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”.

Posted in Audits, Tax Topics, Tax Tips For Real Estate, The Law in Canada | Print | 7 Comments »

November 4, 2008 by Dan White.

You never know when you’ll need a lawyer for tax issues or otherwise.  But getting access to the right lawyer and for the right price is a common problem we all face.   Long gone are the days when we should rely on our parents’ real estate lawyer to fight the CRA.  We need quick and convenient access to lawyers and information on their legal services.

I am announcing to the world that there is an exciting new solution to this age old problem: www.DynamicLawyers.com.  The idea is simple: Need a lawyer?  Make a Post.  Get Free Quotes!  The website just launched in Toronto and will be written about in the Toronto Star.  This website is a free and invaluable tool when it comes to finding the right lawyer.  All you have to do is make a free, anonymous, and easy-to-make post of your legal issue(s) and then wait for local lawyers to respond to you by e-mail.  You can request their expertise and quotes for how much their services will cost and give them a timeline as well.

If you’re like many of us, and avoid picking up the phone to call your lawyer, those days are gone.  The role of the lawyer is growing, with more and more areas of specialization.  Today’s world is an ever more litigious society with multiple levels of regulation, heavy taxation and new technologies.  Your chances of needing a lawyer, tax litigation or otherwise, have dramatically increased.

www.DynamicLawyers.com gives everyone access to a vast group of legal expertise instantly.  You simply post your issue, and the lawyer members will bid on your case.

The fully searchable website will become a large database where you can get self-help information in the form of Legal-Ease Guides (e.g. how to incorporate your business, how to get an uncontested divorce, how to fight a traffic ticket, how to draft a will, how to file a small claims court action, etc.).

The site is free, anonymous and will set you in the right direction to making informed decisions.

To illustrate how it works, let’s take a common life scenario.  You come home from a long day at work to find a nasty brown government envelope in your mail.  It’s Canada Revenue Agency and you’re being audited on your income taxes.  Instead of breaking out in a sweat, you can go on www.DynamicLawyers.com and make an anonymous post about your situation.  The network of lawyers is there to reply.  Lawyers may give you an overview of your rights, the risks and potential pitfalls, explain the costs involved, and their experiences with respect to resolving your issue(s), etc.  You can compare the responses you receive.  You’re under no obligation to select a lawyer.  You can then make an informed decision about your course of action.  You may even determine it is best is to seek some representation in your situation from one of the lawyers who have responded.

So go to www.DynamicLawyers.com right now and bookmark this page.  Make legal peace of mind only a click away.  Getting a letter from the tax man (or any other legal issues that pop up) can now go down the stress scale rating.

The beauty of www.DynamicLawyers.com is that you are empowered.  You no longer have to sit back and accept what life throws your way – get informed and put the odds in your favour.  Need a Lawyer?  Make a Post.  Get Free Quotes!

Posted in The Law in Canada | Print | No Comments »

May 11, 2008 by Dan White.

Tax Payer wins day in Court over use of home deductions for employees.

Friday’s court day was over all quite successful and we had some very significant results.

Prior to starting court, we were able to have all the clearly documented expenses accepted. The only things we did not get were poorly documented expenses.

Going into court we were faced with a judge who is the who, of who is who, of judges. “Chief Justice Bowman!” You don’t want to ruffle his feathers. Judge Bowman is a very wise, and incredibly sharp witted, not to mention incredibly knowledgeable about tax law.

When a Chief Justice is presiding, you can be sure that whatever he rules on will be looked at by the tax lawyers across the land.

Chief Justice – The Honourable Donald George Hugh Bowman

 In this court case we were dealing with the issue of commission and salary employees deducting home expenses.

In this case we focused on the commissioned Sales Rep who worked as an employee for a chemicals manufacturer. The question of the day was;  “Was the client entitled to take business use of home expenses as a commissioned sales rep.”  If he did not pass the stringent criteria as outlined in the law, then not only could our client not take the deductions, then neither could the other sales reps from his company. But even more significantly, neither could any other commissioned sales representative in Canada take home expenses. Simply because the way the law has been interpreted no outside sales rep could possibly qualify for the deductions. Sales representatives by the nature of their job, spend most of their time away from their homes.

CRA has been able to successfully disallow all these expenses in their audits across the land. It became very clear in our negotiations with the tax litigator that they were not going to back off on this point and believed they could get the court to agree with them based on how the law is written.

CRA’s lawyer was a very knowledgeable litigator with considerable experience in law. So CRA was well positioned to win on this contentious issue. I am of the opinion that CRA would have made it clear to him that he was to win, and that he was picked because this was not an issue that they would want to lose.

Having the judge rule in our favour was to the surprise of the CRA lawyer.

We won because we had some very good preparation work by the team. And we had a very credible witness. Our witness was a past customer of the client by the name of Michel Chevalier. Oh… and we also won because we were “creative.”

The first thing we had to do was to remove any shadow of doubt as to whether or not our client was required to use his home for doing business.

We were able to establish required use by;

1.       We had a T2200 form signed by the client’s employer. The judge wanted to know why an unsigned copy was presented to him instead of a signed copy. I explained that what he had was the copy of the form that was part of the tax return. We submitted the original to the satisfaction of the judge.

2.       We presented a letter signed by a manager of the client’s employer, stating it was mandatory to use his home as a place of business. The lawyer for CRA objected based on the letter being “hearsay.” The judge overruled the objection based on the procedures around hearsay have become broader over recent years; he asked to see the letter and then simply asked the client if he believed the letter to be real. The judge stated that while the letter was not strong evidence, he entered it as evidence.

3.       We presented his employment contract.

4.       We provided a detailed sketch of the entire premises; the lawyer argued that the sketch did not have any actual measurements on it. The judge did not seem to think it was that important based on the clarity of the need to use a lot of the space for business. Judge did allow for the garage and basement to be considered business use.

5.       We had a picture of his work area… Having his dog in the picture did create some chuckles and human interest.

6.       We had pictures of the equipment that needed a place to assemble.

7.       We had a perfect witness who reeked of credibility and said all the right things. (Thanks Michel).

Points 1 to 7 removed any doubt that the home was required for the client to perform his contracted duties.

A.       From there on we had to argue the intent of the law.

B.      And; w had to argue the interpretation of the law.

We had to deal with the fact that the law was clear. The premises must be used primarily for business, meeting clients and be used for business 100% of the time, in order to be deductible as an employment expense.

I argued that 100% could not conclusively be used if that were a real measurement there would be no business premises anywhere, as all business space is used occasionally for personal purposes, such as calls from your family, etc. If that was a hard and fast rule, all business premises would revert to personal.

I argued that “Primary Purpose could be “What is the primary use of the space when it is being used, rather than what is the space primarily be used for 24 hours a day. No use at all in the non business use time, does not mean it is personal use by default.

I argued that the time the space is not used for any purpose, does not make it default to personal use, it defaults to “no use at all.” So therefore if the only time you use the space is for business, then even if you use the space for only an hour a day it is still used 100% of the time for business.

Upon making the argument to the judge… he stopped me… took off his glasses, waved them in the air in circles, and declared a recess while he went to get a desk copy of the income tax act. He returned and studied the act for what probably was a few minutes but felt like an eternity. He then declared with great wisdom and presence. “In fact; there ARE two ways to interpret the clauses and as such we had to look at the situation from the different interpretation.

There was much argument from the CRA lawyer, however the judge was not buying it, for what I believe is the fact that the way the clause has been interpreted in the past, does not always make sense in the present.

The judge ruled in our favour and declared the home expenses for our client as deductable employment expenses.

What this means is our clients employers other reps can now write of their home use expenses.

But most of all, sales representatives from across the country can use this court case as precedence and being that it was Chief Justice Bowman, who so ruled, it carries huge weight.

This interpretation of the law will also apply to non sales representatives as well because the same sections of the act apply.

We have just cause as a team to say; we the WNBC Team stand together if the cause of ensuring fair treatment for our clients and that we will fight all the way, to see that they get their just tax returns.

We now have to move forward with our education for small business. To ensure that more and more citizens only pay the amount of taxes they are legally obligated to pay.

The tax man can unjustly tax some the people all of the time, all the people some of the time, but he cannot unjustly tax all the people all the time. This claim becomes especially true with us on the side of the tax payer.

Have a fantastic day!

Dan

Posted in The Law in Canada, Tax Tips | Print | No Comments »