Archive for March, 2017

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2017 Tax Convictions by CRA Reap Big Penalties and Jail for Some

CRA has been busy announcing new convictions at the start of 2017, a great deterrent for potential tax evaders at the start of tax season. It’s always best to come forward to declare shortfalls in income reporting or overstatements of tax deductions or credits to avoid expensive interest, penalties and potential jail time. Here’s what happened to those who didn’t. . .

Here’s what happened to Canada’s most recent tax evaders, as per CRA’s news releases:

Vancouver, BC, February 28, 2017.   BC resident Michael Spencer Millar, was sentenced in the Supreme Court of British Columbia to 2.5 years in jail and fines of $24,000  as a result of being charged for income tax evasion, GST evasion, and counselling fraud for the 2004 to 2008 tax years as well as failure to collect and remit GST for the 2005 to 2008 tax years.  Mr. Millar was an “educator” with the Paradigm Education Group which counselled people across Canada to evade taxes. The Judge stated that Mr. Millar deliberately encouraged his students to file false income tax returns by not declaring their taxable income.

Edmonton, AB January 5, 2017.   A Grande Prairie Alberta couple who evaded taxes of $486,402 for 2007 and 2008 are spending time in jail.  Robert Dale Steinkey, age 60, was sentenced in the Provincial Court of Alberta to a fine of $322,278 and a conditional jail sentence of 22 months while his wife Terry, age 63, was sentenced to a fine of $164,124 and a conditional jail sentence of 18 months. In addition, both will have to repay the full amount of taxes owing plus interest.  The couple were introduced to the Paradigm Education Group and adopted Paradigm’s beliefs that, as “natural persons,” they were not subject to the Income Tax Act.

Newmarket, ON, January 23, 2017.  Wolfgang John Wilm of Whitby, Ontario was sentenced on January 20, 2017 to 20 months in jail for tax evasion and was fined a total of $552,976 for failing to file returns and pay taxes on over $2 million in income from self-employment from 2007 to 2010. In addition to the fine, he will also have to pay the full amount of tax owing, plus related interest and any penalties assessed by the CRA.

See your tax advisor if you have a guilty conscience.  Further information on convictions can also be found in the Media Room on the CRA website at www.cra.gc.ca/convictions.

Evelyn Jacks is President of Knowledge Bureau, Canada’s leading educator in the tax and financial services, and author of 52 books on family tax preparation and planning including Family Tax Essentials: How to Build a Wealth Purpose with a Tax Strategy.


CRA Starts Tracking Tax Cheats by Fingerprinting April 1, 2017

It’s no April Fool’s joke: fingerprints of convicted tax cheats will be recorded in the Canadian Police Information Database (CPID), and accessible by Canadian police and border guards as well as some foreign agencies including the US Homeland Security department starting April 1, 2017.

The mandatory fingerprinting policy was first reported by the CBC, which uncovered the directives under the Access to Information Act, and Moneysense Magazine. Both reports refer to an internal CRA memo on the matter as well as a July 7, 2016 directive, which authorizes the policy and begins tracking those tax cheats who want to leave the country on April 1, 2017. Changes were made to the CRA’s internal policy manuals last fall to accommodate the policy changes.

According to the CRA, persons charged with offenses under the Income Tax Act, Sections 239(1), 239.1 (which references definitions in Section 163.3(1) which will apply here) and 239(1.1) are to be fingerprinted. Those sections are worth the read; as they set out the circumstances in which taxpayers can get themselves into this kind of hot water, and the expensive penalties associated with the crimes:

ITA 239 (1) Every person who has

(a) made, or participated in, assented to or acquiesced in the making of, false or deceptive statements in a return, certificate, statement or answer filed or made as required by or under this Act or a regulation,

(b) to evade payment of a tax imposed by this Act, destroyed, altered, mutilated, secreted or otherwise disposed of the records or books of account of a taxpayer,

(c) made, or assented to or acquiesced in the making of, false or deceptive entries, or omitted, or assented to or acquiesced in the omission, to enter a material particular, in records or books of account of a taxpayer,

(d) willfully, in any manner, evaded or attempted to evade compliance with this Act or payment of taxes imposed by this Act, or

(e) conspired with any person to commit an offence described in paragraphs 239(1)(a) to 239(1)(d),

is guilty of an offence and, in addition to any penalty otherwise provided, is liable on summary conviction to

(f) a fine of not less than 50%, and not more than 200%, of the amount of the tax that was sought to be evaded, or

(g) both the fine described in paragraph 239(1)(f) and imprisonment for a term not exceeding 2 years.

Offenses re refunds and credits

(1.1) Every person who obtains or claims a refund or credit under this Act to which the person or any other person is not entitled or obtains or claims a refund or credit under this Act in an amount that is greater than the amount to which the person or other person is entitled

(a) by making, or participating in, assenting to or acquiescing in the making of, a false or deceptive statement in a return, certificate, statement or answer filed or made under this Act or a regulation,

(b) by destroying, altering, mutilating, hiding or otherwise disposing of a record or book of account of the person or other person,

(c) by making, or assenting to or acquiescing in the making of, a false or deceptive entry in a record or book of account of the person or other person,

(d) by omitting, or assenting to or acquiescing in an omission to enter a material particular in a record or book of account of the person or other person,

(e) willfully in any manner, or

(f) by conspiring with any person to commit any offence under this subsection,

is guilty of an offence and, in addition to any penalty otherwise provided, is liable on summary conviction to

(g) a fine of not less than 50% and not more than 200% of the amount by which the amount of the refund or credit obtained or claimed exceeds the amount, if any, of the refund or credit to which the person or other person, as the case may be, is entitled, or

(h) both the fine described in paragraph 239(1.1)(g) and imprisonment for a term not exceeding 2 years.

In addition, those convicted under the Excise Tax Act – under Sections 327(1) and 327.1 (reference to definitions in ITA section 285.01(1) which will apply here) will be finger printed:

ETA 327 (1) Every person who has

(a) made, or participated in, assented to or acquiesced in the making of, false or deceptive statements in a return, application, certificate, statement, document or answer filed or made as required by or under this Part or the regulations made under this Part,

(b) for the purpose of evading payment or remittance of any tax or net tax payable under this Part, or obtaining a refund or rebate to which the person is not entitled under this Part,

  •   (i) destroyed, altered, mutilated, secreted or otherwise disposed of any documents of a person, or
  •   (ii) made, or assented to or acquiesced in the making of, false or deceptive entries, or omitted, or assented to or acquiesced in the omission, to enter a material particular in the documents of a person,

(c) willfully, in any manner, evaded or attempted to evade compliance with this Part or payment or remittance of tax or net tax imposed under this Part,

(d) willfully, in any manner, obtained or attempted to obtain a rebate or refund to which the person is not entitled under this Part, or

(e) conspired with any person to commit an offence described in any of paragraphs (a) to (c),

is guilty of an offence and, in addition to any penalty otherwise provided, is liable on summary conviction to

(f) a fine of not less than 50%, and not more than 200%, of the amount of the tax or net tax that was sought to be evaded, or of the rebate or refund sought, or, where the amount that was sought to be evaded cannot be ascertained, a fine of not less than $1,000 and not more than $25,000, or

(g) both a fine referred to in paragraph (f) and imprisonment for a term not exceeding two years.

Finally, those convicted under Sections 380 (Fraud), 462.31 (laundering the proceeds of crime) or other indictable offences under the Criminal code that are applicable to a tax evasion prosecution will be fingerprinted.

Tax and financial advisors should apprise their clients of the new developments and encourage voluntary compliance to avoid onerous consequences and expenses.

Additional Information about changes to the ITA and the ETA can be found in EverGreen Explanatory Notes.

Evelyn Jacks is President of Knowledge Bureau, Canada’s leading educator in the tax and financial services, and author of 52 books on family tax preparation and planning.


Uber Drivers and Salespeople: Claiming Automobiles is Tricky

What do commissioned sales people and Uber drivers have in common? They each will want to know the difference between an automobile, a passenger vehicle and a motor vehicle, especially if they are keen on claiming all the deductions possible against their income this tax season. Especially when using a car for salaried work, commission sales or self-employment, it pays to file an audit-proof return, as these claims are often audited.

An automobile for tax purposes can be either a “motor vehicle” or a “passenger vehicle”. In general, neither will carry more than 8 passengers and a driver. However, a passenger vehicle is going to have restrictions on the amounts claimed for certain fixed expenses, specifically capital cost allowance (CCA), interest and leasing costs, while a motor vehicle will not.

A passenger vehicle, which for capital cost allowance purposes will be placed in Class 10.1 if its costs are more than $30,000 plus taxes, will not be an ambulance, taxi, bus, funeral vehicle or any other vehicle used primarily (50% of the time or more) for transporting passengers.

This means that “Uber” drivers will need to keep solid track of the use of their vehicles for personal and Uber purposes. It the auto’s use slips over into 51%, the motor vehicle classification can apply, even for autos valued at more than $30,000.

CRA itemized the differences for claiming passenger vehicles compared to motor vehicles on their website. It’s reproduced below, but with some additional clarifications, to enable tax specialists and their clients to have better conversations on what the tax forms mean in the height of tax season:

Claiming Autos on Your T1:  The Difference Between Motor Vehicles and Passenger Vehicles
Class 10Motor Vehicle Class 10.1Passenger Vehicle
CCA rate 30% 30%
Group all vehicles owned in one CCA class yes no
List each vehicle (rather than pooling all cars) in the class no yes
Maximum capital cost restricted to $30,000 plus tax no yes
Half year rule (50% of deduction) in first year of acquisition yes yes
Half-year rule on disposition of automobile no yes
Recapture of overclaimed CCA on disposition or trade-in yes no
Terminal loss on disposition or trade-in no no

It’s also important to have this conversation before an automobile is acquired or disposed of and often that’s at year end. Most important, keep those distance logs. Taxpayers must verify the distance they drive for personal and business purposes if the same vehicle is used for both purposes. See a DFA-Tax Services Specialist now to discuss these claims, which unfortunately are frequently audited.

Evelyn Jacks is President of Knowledge Bureau, a national educational institute for continuing professional development in the tax and financial services.