Tax Mythology, Part II: Can You Get Away With Murder? No, You Can't

Quite a few Canadians entertain idle thoughts about how to break the ancient saying about taxes and death being the only certainty we've got in life. In fact, they want to avoid paying taxes and – at the same time – to survive to tell the tale.

And there have been a number of myths trying to prove you can do it and get away with it.

Here's the second part of a very sad myth-breaking compilation.

We've covered three such myths in the previous installment.

Liked this article? Don't miss another one. Follow us on Twitteror Facebook.So, here goes:

Ooops Nr. 4

If you refuse to co-operate with the Canada Revenue Agency and ignore it, you may end up having them to either cut your taxes or, glory be, eliminate them altogether, amen.

Would be nice, wouldn't it, but the overwhelming fact is, the tax office bureaucrats do NOT write the laws, so, they can't impose new taxes, no matter how much they would want to, they can't increase old taxes, they can't lower them, either. All they are allowed to do is do their elected masters biding. Who are their elected masters? Why, your elected servants, your parliamentarians, that's who.

If you want the technical details, here are some of them: first, the Finance Department writes a proposal. Not the Canada Revenue Agency. The Finance Department. That's the guys who write the budget, too. They would be expected to know how much the country's got stashed in its jeans, and how much more it needs.

They may write it because the Minister asked them to, or because the bureaucrats think the new option they've thought up is attractive enough to be put before the Minister. The Minister will either agree or not. If the Minister agrees, he or she will either convince the rest of the Cabinet that the idea has its merits, or he won't. If she or he doesn't, tough. If she or he does, he (or she) will present the proposal in the House of Commons. That's when its name becomes Bill. Once there, it will either pass as is, or it will pass with amendments, or it will not pass.

If the Bill does pass in the House of Commons, with or without amendments, it's got to go to the House of Sober Second Thought. That's the name some people – for whatever reason known only to them – have given the Senate. Sober? Thought? For crying out loud! Since the Senate membership depends on the Prime Minister's pleasure, while the membership in the House of Commons depends on the general population's pleasure (or lack of it), the two bodies differ wildly in composition and opinion. What this means is that the Senate will look at every Bill that comes before it with a jaundiced eye. So, it may be fine with the Bill, or it may amend it, or it may reject it. If everything goes swimmingly, and the Bill gets parliamentary approval, it's not an Act, that is, law, yet. It's got to get Royal Assent. That's what Governors General are for. Why bother Her Majesty if her Ottawa representative can do the job, too?

Why this lengthy description? Just to show you that the tax office is an innocent bystander when it tells you that you've got to pay this or that. Don't shoot the messenger. The tax people only apply the law. Yes, on occasion their job includes interpreting it. Here's the deal: when they interpret the law, they have to tell you about it, and they have to tell you where you can appeal. You can drag them through mud, oh, sorry, through the court system all the way to the Supreme Court.

Ooops Nr. 5

Magna Carta, you know, the 1215 document that told England's King John that he can't do as he pleases, that there should be laws limiting him, so THAT Magna Carta and the laws based on it make all taxes on individuals voluntary. You can tax corporate entities till the cows come home, but not what is known as "natural" persons. Human beings, in other words.

It would be nice if it were true. Alas, Canadian judges beg to differ. In a 2000 ruling, an Ontario Superior Court Justice was perfectly explicit about it in dismissing a teacher's demand that the school board return to him all the money it withheld to pay his income tax: he didn't like the idea of paying taxes, and therefore, he deserved to get his money back.

The judge in the case pooh-poohed his idea. Why he didn't call into question that teacher's ability to teach, if he doesn't know how to read laws, is another query for another day.

Ooops Nr. 6

I don't have to pay GST (and/or HST), some people say. Here, I've got a card to prove it.

Alas, if you carry a card like that (and paid for it), you've become a victim of a scam.

The only persons exempt from these two kinds of taxes are (and in limited fashion only, too) Native Canadians, a.k.a. First Nations.

There are activists amongst the multitudes who think that by claiming such exemptions they are protesting against the government. Not so. If they trick a vendor into thinking their exemption card was genuine, they're robbing the vendor who still has to pay the GST or HST, no matter what. If activism equals theft and these people have no issues with it, it's their choice.

And how about the sales where the vendors tell us we're not going to pay the GST (or HST) today? Well? Depends upon the way you look at it. The vendor has discounted the price by the percentage the tax would bite off it, that's all. The vendor still pays the tax, only this time, he or she didn't share the pain with you. Technically speaking, you did so pay the tax, but you paid less for the goods you purchased, that's all.

Ooops Nr. 7

People who are thinking ahead put some of their money into Registered Retirement Savings Plans (RRSPs). At the time of putting that money away into those funds, they are lowering their taxable income. The idea is that, once you've retired, your income is considerably lower than it used to be, so, if you take money out of your RRSP to be able to, say, buy butter to put on your daily bread, these withdrawals, even though taxed, would still be much lower than you would have had to pay when you were younger.

Fine so far as it goes.

But: there are companies (that should know better) that try to entice people into investing with them by saying they can withdraw money from their RRSPs for such investments, and these withdrawals would be tax-free.

The simple answer is: no. The more involved answer is: no, but ...

If you use your RRSP as a security for a loan, whatever you've got saved in the plan becomes part of your taxable income. Or, if you wish to buy shares, hoping that the industry you think of investing in is bound to go through the roof within a month or two, do yourself a favour first: check whether the industry that is about to tickle your fancy is part of a list of so-called "qualified investment." See, if it's not, the value of the shares will become part of your taxable income. Sure, you're a responsible citizen and you wish the state nothing but the best, but do you really, like, really-really, want to pay taxes through your nose when you don't really have to?

Speaking of which, you can see advertisements telling you that you can buy shares in such-and-such corporation, using your RRSP, and you'll get your money back forthwith, at low or no interest. Too good to be true? You can bet your RRSP on it. The question to ask is simple: is the industry I'm thinking of investing in on the list of qualified investments? A Biblical reply will suffice: Yes-yes – or no–no.

Ooops Nr. 8

Have you ever heard? The Canada Revenue Agency uses e-mail to conduct "e-audits."

Well, come to think of it, with the technology where it is these days, why not?

Precisely: with the technology where it is these days, definitely not. Electronic mail (e-mail for short) is as fast as speed of light, and whatnot, so, who else could read it other than the whoever you sent it to? The answer is: anybody who knows how to intercept your e-mail, anybody who can get access to your address, anybody who can get access to your address book, to mention just the most obvious examples.

Let's quote the Canada Revenue Agency (or CRA, as it calls itself): "The CRA has been made aware of what appears to be an e-mail audit scam currently going on in the United States. Although the CRA is not aware of any confirmed cases of such scams in Canada, we would like to alert Canadians to act prudently should they receive a similar e-mail.

"Here's how a similar scam might work in Canada: A taxpayer would receive an e-mail using 'Canada Revenue Agency e-audit' as the subject line, giving the appearance that it was sent by the CRA. The recipient/taxpayer would be instructed to fill out a questionnaire and return it within 48 hours to avoid penalties and interest. The fraudulent questionnaire would require the taxpayer to provide his or her social insurance number, bank account numbers, and other confidential information. Once the scam artist has this confidential information, the taxpayer is a potential victim of fraudulent activities.

"The CRA does not notify taxpayers about pending audits by e-mail, nor does it conduct 'e-audits.' Taxpayers should never respond to a request for confidential information without first confirming the identity of the requestor and assuring themselves that the requestor is legally permitted to request such information.

"The CRA is committed to safeguarding the confidentiality of all taxpayer information. Because the Internet is not a secure medium of communication, the CRA does not use it to communicate with clients unless the taxpayer has first provided permission.

"If you receive such an e-mail, please contact your tax service office."

Enough said?

Enough, already.

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