the new rules will apply to non-Canadian resident directors who rendered services to the corporation in Canada at any time during the period from the date of grant to the date of exercise. The withholding amount will generally be determined based on the portion of the option benefit that is taxable in Canada.

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November 26, 2010 by Dan White.

In another in a series of articles about Trusts: The times they are a changing. The concept of using offshore as a way to legally avoid taxes is an open invitation to a journey of fighting CRA and then going to tax court.
We all like to save on taxes. However one should be a good risk manager before considering going down that road.
Just remember one fundamental truth. If you need to go offshore for the sole purpose of saving taxes, you are just asking for problems. In the end you not only pay more taxes, but you incur substantial costs of fighting plus tax penalties and interest.
For more information on tax issues go to www.taxauditsolutions.ca or click here.
Dan White

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Antle v. The Queen - Appeal Dismissed by the Federal Court of Appeal
Antle v. The Queen - Appeal Dismissed by the Federal Court of Appeal
Posted on November 26, 2010 by Hull and Hull LLP
The case of Antle v The Queen, 2009 TCC 465, 2010 FCA 280 (Can LII) (“Antle”) has been a much talked about decision. The appeal to the Federal Court of Appeal was dismissed just recently, on October 21, 2010.

Antle deals with the legality of a “capital property step-up strategy” whereby capital property with an accumulated gain (shares in a company) was shifted from the husband to a Barbados spousal trust. The trust sold the property to the beneficiary wife in exchange for a promissory note. The wife then sold the property to a third party purchaser and used the proceeds to pay off the promissory note. The trust distributed the funds to the wife as beneficiary, after which the trust was dissolved.

This scheme was apparently designed to result in no tax because there was no capital gain taxable in Canada, as there would have been had the husband sold the capital property directly to the third party. The capital gain arose in the trust in Barbados where there was no tax on capital gains.

While one might say that the case deals with the residency of the trust, the penultimate issue was whether a trust was created at all in the circumstances.

In order for a trust to be valid, there must be three certainties, namely, certainty of intention to create a trust, certainty in the subject matter of the trust, and certainty in the objects of the trust.

In this case, the Minister focused on the lack of certainty of intention to create the trust and the lack of certainty in the subject matter of the trust. The decision of the Minister was appealed to the Tax Court of Canada (“Tax Court Judge”). The decision of the Tax Court Judge was then appealed to the Federal Court of Appeal.

The Tax Court Judge found that there was no certainty of intention. The husband never intended to lose control of the shares or the money resulting from the sale and never intended to create a trust. The Tax Court Judge found that the husband’s actions and the surrounding circumstances could not support a conclusion that signing the Trust Deed reflected any true intention to settle shares in a discretionary trust, no matter how clear the language in the Trust Deed itself.  It simply did not reflect his intentions.

The Tax Court Judge also found that there was no certainty of subject matter. The shares purportedly settled on the trust were in the possession of an unrelated party who claimed a beneficial interest in them. The unrelated party was paid out an amount of money on the final sale to the third party purchaser. The husband later successfully sued the unrelated party and recouped $1.38 million. The husband thereby retained an interest in the shares purportedly settled on the trust. If the husband transferred anything to the trustee, the Court found that it was not his full interest in the shares because there was an element of his ownership in the shares that did not pass. This created a lack of certainty of subject matter.

The Tax Court Judge also found that the trust was never constituted. It never came into existence because the shares were never transferred to the trust and were never in possession of the trustee. The shares remained in Canada throughout and no money ever reached the trustee. The timing and execution were such that the intended steps were not carried out sequentially so as to properly constitute the trust.

Notwithstanding the above findings, the Tax Court Judge determined that the above circumstance was not a sham, as also alleged by the Minister, as the transactions themselves were not disguised.

In an interesting twist, the Federal Court of Appeal concluded “that the Tax Court judge was bound to hold that the Trust was a sham based on the findings that he made”, and dismissed the appeal.

Enjoy the weekend,

Craig
Tags: Estate & Trust, Trusts, blogs, estates

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November 25, 2010 by Dan White.

For those of you who still think offshore, Trusts, IBC.s and Hybred Corporations are where it is at and is the place to be, it may be prudent to recognize that losses over there may not be usable as a tax strategy in Canada. But even more importantly is to realize that really good offshore advice is not taught in University and is not part of a regular education. Therefore if the advice you are given means that your tax savings blow up in your face, just remember buyer beware.
The one take away here is: Your primory purpose is what is going to be judged in the long run and if the taxman can see through what you have done as just a tax avoidence scheme, then he will come fighting for the tax you saved, plus penalties and interest on top.
So long as the offshore entity is there for your benefit and you are a Canadian resident, and your mind and management happens here in Canada, then all you have is a big headache followed by a huge tax bill.
I have been there, done that and as far as I am concerned your best shore is on shore.
For more information, go to www.taxauditsolutions.ca or click here.
Dan White

Trust Residency – Garron Judgment Upheld
By: John Sorensen of Gowlings Law Firm
On November 17, 2010, the Federal Court of Appeal (”FCA”) released its reasons for judgment in the St. Michael Trust Corp.1 appeal, upholding the judgment of Woods J. of the Tax Court of Canada (”TCC”) in the Garron Family Trust2 case.  For ease of reference, the trial and appeal judgments will be referred to as “Garron”.  The Garron case is highly significant as it has established new principles for determining trust residency for Canadian income tax purposes.
Prior to the TCC judgment in Garron, the leading case dealing with trust residency was Thibodeau Family Trust v. The Queen.3 Thibodeau had previously been viewed as authority for the proposition that a trust is resident in the jurisdiction where the majority of its trustees reside.  In Garron, the TCC rejected that notion, holding instead that the test for trust residence should turn on the location of a trust’s central management and control.
The essential facts in Garron are as follows:
prior to a reorganization in 1998, the shares of PMPL Holdings Inc. were held by Andrew Dunin and another holding company owned by Myron and Berna Garron and the Garron Family Trust;
in 1998, pursuant to a reorganization of PMPL, two trusts with Canadian beneficiaries were settled by a friend of the Garrons who resided in St. Vincent, with the sole trustee being a Barbadian corporation, namely, St. Michael Trust Corp. (”St. Michael”);
the owners of the common shares of PMPL converted their shares to fixed value preference shares;
the trusts subscribed for shares of newly incorporated Canadian corporations who in turn subscribed for shares of PMPL, all of which took place for nominal consideration;
in 2000, the trusts sold the majority of their shares pursuant to the sale of PMPL, and realized capital gains of over $450,000,000;
tax was withheld and remitted pursuant to s. 116 of the Income Tax Act (Canada) (”Act”); and
the trusts sought a return of the withholdings pursuant to an exemption under the Canada-Barbados Tax Treaty on the basis that the trusts were resident in Barbados.
The Minister of National Revenue (”Minister”) took the position that the treaty exemption was inapplicable, leading to the taxpayer’s appeal to the TCC.  The Minister’s primary argument was that the treaty exemption did not apply because although the corporate trustee was resident in Barbados, the trusts were resident in Canada because their central management and control was exercised in Canada.  As noted, Woods J. accepted the Minister’s argument, and held that the central management and control of the trusts was exercised in Canada and consequently, the trusts were resident in Canada.
In her reasons for judgment, Woods J. considered evidence which established that:  the trustee’s powers were more limited than provided for in the trust instruments; the trustee exercised limited powers; the trustee may not have had the necessary expertise to manage trust assets; and the beneficiaries of the trusts were able to control and direct the trust’s investment activities, tax planning and distributions.  Ultimately, Woods J. held that the management and control of the trusts was exercised by persons residing in Canada, namely, controlling shareholders and principals of PMPL and not by St. Michael.
On appeal, the issue before the FCA was whether Woods J. erred by applying a central management and control test. The FCA agreed with Woods J. that the case law does not establish a single test for trust residence and held that Woods J. was correct to conclude that “the judge-made test of residence that has been established for corporations should also apply to trusts, with such modifications as are appropriate”.  In confirming and upholding Woods J.’s reasoning, the FCA stated that although a trust is a “legal relationship” without a separate personality as a matter of law, the Act treats trusts as through they were persons.  Consequently, it is consistent with that “statutory fiction” to conclude that a trust’s residence may not always be determined by the residence of its trustees.
Alternative arguments which were not determinative at trial were also raised on appeal and for the most part the FCA agreed with Woods J.’s reasoning.  However, on the potential application of the deeming provision in ss. 94(1) of the Act, the FCA disagreed with the trial judgment and stated that the necessary test had been met and that the provision would apply to deem the trusts to be resident in Canada even if the central management and control test was not determinative.
As a result of Garron, it is clear that Canadians may not rely on passive and compliant foreign trustees to structure offshore trusts with a high degree of certainty or comfort.  Consequently, it is strongly advised that trustees be invested with, and actually exercise real decision making power, in order to help ensure that the trust’s residency status would not be redetermined pursuant to the central management and control test.
It is worth noting that throughout its judgment, the FCA states that a trust is resident in the country where the central management and control is exercised.  This is distinguishable from a test based on where the “managers and controllers” reside.  Consequently, it may be advisable for anyone who is being consulted on trust decisions to have their meetings in the jurisdiction where the trustees reside.  This “belt and suspenders” approach may further ensure that the trust is not held to be resident in Canada by virtue of a finding that management and control powers have been exercised in Canada.
It is not yet known if the appellants will appeal further to the Supreme Court of Canada, so the final chapter of Garron may not yet be written.

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November 25, 2010 by Dan White.

If you think you are so very cool with what you post on Facebook, think again. CRA (Big Brother) is watching you. What you publish on Facebook can and will be used against you by CRA and in Court. To learn more about things that CRA does, go to www.taxauditsolutions.ca or click here.

Dan White

Facebook Profiles Now Being Subpoenaed In Court Cases

• Monday Nov 15,2010 07:00 PM
• By admin

Facebook postings continue to get subpoenaed in ever more novel ways. Now a very humorous legal precedent came down, of all places, in the Tax Court of Canada.

Someone got nailed for underpayment of taxes after lying in court about whether he posted the truth on Facebook.

Like many tax-related lawsuits, the details get pretty complex, so we’ll quote judiciously. The Honorable Judge Patrick J. Boyle might have stifled at least one chuckle while writing his judgment on an appeal called Shonn’s Makeovers & Spa, Appellant, versus the Minister of National Revenue, Respondent:

Both surprisingly, and perhaps as a true sign of our times, this ends up turning on his Facebook status. Unfortunately, such is the sad state of affairs of this file as presented by all parties and witnesses.

Lie to tax authorities at your own peril, especially when you lack documentation, because computers compare everybody’s tax filings to one another. If you say you’re employed by a company that says you’re a contractor, the computer cranks out letters to both parties, asking you for proof.

Once Ottawa hairdresser William Hall received the first such letter from Canada’s tax authority — it usually takes a series of communiques before a dispute like this gets into a court room — that should have been his clue to do at least one, but preferably all, of the following:

1. Show the letter to an accountant and ask for advice.

2. Have a chat with the proprietors of the salon he worked at, and if that conversation doesn’t go smoothly start looking for vacant seats at other beauty parlors.

3. Re-evaluate the content of his Facebook profile, and self-censor accordingly.

4. Adjust the privacy settings on his Facebook profile so that the salon owners, tax authorities and other members of the legal community couldn’t see the description of his employment.

5. Get wise to the fact that courts and law enforcement can subpoena the right to access even those things that we designate as privacy protected.

This lawsuit would never have happened if he did item one. Two could have minimized the damage, and motivated him to do number three. Four and five are things I wish everyone on Facebook would do. Like Judge Boyle states:

The appellant included a printout dated April 2009 of Mr. Hall’s Facebook info page.

Hall’s Facebook profile contained honest and accurate information about himself, including the nature of his employment. Then he told the court room that the bit being self-employed was a lie. You don’t need a law degree to red flag that!

Then Hall said that people lie on Facebook all the time. Unfortunately, there’s some truth to that. But the kinds of lies that show up on profiles tend to follow certain patterns. Like a singleton’s photo might not have a caption saying that the picture isn’t current. Or a player might not have filled out the relationship status field. Or someone might exaggerate about his own brawn, brains or bucks.

Hall’s lame excuse was that he lied about self-employment out of concern for his privacy. He should have just clicked on the upper right-hand corner of his Facebook screen.

If people don’t learn to use the privacy settings responsibly, will there come a day when all lawsuits include Facebook postings as evidence? What can the social network do to make privacy settings more user friendly and get everyone to use them?

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November 25, 2010 by Dan White.

It amazes me that our government agency, CRA, that is supposed to be part of a government of the people, for the people, has become so outrageously evil and there is not a public outcry of rage. Why is it that our population is not waking up to the reality that bad things happen to good people and anyone could become the next victim of a government agency completely ruining their lives?

How does it make sense for CRA to take a situation where someone can not pay the taxes they owe and charge criminal interest rates that ensure one thing. That one thing is INSOLVENCY and it is happening to an ever increasing number of Canadians.

How is it that a self appointed credit agency that proclaims they are not a lender, charges such a rate of interest and yet will not give Canadians a reasonable rate of interest.

If there was any iota of compassion in the CRA, they would consider common sense and reason when a taxpayer cannot pay their taxes. Common sense would be if a taxpayer can not pay and cannot borrow the money, the taxpayer would apply for a payment plan based on what they can afford. Then there would be a reasonable rate of interest such as 1 percent more than a bank would charge a good customer.

Applying common sense would allow CRA to get paid and the taxpayer to avoid going bankrupt and as a result having the taxpayer base getting nothing. To force someone into bankruptcy with criminal rates of interest and collection tactics that are terrifying to the taxpayer in trouble.

CRA is out of control and as a result, marriages are breaking up, people develop stress related health problems,  and taxpayers are losing everything they own.

Since when is it that making a bad decision or through no fault of your own, should cost you a lifetime of work, or even your life? It is a sad shame for our country that in proven circumstances, CRA thinks they are above the law, common sense, reason,  compassion and fairness. What is even worse…. many Canadians feel good about what CRA is doing. They assume as CRA does that all small business are tax cheats and deserve whatever cruel and harsh treatment CRA dishes out.

We deal the results of this kind of goings on every day, as more and more taxpayers find out that they can obtain help. Check out www.taxauditsolutions.ca for more information on getting protection from CRA abuse.

Click here.

 D Cayo of the Vancouver Sun hits the nail on the head.

CRA includes usury in its bag of abusive tricks

Two car loan companies I wrote about last month threaten interest rates of up to one per cent a day in agreements with poor schmucks who borrow from them, but both say they don’t actually try to collect that much.

By The Vancouver Sun November 5, 2008

Two car loan companies I wrote about last month threaten interest rates of up to one per cent a day in agreements with poor schmucks who borrow from them, but both say they don’t actually try to collect that much.

Indeed, one company admits the contract isn’t enforceable (although, as I have noted, the Criminal Code forbids not only collecting interest over 60 per cent a year, but also putting it in a contract).

So if even high-cost lending companies don’t have the gall to try to gouge customers this badly, guess who does? Who actually squeezes one per cent a day — more than six times the Criminal Code maximum — out of unfortunate debtors?

None other than Canada Revenue Agency. It is thumbing its nose at fairness and the law by nailing any employer who is late remitting tax money withheld from employee pay with interest so high the rest of us would land in jail if we tried to impose it on people who owe us.

The CRA isn’t usurious across-the-board, but it’s website states explicitly that for these late remittances the charge will be “3% if the amount is one to three days late, 5% if it is four or five days late, 7% if it is six or seven days late, and 10% if it is more than seven days late.”

CRA is also on thin ice with assessments for late income tax filers. If they owe money, late filers must pay five per cent initially, plus one per cent for each month until the return is filed. According to my math, this adds up to a usurious interest rate on filings that are one to 30 days late, although the rate falls below the legal maximum for filings that are more than a month late.

Most governments assess hefty levies — and so they should — for chicanery or playing deliberate games with the taxman. But these usurious rates aren’t aimed at law-breakers or game-players – just people who pay late.

Indeed, the reader who told me about the issue was hit with one-per-cent-a-day interest when, unbeknownst to him, CRA changed the due date for his remittances. In a normal business relationship, this would result in a quiet word, not punishment.

And if CRA wants these usurious rates to punish, then they aren’t just ethically appalling, they’re also dumb. It works out to three per cent a day for people who are just one day late, and just one per cent a day for people who are three days late. And it’s capped at 10 per cent — as I read CRA’s information, if you’re 100 days late it costs only 10 per cent, or 0.1 per cent a day. So the incentive to pay promptly diminishes the longer you’re late.

This latest example of the kind of taxpayer abuse I’ve been writing about for more than a year is right up there with the preposterous assumptions, the arbitrary demands, the habit of penalizing taxpayers for CRA’s own mistakes, and more.

It reflects the uncaring mindset that produced a 10-per-cent fine — now rescinded since it drew scornful media attention — for paying bills at a CRA office rather than at a bank. The attitude seems to be that if people inconvenience the bureaucracy, no matter how innocently or trivially, they’ll be hit with a bazooka.

But the point is that parliamentarians who enacted the Criminal Code thought charging such high rates is an act so vile that people who do it belong in jail. And now a branch of government is defying the spirit, if not the letter, of that law.

As they say in Parliament, too often with cause: Shame, shame!

dcayo@vancouversun.com

Visit my blogs, one on taxation and one on globablization, at www.vancouversun.com/blogs

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November 11, 2010 by Dan White.

As time goes on, more and more judges are slamming CRA for bad behaviour.Looks good to me.

I don’t think much of gangs, but I suppose you could call CRA a gang?

For more information on CRA,,, click here.

Dan White

Taxman ordered to pay UN gang $200,000

Canada Revenue Agency fined for probing gang members’ earnings

Kim Bolan, Vancouver Sun: Thursday, August 12, 2010

The Canada Revenue Agency has been ordered to pay more than $200,000 to the United Nations gang after a judge scolded the taxman for demanding information about the earnings of some UN members and associates.

VANCOUVER — The Canada Revenue Agency has been ordered to pay more than $200,000 to the United Nations gang after a judge scolded the taxman for demanding information about the earnings of some UN members and associates.

Federal Court Judge Michael Phelan awarded $200,000 for legal fees to a group of 15 people linked to the notorious B.C. gang and an additional $17,486.92 for other court costs.

The motion seeking the cash was heard by Phelan in April, but the ruling was posted just this week on the Federal Court’s website.

Phelan said the size of the award corresponded to the misconduct of CRA officials who worked closely with police in sending out letters called RFIS or “requirements for information” demanding details of assets and incomes of those targeted.

“There was an air of disregard for the citizen’s legal rights, including confidentiality obligations imposed on CRA officials, which elevate the unlawful conduct to one deserving of some reprobation,” Phelan said in his latest ruling.

The UN associates asked for more than $250,000 in costs, while the CRA had offered to settle for about $102,000.

Last December, Phelan sided with the UN in its legal challenge of the letters and general conduct of CRA investigators who teamed up with Gang Task Force members to deliver the letters to gang members’ homes.

“Police presence was clear and visible and highly obtrusive. The service of the documents was generally carried out late at night, with multiple police cruisers present, lights on and with all the paraphernalia of a police raid,” Phelan said, adding that the actions were “obtrusive, invasive and unjustified.”

Phelan also said that the CRA treated the UN members differently than other citizens and outside the mandate of the agency.

“It is a central tenet of the rule of law that everyone is required to obey the law and all are entitled to the protections of the law, even those litigants who may be deserving of little sympathy. In that latter category would be members of gangs reputed to be engaged in some of the most serious of illegal misconduct in the Lower Mainland of British Columbia,” he said.

UN founder Clay Roueche, who was not targeted in the CRA probe, is appealing a 30-year U.S. sentence handed to him for being the head of a major cross-border drug-smuggling ring. A Seattle judge found the gang moved about $500,000 a week from Seattle to Los Angeles from drug sales.

UN-linked Daryl Johnson is one of the challengers who’ll share the court award. He is also awaiting trial in B.C. Supreme Court with two others on charges of conspiracy to import cocaine. Several other UN gang members and associates are also awaiting trial.

Phelan noted that two of the challengers — Duane (D. W.) Meyer and Elliott (Taco) Castaneda — were executed in gangland hits after the CRA delivered the RFIs.

“It is not necessary or even within the scope of this inquiry to determine whether the applicants are members of the UN Gang,” Phelan said. “However, the history of this litigation, involving change of the lead litigant due to ‘hits’ on other members and other steps taken by the applicants to protect personal information usually available in litigation due to the fear of harm from unknown persons, is consistent with membership in illegal gangs.”

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November 11, 2010 by Dan White.

Below is a case CRA lost.

They lost because this time they got caught in a bald faced XXX or should we say misleading information given to the judge?

CRA does this kind of thing so often, that they don’t consider themselves subject to ethics or the law. It is just what they regularly do. However this time they got caught.

I would like to see this on W5

And it could happen

The minister loses on jeopardy

• Gowling Lafleur Henderson LLP
• Stevan Novoselac and John Sorensen

The minister loses on jeopardy

The Federal Court of Canada’s recent judgment in Minister of National Revenue v. Robarts,1 addresses the limitations in the Minister of National Revenue’s (“Minister”) ability to take aggressive steps to collect assessed tax in situations where a taxpayer is otherwise shielded from collection actions. In Robarts, the Court took a dim view of the Minister’s failure to provide complete and accurate facts and fair interpretations of the relevant legal principles and therefore ultimately halted the collections actions.

General Principles

The Minister generally has broad powers to collect assessed tax, subject to certain limitations. However, those limitations may not apply in situations where the Minister is satisfied that there are reasonable grounds to believe that collection of an amount assessed would be jeopardized by any delay. In those circumstances, the Minister can seek to take immediate collection actions against a taxpayer by obtaining a so-called “jeopardy order”. Jeopardy orders are obtained by an application to the Federal Court, without any notice to the taxpayer. When the Minister obtains a jeopardy order, the taxpayer can later apply to the Federal Court to review and reconsider the order.

Facts in Robarts

Mr. Robarts was a businessman from Kelowna, B.C. He was assessed for his 2005, 2006 and 2008 taxation years by notices of reassessment dated February 1, 2010. On April 6, 2010, the Minister applied for a jeopardy order to collect the assessed amount, based on an affidavit (“Affidavit”) by the Canada Revenue Agency (“CRA”) officer assigned to Mr. Robarts’ collection file. That Affidavit asserted that:

• funds in Mr. Robarts’ bank accounts were his only significant asset;

• he was in a position to withdraw those funds before the CRA could take collection actions;

• he had under-reported his income for the taxation years in issue and failed to report income in the past;

• he had conducted his tax affairs in an unorthodox way and had dissipated assets after being notified of the reassessments against him; and

• collection actions were not possible by law because of the 90-day statutory stay on collection which follows an assessment or reassessment.

Relying on the Affidavit, the Federal Court granted a jeopardy order to enable the CRA to deploy immediate collections actions against Mr. Robarts. Mr. Robarts then brought an application to have the jeopardy order reviewed.

In his application, Mr. Robarts stated that his bank accounts included long-term investments which were not readily dissipated. Moreover, one of the substantial amounts that had been withdrawn from his bank account after he was reassessed had been returned to the account six weeks later. Further, the allegation that he had under-reported his income was a matter in dispute, and was the issue which the CRA appeals division and potentially the Tax Court of Canada would be called upon to determine. In Mr. Robarts’ submission, he did not conduct his affairs in an unorthodox way, and he alleged that the Minister did not provide all of the relevant evidence with respect to his finances when the Minister applied for the jeopardy order.

Legal Principles on a Court’s Review of a Jeopardy Order

In reviewing and reconsidering the jeopardy order against Mr. Robarts, the Federal Court relied on the following two-step test.

First, the taxpayer must establish that there are reasonable grounds to doubt that collection of assessed tax would be jeopardized by delaying collection. However, even if the taxpayer is not able to establish that position, a judge may set aside the jeopardy order where the Minister has not met his obligation to make full and frank disclosure of all relevant facts and law to the Court on the initial application for the jeopardy order.

Second, if the taxpayer establishes that collection is not in jeopardy, the onus shifts back to the Minister to prove that the jeopardy order is justified. At this point, the Court reviews all of the evidence and considers whether, on the whole, there are reasonable grounds to believe that collection of an assessed amount would be jeopardized by delay.

The Court Applies the Legal Principles to the Facts in Robarts

The Court held that the Minister failed in his obligation to provide full and frank disclosure to the Court. The Court explained that the Minister has the duty to exercise utmost good faith and to ensure full and frank disclosure of all relevant facts, even those facts which are unhelpful or inconvenient or which demonstrate weaknesses in his own case. This is because a jeopardy order is granted without notice to or representations from the taxpayer. The Court found that the Minister omitted relevant facts from the Affidavit. For example, although the Affidavit alleged that $109,000 was withdrawn from Mr. Robarts’ bank account after he was reassessed, the Affidavit omitted to state that the amount was re-deposited about six weeks later. In the Court’s view, this was the single most important fact in the Affidavit. The Court further held that the Minister’s representative had failed to seek and obtain the necessary information that would have properly informed the Affidavit.

The Court also held that the Minister did not make full and frank disclosure of the factual and legal elements of the case law he relied on in his submissions to obtain the jeopardy order. Moreover, the Court stated that although good faith on the Minister’s part must be presumed, the Minister’s representations left “a sour taste” and “important omissions on relevant case law from the Minister’s written submissions are certainly not compliant with the spirit of these extraordinary [jeopardy order] procedures”.

Consequently, the jeopardy order was based on misleading, incomplete or incorrect facts and law, and had to be vacated.

The Court further considered whether the Minister had, in the first place, demonstrated that there were reasonable grounds to be believe that the collection of assessed tax would be jeopardized by delay. On this question, the Court found that the Affidavit contained factual allegations that went beyond the reassessments that were in issue, “in an effort to taint the taxpayer’s character and form the basis for the issuance of the Order”. The Court held that it would be wrong to draw a negative inference regarding Mr. Robarts’ management of his tax affairs, since the issues were litigious questions that were not yet settled.

Conclusion

The Robarts decision should provide useful guidance for both the CRA and taxpayers. For the CRA, it is hoped that the decision will serve as a reminder of the strict and vigorous standards to be applied when seeking jeopardy orders. For taxpayers, it could certainly be used as further support to challenge any jeopardy orders that may be obtained based on incomplete or wrong facts and/or statements of law.

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November 6, 2010 by Dan White.

The Offshore Onion is getting peeled and our politicians who try to fluff off the truth, thinking that Canadians are dumb, really dumb!… are in themselves being pretty dumb. When you are caught admit it….then move on.

One layer of privacy at a time, those who were offshore tax avoiders and tax evaders are getting nailed and those who advised and helped them, get exposed.

It would make sense that the politicians who just may have been in the offshore tax evasion stew pot, need to protect those who advised them, in order to protect themselves from being exposed to having gotten into the pot. Now comes the kettle… and the fire… things will get hot now.

It was cool in  the good old glory days of offshore banking, prior to 911 to have an offshore bank account. A rainy day nest egg. In those days  Offshore was an option for people who had reasons to keep their money private, regardless of being associated with taxes or not, they could have privacy.

That fateful day of the planes crashing, made me realize that the gig was up and that having money offshore even for legal non tax reasons, would no longer be private. If your offshore bank account is not private, that means anyone who really wants to, can find out about it.

Those who did not immediately take precautions against being caught doing hanky panky,  have opened themselves up to being looked at sooner or later. The question is not “if”… the question is “when.”

When it comes to offshore, I have seen it all, been there done that. I moved on… Money offshore is not safe from the prying eyes of the governments. If you need to  have offshore money, be well advised to report it on your tax returns because normally CRA does not make that knowledge public. You still get the advantage of offshore privacy laws to protect you from prying eyes and offshore business, you just better not think you can use it to avoid paying taxes on your world wide income.

CBC… our investigative reporters exposed Andrew Saxton, a former banker and now an MP for North Vancouver is now looked at. While politicians are supposed to eat their own, sometimes Metaphorically speaking, (and.. I am not calling or suggesting Andrew a pig) a stuck pig squeals. So naturally the politicians will want to protect Andrew. The only reason I can think of for Baird to try protecting Saxton, is because Saxton knows too much about too many people, who do not need Saxton to squeal on them.

Pierre Poilievre, parliamentary secretary to the prime minister, said Saxton “has done his work with integrity; he has spoken out about tax evasion.” Hmmmm… so if a bank robber goes public and says that bank robbing is wrong, that would mean that  the robber stole the money with integrity? Give me a break! Please! The likelihood - reality is that Saxton learned after the fact, that offshore tax evasion is a really bad idea.

I noted in the following article “comments” that Paul Martin was mentioned. What is important to note is… Yes… Paul Martin was offshore. However it is important to note that he was running a legitimate business and paying tax on his world wide income. It makes complete sense to have your corporation offshore rather than in Canada, “IF” it is a legitimate International business.

Hiding your income and Moving your money offshore to avoid taxes, because you think privacy will protect you from paying tax on your world wide income,  is called “OffshoreTax Evasion 101.”

The whole onion of offshore banking is highly complex and how to do tax evasion is not something taught in university. It is only something learned from those who do it. In today’s world, those who advise and those who do -  will get caught. Sooner or later.

The problem now is…. what you did in the past can catch up to you as in the case of Andrew Saxton.

Read on and also check out our web site at www.taxauditsolutions.ca

Tories defend MP named in offshore tax probe

Last Updated: Friday, November 5, 2010

CBC News

Andrew Saxton, a former banker who is the Conservative MP for North Vancouver, is entangled in a political controversy over a tax-evasion investigation. (Courtesy andrewsaxton.ca)

The Conservative government is rejecting opposition demands for the removal of a Tory MP whose name appears in an offshore tax probe.

During question period Friday, NDP finance critic Thomas Mulcair said MP Andrew Saxton “simply cannot continue in his role” as parliamentary secretary to the president of the treasury board during the investigation and “has to step aside.”

Government House leader John Baird dismissed Mulcair’s demand, calling it “a drive-by smear” and adding: “I regret that the member would come to this place and ask that kind of question.”

Saxton, during his previous career as a banker, approved a transfer of funds on behalf of a Canadian taxpayer to an account in Switzerland that the taxpayer set up to help evade taxes, CBC News and the Globe and Mail learned.

The investigation uncovered court documents that show Saxton, now the Conservative MP from North Vancouver, instructing the transfer of $199,975 into a Swiss bank account in 1994 on behalf of a Canadian client of RBC Dominion Securities in Victoria.

Saxton was the head of private banking for the Vancouver branch of Credit Suisse Canada from 1992 until 1994, when he left for a series of HSBC banking posts across Asia. He has been the Treasury Board parliamentary secretary since he was elected to Parliament in 2008.

Later in question period, Bloc Québécois MP Serge Cardin demanded that Prime Minister Stephen Harper fire Saxton, in view of the “very serious” information uncovered in the joint investigation by CBC News and the Globe and Mail.

Pierre Poilievre, parliamentary secretary to the prime minister, said Saxton “has done his work with integrity; he has spoken out about tax evasion.”

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November 2, 2010 by Dan White.

CRA is getting tougher on Sole Proprietor Audits

The Canada Revenue Agency is getting aggressive about taking additional steps to check on whether sole proprietors are hiding sources of income during field audits.

Our current audit experience has found that CRA field auditors are generally effective in checking for unreported income during field audits of sole proprietors. Further, we see that CRA has increased pressure on auditors to do net worth audits. As a minimum the auditors have to fill out a report at the audit’s end explaining why a net worth audit was not necessary.

I guess another way of looking at this is that small businesses are seen as tax cheaters unless proven otherwise.

While CRA auditors generally check for unreported income, we find that CRA is doing a close look at the lifestyle of the entrepreneur for determining that the taxpayer must be earning more than they claimed on their tax returns.

Auditors take a close look at personal-living-expense data. The preliminary cash transaction analysis involves little or no taxpayer burden, but uses tax return and personal expense data are used to determine whether the sole proprietor’s income and expenses are roughly equal. If the auditor determines that the lifestyle suggests a higher income than reported, there will be a life style assessment levied.

In lifestyle audits, CRA does not have a credible test, instead looks to the auditor to do serious assumptions that do not require verification by the auditors.

CRA really needs to read their code of ethics and code of conduct, then they need to revisit the subject of net worth assessments.

for more information on audit ready bookkeeping, please go to www.taxauditsoluitons.ca or directly by clicking here.

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