February 10, 2010 by Dan White.

This is a very interesting case of an ingenious tax fraud scheme, where the tax preparer and the taxpayers all got caught.

While the scheme is really quite intelligent, there was obviously one major flaw. The tax preparer did not do risk management.
Le’s look at what is wrong here.

There had to be at least ten taxpayers involved. All likely had spouses. All likely had friends that they bragged to.

The chance of not offending anyone who could become an informer, is quite low.

So the obvious answer is.

Taxes101. don’t do tax evasion.

For more information on CRA audit procedures, please go to http://taxauditsolutions.ca

Best Regards

Dan White

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Tax preparer found guilty of tax evasion

LAVAL, QC, Feb. 10 /CNW Telbec/ - Martine Laprise, a Saint-Sauveur tax preparer, pleaded guilty yesterday to tax evasion charges at the Saint-Jérôme courthouse. She was fined $41,252, which represents 50 % of the federal tax she tried to evade.

The Canada Revenue Agency (CRA) investigation revealed that, for the 2002 to 2005 tax years, Ms. Laprise voluntarily contravened the Income Tax Act by providing third parties with a total of $518,197 in false child care receipts. This scheme enabled the third parties to fraudulently reduce their income taxes by $82,505. In addition to the fine imposed by the Court, the taxpayers involved will have to pay the full amount of taxes owing plus related interest and any penalties that apply.

The investigation also revealed that Ms. Laprise hired fictitious caregivers, who declared income equal to the amounts on the receipts issued in order to avoid raising suspicions from the tax authorities. Expenses were also claimed against this income, which allowed the parties to avoid paying income tax.

The taxpayer is responsible for the information on his or her income tax return, even if the return was prepared by someone else. Any fraudulent activity can be anonymously reported to the Enforcement Division of the tax services office nearest you.

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February 9, 2010 by Dan White.

 If you are in trouble with CRA, and have not obtained a skilled Tax Representative, you could have a serious problem. Here is important information to keep in mind if the TaxMan comes to your door.

Dan White

For more info go to http://taxauditsolutions.ca

___________

From the Great White North news

Tax Debt And Distraint

Distraint is the process of seizing a person’s possessions to sell at auction, in order to clear outstanding tax debt. The taxman has the legal right to take this action without a court order, but a certain procedure needs to be followed to stay within the law.
Warning Letter

Firstly, a letter will be sent to the debtor warning that distraint action is about to begin. This will be followed by a visit to the debtor’s home or premises by a tax collector, in order to assess what assets and possessions of value may be taken. This visit must take place between sunrise and sunset on any day except Sundays and public holidays, and while no appointment needs to be made or time of visit announced in advance, the collector can only make a ‘peaceful entry’ to your home. In other words, if you refuse entry, the collector will need to apply for a court order before going any further.
Seizure of Possessions

During the visit, a list of seizable items and their value will be made. Most of your personal possessions are able to be taken, but there are several exemptions. Firstly, any item essential for your work or trade cannot be taken if this would impair you ability to carry on working. Clothes are exempt, as are perishable foods and the basics of living - a chair and table, along with basic cooking equipment, and a bed are the often cited examples of such basics.

Finally, any item which is jointly owned or wholly owned by someone else is ineligable for seizure.
Last Chance Before Seizure

Once this list has been drawn up, you will normally be given a period of 5 days in which to either clear your debt or reach a repayment agreement. If this is not done, then the taxman has the right to seize the goods and sell them at auction, often for a fraction of their true value, meaning that even after distraint your debt might not be fully cleared.
What To Do If You Receive A Distraint Notice

If you receive a letter warning of distraint, it’s vital to get in touch with your tax office as soon as possible. In many cases, the whole process can be avoided by reaching an agreement to repay over a mutually acceptable period. In fact, only about one in a thousand distraint warnings actually result in the sale of goods.

If you find the whole issue seriously worrying, then consult with a tax debt specialist or charity such as Citizens’ Advice, who will have had plenty of experience in the area of tax debt and will be able to ensure that even if distraint can’t be avoided, at least it will be carried out in a fair and reasonable manner.

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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

_______

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.

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

________

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 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

________

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
Click here to see all recent news from this com

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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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December 31, 2009 by Dan White.

The most common tax traps

Keeping bookkeeping audit ready while straightforward it feels quite burdensome to produce all the required documentation. Just remember that an audit is a process of elimination of business deductions by auditors. There are numerous items and conditions that an auditor will commonly look for in order to catch you. Here are the top Tax Traps that are most likely to trip you up, and what you need to do to avoid them:

Having your GST returns not add up to other records.
If your GST return does not match to your tax return, you are dead in the water.

Guessing at numbers.
Guessing is sure fire trap, especially if the numbers look phony.

Expenses out of whack with conventional norms.
If for instance your entertainment expenses are high, that is a sure audit trigger.
The tax return numbers story does not make sense to the business codes.
Improper recording of consumption expenses.

This is an easy and substantial tax grab for an auditor. Usage tax applies to the routine purchase of such items as consumables and office supply, as well as to the purchase of large fixed assets. Thus there is the potential for CRA to assess a very large fee. Unfortunately, most people don’t know this until it’s too late. For example; when the auditor has come in, looked at a certain period of time, and then assessed back taxes and penalties retroactively. The only way to fight this is to maintain proper business rational statements to solidify business use tax rational. This is an area where most businesses stumble and fall and provides a lucrative source of revenue for the Canada Revenue Agency.

Exemption and resale certificates.

If you don’t possess proper exemption certificates, you can find yourself needing to pay tax on items that you should not have to pay.

If the resale certificates are not on file, the auditor will typically determine an error rate and project backwards to assess tax and penalties. If it’s proven that a resale certificate has been used improperly, the penalties can be substantial.
To avoid these situations, companies need an automated process to enforce exemption and resale certificate compliance for each tax jurisdiction in which they do business.

Unreported sales.

Mistakes happen and certain sales can go unreported. Sometimes even entire divisions get left out in error. The remedy is to rely on systems, not people.
Charging wrong tax rates.

Staying on top of these changes and instituting new rates at the right time is extremely difficult. The only good answer is to have real-time rates applied automatically from the day they are effective.
History of audits and assessments.

Bureaucracies have long memories. Once flagged, and if you were an easy target who did not hire a representative and you just coughed up dough, you will be under the microscope for life and can expect repeated audits.
Most auditors will make note of an error, and you may not realize that you need to make the time, and commitment to address your bookkeeping going forward. If you don’t make the appropriate changes, then on a return audit, auditors can easily find the same repetitive infraction and assess penalties on it.
The best defense here is to have iron-clad processes and procedures and good business statement rationals. Adequate documentation makes an audit go much more smoothly, while poor record keeping will prolong an audit and ultimately bankrupt you.

Lacking documentation, an auditor will make a lot of assumptions where the onus is on you to prove the auditor wrong.
The best answer is always to accept that bookkeeping is as much a cost of doing business as gas is a cost of being able to drive an automobile.
Unique rules and regulations.

The Tax Act has many twists and turns to its sales and use taxes. Auditors are highly tuned into these, particularly when the rules are new, and are quick to spot non-compliance. Tax authorities often have special taxes that apply to specific goods. There are many food/beverage, gambling, cigarette/tobacco, soft drink, timber, and fuel taxes that can be uncovered during an audit. Tax authorities will also audit specifically for these types of taxes from time to time, which can open you up to a full-blown tax audit.

Sales tax accruals.

Many companies don’t properly remit the sales taxes that they have collected. An auditor will look at federal tax returns, the general ledgers, invoice register, actual invoices, sales journals and summaries of sales by province to identify errors and omissions, and will then use the their number that provides the best assessment revenue for them. The best advice here, is to do the same thing yourself. You must keep audit ready bookkeeping.

Assets.
The buying of selling of large assets will catch attention… E.G. was there capital gains calculated, and was it reasonable to the situation.
A business acquisition can often mess up your accounting when it comes to sales and use tax compliance. You need a solid audit trail.
There is always the issue of previous tax liability: when you acquire a company.
Internet sales.
As a result of CRA requiring eBay to release data to the taxman, demonstrates that you better treat your Internet the same as the rest of your business when it comes to bookkeeping.
Inventory shrinkage.
If inventory shrinks out of reason, it will draw attention.
Business Activity Questionnaires.
Any form you fill out and give to a government auditor is a risk of an audit. Before sending in forms to the government get good advice as to best package information.
Summary:
The recommendations for avoiding these tax traps are just a matter of using common sense.
You either need a highly skilled bookkeeper (not just someone who can do data entry) or you need to hire a professional bookkeeping service.
As a business owner, you need to do your part in the record keeping. You need to record business rationales for your bookkeeper.
You and your bookkeeper need a good working relationship with your tax preparer. Always remember that old saying of “garbage in is garbage out.” No tax preparer can do a proper tax return without first having proper bookkeeping.
Yes good bookkeeping cost money, yet despite the economic reality, businesses cannot afford to simply roll over and let the auditors eat them alive. It is possible to protect your business from non-compliance and audits without breaking the bank.
THE BEST DEFENSE IS ALWAYS A GOOD OFFENSE and your best offense is truly audit ready bookkeeping.

If you are being audited, be sure to understand that you need to have someone prepare your books and records in a way to protect your best interests.

To learn more, go to www.taxauditsolutions.ca

Give us a phone call at 905-668-4816 or email info@tax-audit-solutions.com

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December 31, 2009 by Dan White.

What you need to know about Tax Audits for the New Year 2010.

Times are tough; money is hard to come by. Small business knows this fact very well. So too does the tax departments of the world. CRA being in a cash crunch has targeted small businesses with a never precedent aggression. They want to do audits NOW! They don’t want the audit delayed. Delaying an audit only delays their cash flow.

CRA has a new level of aggression. Auditors pushed by team leaders are forgetting about the taxpayer’s bill of rights, the charter of rights and often the laws of Canada.

There used to be good concern for not getting audited, because the accounting industry is stuck in the Accounting Stone Age. Using generally accepted accounting principles, which often translates to a process of accounting for accounting sake and not for practical and logical reasons.

Accounting is done to track every financial transaction and how it relates to business. It is done so tax returns can be done and most importantly to be ready for a audit. Interestingly enough the most important reason is pretty much ignored. When an audit happens there is a panicked scurrying around, following the pages of audit requirements given by the auditors.

Auditors requests are pretty much standard across the board. So why is it that the statement is true but accountants and bookkeepers don’t just follow CRA audit requirements as a standard practice? The answer lies in tradition, a dumb tradition that has outlived its usefulness.

In an audit, the auditor will typically look for the following data.

Copies of previously filed sales/use tax returns with any related reports or work papers used to fill them out.
Detailed general ledgers and a chart of accounts.
Sales invoices.
Resale certificates and exemption letters collected.
Federal and Provincial Income Tax returns for the years under audit.
All purchase invoices.
Cash disbursement journals or check registers.
Asset depreciation schedule or fixed asset schedule.
Bank statements and cancelled checks
Cash register tapes.
Copies of Contracts.
Copies of lease agreements.
Articles of incorporation.
A business description.
A description of who does what.
All bank statements, both personal and business.

All the above CRA Audit documentation requires an audit trail.

In order to keep audit ready books, we had to develop our own software and procedures. Now begins the difficult task of reprogramming bookkeepers and auditors to understand that if books are kept audit ready, it then solves all the other requirements of good bookkeeping.

We enter the year 2010 knowing the following there will be more audits and we can expect the following:

1. CRA is ferociously aggressive in their desperate drive for tax dollars.
2. They are using Bedford’s laws… a mathematical analysis of probabilities of tax cheating based on the numbers in a tax return.
3. They have new data mining software that matches information from various sources back to tax returns that have been filed.
4. CRA continues to hire more auditors so that they can collect more money from a smaller source amount.
5. The transition to HST is triggering a 4 year window for Ontario and BC to backlog Retail Sales Tax audits.
6. Tax Audits are now being automatically generated by computers.
7. The bookkeeping by small business has been dismally bad, so they are going to fry this year.
8. The recession has made things a double bladed axe. Cash Flow Problems and CRA Cash Flow problems. This year will be a brutal tax audit season.
9. For your business you need to understand that CRA view you and your business as a cash flow revenue stream.
10. It is going to be a dirty year and small business needs to clean up their act.
11. Any business that files a tax return based on non-audit ready books is going to fry in an audit. I recommend having your bookkeeping redone to audit ready status. Pay me a little now or pay me a lot later. Those are the only two choices left on the tax man’s chopping block. The axe will fall on those who ignore this wisdom.
12. With lead sharing between government agencies, and the requirements to register for numerous government bureaucracies many more new audits will be triggered.
13. For every corporation formed, there is a new audit target established. Being incorporated is a very questionable activity for small business that does not have a big net income. Incorporation’s appear bigger, and the bigger they are the harder they flop.
14. Birds of a feather mining… if your clients or suppliers are getting audited this puts you on the radar for a relational audit.
15. Higher gross sales make you a bigger target, regardless of your net income.
16. Auditors and CRA investigators are trained to have their antennas up… just dealing with an off duty auditor could trigger an audit.
17. If a revenue department falls short of their revenue quota there will be a scramble to audit a lot of businesses to shore up the team performance records.
18. CRA auditors are now doing drop in visits to businesses, under the guise of being helpful, they are really looking for cues to justify an audit. I know of one picture framer who ended up going bankrupt following a drop in audit. He talked too much and caused himself a terminal problem. Friends drop in, so do enemies.
19. Bureaucracies have the memory of an elephant. Once flagged, you are under the microscope for life and can expect repeated audits. If you don’t have audit ready bookkeeping when you are audited, you have a Tax disease for life. And you have to fight like hell to keep your dollars so you are not seen as a willing victim.

This is the year to enter it ready for an audit. Also a year to await the three year statute barred window for sloppy past years tax returns. Each year you can breathe a sigh of relief as the three year danger zone decreases by a third.

The days of being able to be a sloppy bookkeeper are over. If you don’t have the time to do good books and can’t afford to hire a professional bookkeeper, your days in business are numbered. It is just as simple as that.

 To learn more about audit ready bookkeeping, contact www.taxauditsolutions.ca or email info@tax-audit-solutions.com

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September 2, 2009 by Dan White.

This is an interesting development.

I will have to look further into what is going on here. I am not sure of the author on this.

Dan White

Citizens Object To Massive Corruption in CRA With Proposed Class Action Against Minister of National Revenue
Posted March 2nd, 2009 by ctfb111     in Government Canada business income CRA disability allowances family benefits garnishes investments liens pensions
vote
now
Buzz up!

The Minister of National Revenue ruthlessly seizes taxpayers bank accounts and issues liens on personal, business property, and insurance policies. These liens are based on improper certificates - RTP- Requirements To Pay instead of proper Court Orders or Judgments of the Court. The democratic rights and freedoms of targeted Canadian Citizens and businesses are effectively canceled since they are denied due process of the law.
Blatant intimidation tactics of the Minister of National Revenue cause financial hardship, damage to human dignity and psychological suffering to the members of the Proposed Class Action. The intentional arrogance and misconduct of the tax agents in the process of carrying out their duties is unethical and unconscionable. The CRA and their representatives act as if they are not accountable to the law.
Widespread discrimination against targeted individuals and businesses calls into question whether Canada is a democracy in name only and not in fact, for some and not for all. The injustice is obvious when the Canadian Minister of National Revenue and the CRA are allegedly routinely and arbitrarily targeting individual citizens and businesses in all regions of Canada, violating the Canadian Charter of Rights and Freedoms, the Canadian Human Rights Act, the Canadian Bill of Rights, the Statute of Limitations, Contract Law and the Income Tax Act itself including the Taxpayers Bill of Rights.
The grounds for the proposed Class Action against the Canadian Minister of National Revenue include fraud, discrimination, harassment, intentional infliction of emotional distress, abuse of process, breach of trust, breach of privacy, negligence, breech of confidential relationship, invasion of privacy, arbitrary targeting of taxpayers and abuse of power
The Minister of National Revenue and the Canada Revenue Agency allegedly bully, harass, intimidate, and illegally demand financial information from Canadian taxpayers.The CRA issues illegal garnishment orders based on Statutes without proper Court Orders or registered letters.
The CRA takes power over the individual taxpayers life and finances. The Minister of National Revenue continues to ignore the human consequences of the unjust actions of his agency the CRA and removes the individuals power to self govern his life, and live independently in safety, freedom, and protected from unlawful seizure of personal and business assets.
Completely ignoring taxpayers rights as well financial resources, the CRA reassess tax returns, threatens to take legal action if the taxpayer does not comply with the demands for private information, payment of arbitrary fines, interest and alleged taxes.
Routinely, the Minister of National Revenue discriminates against targeted individual taxpayers and businesses and orders the CRA to issue illegal garnishment orders based on Statutes without proper Court Orders or registered letters. These are in fact just an RTP and are improperly, illegibly signed by anonymous CRA officials with no identifying information: lacking printed name, title and no witness. Therefore they are not even a legal document and are invalid.
The Minister of Revenue orders the garnishment at the highest rate, in order that the income of taxpayers is seized as quickly as possible with blatant disregard for the resulting human suffering. The CRA garnishes income from any source including family benefits, disability allowances, pensions,business income, investments.
All taxpayers objections are ignored and swept aside with invalid excuses in a pathetic attempt to terrorize people and hide the gross incompetence of the CRA and its practices of Statute driven extortion.
This ruthless intimidation is intended to pressure the taxpayer to enter into a contract with the Minister of National Revenue to pay the alleged amount demanded.
Demanding the taxpayers financial information ignores Sections 7 and 8 of the Canadian Charter of Rights and Freedoms and effectively cancels the rights to privacy, silence and protection against self-incrimination.February 11, 2009, Louise Dickson of the Victoria Times Colonist described the Charter of Rights Victory in Court against the CRA by Hal Neumann and his wife Maureen Rivers.
This precedent setting case, “Jury awards B.C. man $1.3M for taxman’s raid”, resulted in the Supreme Court Jury of B.C. ruling that the CRA invasion and search of a citizens home violated the privacy protection in Section 7 and the right to be secure against unreasonable search or seizure in Section 8 of the Charter of Rights and Freedoms.
Victoria lawyer Steven Kelliher asked the jury to give a message to the CRA — “The CRA don’t rule us. They have an obligation to respect our fundamental rights. They serve us. They don’t prey on us.” The verdict of the jury substantiates the following statement: “Gestapo tactics of the Revenue Agency Brought to Light”.
According to Kim Bolan as reported in the Vancouver Sun on July 21, 2008, - B.C. Hells Angels, associates, wives and girlfriends- got the CRA to withdraw demands for detailed financial information about their earnings and assets, including any - hidden - outside the country because it violated the Income Tax Act and the Charter of Rights and Freedoms.
Vancouver lawyer David Martin, Brian Airth as well as others linked to Hells Angels wanted a declaration that the CRA was guilty of illegal conduct by targeting the plaintiffs through an initiative known as - Project MOGAL, - or the - Hells Angel Project - HA - . The CRA gave private financial information to third parties, including the police.
The CRA withdrew the letters of requirement in a precedent setting - out-of-court - agreement made on the same date as the Federal Court challenge was to be heard last spring . The result was that the Airth case was withdrawn.
The Canada Revenue Agency is out of control and acting like an agency in a fascist or communist dictatorship removing the democratic rights of Canadian Citizens and businesses in a systematic process of statute driven extortion.
In addition the Provinces are allegedly in collusion with the CRA and cooperate with them in order to register invalid notices of garnishment based on RTP- CRA requirements to pay which do not constitute judgments of the Court and are not a legal instrument.
Wally Oppal, Attorney General of B.C did not respond to the Notice of Claim for the Statement of Claim- File No. S-116959 in New Westminster, B.C, which objects to such a “bogus” notice of liens against a Canadian citizen’s properties.
This fake notice of lien does not constitute a Court Order or Judgment of the Court. The CRA certificate of alleged taxes owing (RTP) registered by a Court administrator, a registrar, remains only a certificate of evidence which is contrary to the Provincial Land Titles Acts such as the LTSA, the Land Titles Survey Authority of British Columbia. Yet it was improperly used to change the title of a citizen’s property.
By these improper acts and omissions the CRA with the aid of the Provinces deprives Canadian citizens of equal rights under the law and due process of the law.
mailto:classactioncra@gmail.com
http://www.vancouversun.com/story_print.html?id=12…

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September 2, 2009 by Dan White.

Our Tax Sytem requires care to avoid tax problems. The following is a good article from the Financial post.

© Copyright (c) The Vancouver Sun

Tax collectors have the power in audits

Civil investigations can turn into criminal

By Vern Krishna, Financial PostJune 17, 2009

 The line between a civil audit and a criminal investigation is not always clear and CRA likes it that way.

Some individuals who filed their tax returns by the April 30th deadline await the results of their assessments by Canada Revenue Agency with some trepidation.

Although the income tax system relies primarily upon self-assessment by taxpayers and “voluntary” reporting of tax liabilities, the CRA is always looking over its shoulder to ensure compliance.

The taxpayer initially determines his or her liability and submits the tax return. The CRA checks the mathematical accuracy of the return, reviews supporting documents, performs perfunctory cross checks, and issues a “quick assessment” within approximately eight weeks of filing.

Mercifully for most taxpayers — particularly employees who have income and payroll taxes withheld at source — that is the end of the tax ritual for another year. But it is only the beginning of the process for the tax collector.

The CRA has substantial audit and investigative powers. These powers are of two types: civil audits and criminal investigations.

However, the line between the two is not always clear and the taxman likes it that way. The blurred line allows the CRA to cross over from the civil to the criminal without alerting the taxpayer.

A civil audit is an examination to determine the accuracy of the taxpayer’s self-assessed income.

Such an audit under the CRA’s regulatory powers is a routine process for verifying the taxpayer’s financial information and examining relevant supporting documents.

The purpose of the audit is to ensure regulatory compliance and mathematical accuracy. If the CRA disagrees with the taxpayer’s self-assessed income, it will reassess him and charge interest on any deficiency in taxes paid. The CRA also has the power to impose civil penalties in circumstances where it can show egregious conduct by the taxpayer in preparing his or her return. Civil penalties can add up to an additional 50% (plus interest) of the tax deficiency to the final bill. The courts grant the tax authorities considerable latitude under the civil audit provisions and taxpayers have minimal constitutional rights.

In contrast, a tax investigation is essentially a criminal examination.

The courts vigilantly protect Charter rights in criminal matters.

In an investigation the state is pitted against the individual in an attempt to establish culpability. The adversarial relationship escalates because the liberty of the subject is at stake.

The CRA must look to s. 231.3 (the part of the tax code that deals with obtaining a warrant for search and seizure), which deals with serious offences under the act.

For example, for the purpose of investigating penal liability, s. 231.3 sets out an application process for an ex parte (without notice) search warrant similar to that found in s. 487 of the Criminal Code. The courts are always on high alert in criminal law.

The difficulty is an examination that starts out as a routine civil audit can turn into a criminal investigation. If this happens, the nature of the relationship between the CRA and the taxpayer changes from regulatory supervision to potential criminal prosecution and becomes subject to restrictions under the Canadian Charter of Rights and Freedoms. Nevertheless, the CRA may use any information that it procures during the proper exercise of its audit function in a subsequent penal investigation.

The use of such information for criminal purposes does not offend either s. 7 (the principles against self-incrimination) or section 8 (reasonable expectation of privacy) of the Charter.

Individuals have few privacy interests under section 8 of the Charter in materials and records that they are obliged to keep and produce for the purposes of the Income Tax Act. Once an auditor has inspected or compelled the production of a document or information, the taxpayer cannot be said to have a reasonable expectation that the auditor will guard its confidentiality.

Given the taxpayer’s diminished expectation of privacy, the government’s interest to intrude on the individual’s privacy in order to advance its goals of law enforcement outweighs the individual’s privacy interest in his materials and records.

The CRA may also conduct an audit and an investigation concurrently.

However, once the CRA begins its investigation, it can use further information that it obtains under its concurrent audit powers only for the purposes of the audit and not for the purposes of the investigation.

It is not easy in practice, however, to distinguish the divergence in powers and obligations related to civil audits and investigations.

An inquiry becomes an investigation when its predominant purpose is to determine penal liability.

There is no “bright-line” test for determining the predominant purpose of an inquiry or when it changes.

Apart from a clear decision to pursue a criminal investigation, no single factor governs in every circumstance. Hence, a court has considerable latitude in its decision to admit evidence resulting from an investigation. In arriving at its decision, however, the court will consider the totality of the circumstances to determine whether the inquiry sufficiently engages the adversarial relationship between the State and the taxpayer to warrant Charter protection.

- 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.

© Copyright (c) The Vancouver Sun

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February 13, 2009 by Dan White.

 At a time when I have been busy losing faith that Canada is a kinder gentler country, there is a glimmer of hope that somehow our government agencies, that have become ever increasingly more punitive, will be reigned in.

Government agencies have been ignoring the Charter of Rights and invading privacy, behaving in high handed and arbitrary fashions.

The agencies are not consistent on how they treat one person over another. There is a lack of fairness.

The agencies do not care who’s life they ruin or what business goes down because of them. Bankruptcies are up 50% and you can be sure there is a government agency has played some role in making the situation worse.

There is a growing groundswell of citizens who have had enough. This recent court case in favor of the citizen will set the future in motion. You can look to see more cases and more losses by government agencies.

CRA and their tax regime pales in comparison to the Ontario Securities Commission who will post the details of allegations against a citizen. They know no boundaries of decency, not even stopping at the publishing of a citizen’s mental health on their web site. Further they will torment said ill person with consistent badgering …overruling Doctor’s letters, making demands and then publishing the information for the entire country to read. The OSC conducts a trial by media and tribunal of personal information with no concern of a citizens right to be presumed innocent until proven guilty. They ruin businesses and lives in the pursuit of evidence. And if you want to understand the reason just add up all the fines posted on the OSC site.

The Minister Of Labor is a feared agency for businesses… they can come in and make orders and levy huge fines and have the power of incarseration. Usually it is just huge fines. Again there is trial by being guilty until proven innocent.

The OSC and MOL both can conduct trials (Called a Tribunal)  to discover evidence. They follow rules of court, but when you are sitting there being cross examined by their lawyers, you get the picture… you are in a judicial system with no protection by the Charter of Rights.

While CRA can not audit while they are investigating, and when it becomes an investigation, they lose a lot of their broad powers. Still their mandate is about getting as much money as they can. In the GTA alone there are 2,400 auditors out looking for the almighty dollar.

WSIB comes in looking for increased premiums, missed anythings… Team leaders pump up their auditors to get as much as you can… make targets etc…. If you agree to their dollar assessments, then they will back date your debts. Fighting them is expensive, so most businesses fold. In order to fight them, you need to pay the premiums first and then they will listen to your objections.

Now CRA and WSIB have teamed up and share good leads. It makes them both more profitable, one Agency goes in and finds lots of money and then they tip off the other Agency. So now it is a double whammy.

And that is what the Government Agencies have become….Teams of Auditors and investigators, out to get as much money as they can. Success is measured in dollars and cents. They levy huge penalties on people in hard times who can not pay their ticket….. When a citizen can’t pay the principal debt, let alone the tripling of the final amount, very often the result is a bankrupt citizen.

Canada has become a place where its citizens fear their government even when they have done nothing wrong. You never know who’s life will be ruined by the government.

It is all about money and now that we are in tough economic times, the agencies are even more agressive in their financial assults on the Canadian Citizen.

A kinder gentler Canada? I think not!

The following case gives a glimmer of hope that Agencies will have to reign in their Dark Forces and respect the law, the Charter and the Constitution.  And God forbid… have a sense of fairness.

Dan White.

The following article is printed on line on the Times Colonist and written by L Dicson.

*****

http://www.timescolonist.com/news/agents+rebuked+million+awarded+target+raid/1279538/story.html

Hal Neumann, with wife Maureen Rivers, has been awarded $1.3 million in a lawsuit against the Canada Revenue Agency.

Hal Neumann, with wife Maureen Rivers, has been awarded $1.3 million in a lawsuit against the Canada Revenue Agency.
Photograph by: Darren Stone, Victoria Times Colonist

A B.C. Supreme Court jury has awarded a Saanich businessman $1.3 million in damages after finding the Canada Revenue Agency breached his right to be free from unreasonable search and seizure under the Canadian Charter of Rights and Freedoms.

The jury also recommended the minister of revenue apologize to Hal Neumann for the Sept. 7, 2005, search of his home by five CRA agents and two armed and uniformed police officers for documents he had already given the government.

“This jury has told government agencies, ‘Be careful,’ ” said Neumann’s lawyer, Steven Kelliher.

Neumann called the verdict a victory for “ordinary folks in Canada who have been pushed around for far too long.”

“Never in my wildest dreams would I have imagined this,” he said.

Richard Neary, who was part of the legal team, called the decision earth-shattering. “It’s a landmark in law in terms of the recognition of the vital importance that the charter plays and the respect with which it needs to be upheld.”

The jury found Neumann’s right to privacy, which CRA employees infringed, was worth $1 million. The jury also found the CRA employees were negligent and damaged Neumann. They awarded him $150,000 for pain, injury, suffering and loss of enjoyment of life, $100,000 for aggravated damages and $50,000 for loss of income.

The CRA is reviewing the decision and considering its next steps, media relations spokesman Noel Carisse said from Ottawa.

Neumann, who was born in East Germany and escaped with his family to refugee camps in West Berlin, launched the civil suit because he felt bullied and terrorized in the search. He has suffered from depression, paranoia and post-traumatic stress disorder ever since the search, court was told.

Last week, the jury heard Neumann was never the subject of a CRA investigation, but an innocent third party. In 2004, his business went through a successful audit. During the audit, however, the CRA learned that Leah Bonnar, an Alberta woman Neumann did business with, had received commission cheques from him. She later became the focus of a CRA tax-evasion investigation. Neumann gave the auditor his original documents concerning Bonnar. Those documents, which were photocopied and returned to him, were the same ones later sought in the search warrant.

Neumann was at home on the morning of Sept. 7, 2005, when he saw police cars driving into his small cul-de-sac. When he answered the door, a CRA investigator told him she had a warrant to search his home for records regarding the Bonnar investigation.

When Neumann asked her why the CRA was accompanied by police, the police officer said in most such searches, everyone in the house is arrested.

Neumann complied with orders to pull out all the cash he had in the house, and took a computer expert upstairs to his office to download anything he wanted. The search lasted several hours.

University of Victoria law professor Rebecca Johnson said there have been few awards in Canadian history for damages stemming from breaches of charter rights. In 1998, an unidentified woman was awarded $220,000 after suing Toronto police for violating her constitutional right to equality and for breaching the duties they owed her. She had argued that police should have told her she was a potential victim of the man known as the balcony rapist because of where she lived.

The Neumann case is groundbreaking, said Johnson, in that the jury’s decision reflects the fact that it was an unreasonable and unnecessary search.

“This is a very big fine against a powerful agency. It means the CRA will have to take very seriously the human dignity of the people whom they investigate,” said Johnson.

“This would be completely upsetting for any ordinary citizen to have five agents and two police officers show up at your house and tell you they can arrest you. It would be absolutely traumatizing and it would shake your faith in our system of justice.”

ldickson@tc.canwest.com

Posted in Audits, Tax Topics, The Tax System, The Law in Canada | Print | 3 Comments »

January 17, 2009 by Dan White.

The Smith Manoeuvre and the Singleton Shuffle bite the Dust.

I hate to feel smug, but what they hell, every once in a while it is ok. Especially after all the crap unloaded on me over my article in REM and then Bob Arron picking up the article in the star and then the ensuing attack on him and I. You would think we had insulted the Holy Grail.

I am proud to say that I think we successfully prevented all our clients from getting involved with this. I was so loud and determined to make sure everyone knew to say away from this tax scheme.

So last week the long awaited judgment came down from the Supreme Court. The final word is in.

The Lipson versus Canada was the final word case and the game of over. You can not convert your home mortgate to a tax deductible mortgage. Check out my previous blog article on the Smith Manoeuvre, what I wrote is now the guiding light on the matter.

The majority decision was written by two criminal lawyers, a family lawyer and a labour lawyer, and the only Justices who actually know something about tax were in the minority.

While there are complaints that the ruling in the Lipson case did not clear up the matter as to how to know when GAAR applies and when it does not. I think the matter is pretty clear.

GAAR itself is pretty clear to me…. the simple solution is if your primary purpose is to reduce tax… it is wrong… if saving taxes is secondary, and you have the documentation to prove it… then there is nothing to worry about you can deduct the interest for investment loans.  So long as the masters of muddy water try to invent phony schemes and paper for untrue diversionary reasons, then they will continue to get caught in grapples of GAAR.

That is not to disagree that the tax system is inept, unfair or unethical and that CRA previous publications on the matter were ambiguous. The end result is now that now thousands of Canadians to be hit with serious penalties and interest. CRA has known this stuff for years but do nothing because it is a good investment for them to let citizens blunder.

For every single person who played this game, they can expect to get audited. The CRA computers can easly identify every homeowner who has unreasonable interest deductions.

I sure won’t complain because my company is here to help victims who got trapped in the sexy nature of converting their taxable mortgages to tax deductible interest deductions. They now become prime prospects for a WNBC rescue mission.

We have our defence strategies worked out to mitigate damages. I will write on this later. CRA will claim gross negligence and will likely go for 100% penalties plus interest.

Following is further information on this topic. Also check out my previous blog article.

So I am going off to have a nice glass of wine. I think I will have a bottle of Chateau Gloat 2009,

Best Regards

Dan

Lipson v Canada(F.C.)(32041)(March 16, 2007)
“The taxpayer E and his wife entered into an agreement of purchase and sale for a family residence.  The wife borrowed $562,500 from a bank to finance the purchase of shares in a family corporation.  She paid the borrowed money directly to the taxpayer who transferred the shares to her.  The taxpayer and his wife obtained a mortgage from a bank for $562,500.  That same day, they used the mortgage loan funds to repay the share loan in its entirety.  On his 1994, 1995 and 1996 tax returns, the taxpayer deducted the interest on the mortgage loan and reported the taxable dividends on the shares as income when applicable.  The brother of the taxpayer, J, conducted similar transactions.  The Minister of National Revenue disallowed the deductions for those taxation years and reassessed the taxpayers accordingly.  The Tax Court of Canada dismissed the taxpayers’ appeals, holding that the series of transactions constituted a misuse of ss. 20(1)(c), 20(3), 73(1) and 74.1 of the Income Tax Act and the taxpayers’ appeals were dismissed.  The Federal Court of Appeal upheld that decision”.

Canada Court Strikes Mortgage-Interest Deduction Plan (Update1)
By Joe Schneider
Jan. 8 (Bloomberg) — Canada’s high court struck down a method some wealthy families use to gain tax deductibility for mortgage interest, ruling that a husband’s application of his wife’s deduction to his own income is abusive and illegal.
The Supreme Court of Canada, in a 4-3 decision today, upheld a federal ruling that dismissed a tax plan devised by Toronto residents Earl and Jordanna Lipson. Mortgage interest in Canada isn’t tax-deductible, though interest paid on investment loans generally is.
The Lipsons agreed to buy a house in Toronto in 1994 for C$750,000 ($633,000). Jordanna Lipson borrowed C$562,000 from the Bank of Montreal to buy shares in the family company, Lipson Family Investments Ltd., from her husband. The Lipsons then obtained a C$562,000 mortgage from the Bank of Montreal and used it to pay off the share loan. Earl Lipson deducted the interest on the mortgage loan on his 1994, 1995 and 1996 tax returns.
“The tax benefit of the interest deduction resulting from the refinancing of the shares of the family corporation by Mrs. Lipson is not abusive viewed in isolation,” Justice Louis LeBel wrote on behalf of the majority. “The ensuing tax benefit of the attribution of Mrs. Lipson’s interest deduction to Mr. Lipson is.”
The ruling won’t affect Canadians who borrow against the value of their home to buy investments, making their mortgage interest in effect tax-deductible, Jamie Golombek, managing director of tax and estate planning at CIBC Private Wealth Management, said in a telephone interview.
‘Plain Vanilla’
“That strategy, based on this ruling, is still alive and well,” Golombek said. “The plain vanilla debt-swap strategy should be fine.”
Golombek, who moved to CIBC last year after 12 years as vice president of taxation and estate planning at AIM Trimark Investments, said the case has been closely followed by Canadian tax planners. People lined up outside the Supreme Court in April, when arguments were heard, to gain a seat inside the courtroom, Golombek wrote on his blog at the time.
LeBel said the federal tax department properly relied on a law prohibiting abusive tax avoidance — the general anti- avoidance rule, or GAAR — to deny Lipson’s deduction. Justice William Ian Binnie, in dissenting, said the anti-avoidance rule will make it difficult for people to plan their taxes properly.
“The GAAR is a weapon that, unless contained by jurisprudence, could have a widespread, serious and unpredictable effect on legitimate tax planning,” Binnie wrote.
The case is Between Earl Lipson and Her Majesty The Queen, No. 32041, Supreme Court of Canada (Ottawa).
To contact the reporters on this story: Joe Schneider in Toronto at jschneider5@bloomberg.net.
Last Updated: January 8, 2009 14:55 EST

TAX: GAAR (General anti-avoidance rule)
Lipson v Canada(F.C.)(32041)(March 16, 2007)
“The taxpayer E and his wife entered into an agreement of purchase and sale for a family residence.  The wife borrowed $562,500 from a bank to finance the purchase of shares in a family corporation.  She paid the borrowed money directly to the taxpayer who transferred the shares to her.  The taxpayer and his wife obtained a mortgage from a bank for $562,500.  That same day, they used the mortgage loan funds to repay the share loan in its entirety.  On his 1994, 1995 and 1996 tax returns, the taxpayer deducted the interest on the mortgage loan and reported the taxable dividends on the shares as income when applicable.  The brother of the taxpayer, J, conducted similar transactions.  The Minister of National Revenue disallowed the deductions for those taxation years and reassessed the taxpayers accordingly.  The Tax Court of Canada dismissed the taxpayers’ appeals, holding that the series of transactions constituted a misuse of ss. 20(1)(c), 20(3), 73(1) and 74.1 of the Income Tax Act and the taxpayers’ appeals were dismissed.  The Federal Court of Appeal upheld that decision”.
S.C.C. held (4:3 - with 2 separate sets of dissenting reasons) the appeal is dismissed.
Justice LeBel (in majority) wrote as follows (pp. 9-10, 12-13, 21-22):
“It has long been a principle of tax law that taxpayers may order their affairs so as to minimize the amount of tax payable (Commissioners of Inland Revenue v. Duke of Westminster, [1936] A.C. 1 (H.L.)).  This remains the case.  However, the Duke of Westminster principle has never been absolute, and Parliament enacted s. 245 of the ITA, known as the GAAR, to limit the scope of allowable avoidance transactions while maintaining certainty for taxpayers (Canada Trustco , at para. 15).  In brief, the GAAR denies a tax benefit where three criteria are met: the benefit arises from a transaction (ss. 245(1) and 245(2)); the transaction is an avoidance transaction as defined in s. 245(3); and the transaction results in an abuse and misuse within the meaning of s. 245(4).  The taxpayer bears the burden of proving that the first two of these criteria are not met, while the burden is on the Minister to prove, on the balance of probabilities, that the avoidance transaction results in abuse and misuse within the meaning of s. 245(4).
…In determining the purpose of the relevant provision(s) of the Act, a court must take a unified textual, contextual and purposive approach to statutory interpretation (Canada Trustco, at para. 47).  This approach is, of course, not unique to the GAAR.  As this Court confirmed in Kaulius, the approach to statutory interpretation is the same for provisions of the ITA as for those of any other statute: it is necessary “to determine the intention of the legislator by considering the text, context and purpose of the provisions at issue” (Kaulius, at para. 42; see also Placer Dome Canada Ltd. v. Ontario (Minister of Finance), 2006 SCC 20, [2006] 1 S.C.R. 715, at paras. 21-23).
…At this step, it is important to identify which provisions are associated with each tax benefit. Here, it is clear that the tax benefit of deductibility of interest relates to ss. 20(1)(c) and 20(3). On the other hand, the tax benefit arising out of Mr. Lipson’s use of the attribution rules, namely the possibility of deducting the interest to reduce his income, is linked with ss. 73(1) and 74.1(1). By virtue of these provisions, Mr. Lipson retains, for tax purposes, the stream of income from the shares sold to his wife but is able to deduct the interest payments on the mortgage from his income.
…In summary, the tax benefit of the interest deduction resulting from the refinancing of the shares of the family corporation by Mrs. Lipson is not abusive viewed in isolation, but the ensuing tax benefit of the attribution of Mrs. Lipson’s interest deduction to Mr. Lipson is. It follows that this latter tax benefit can be denied under s. 245(2), which is triggered because the transactions in the series include the attribution of the interest deduction under s. 74.1(1) and this attribution frustrates the object, spirit and purpose of that provision. I must now briefly consider the tax consequences of the denial of the tax benefit and the application of the GAAR”.

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