Tax Time's Upon Us, and So Are Tax-Fraud Schemes
Filed under: Buyer Beware, Fraud, Taxes
Here are some of the tell-tale signs someone's going to trick you out of your mind.
When in doubt, check it out. If someone calls you and says they're from the Canada Revenue Agency (CRA), or if you get a letter that looks like it came from the tax office but you have suspicions, call their toll-free number (1-800-959-8281) immediately.
Here's some information, courtesy the agency:
For more information, go to www.cra.gc.ca/fraudpreventionor call the agency at 1-800-959-8281.
Also:Tax time's upon us, and so are tax-fraud schemes
Liked this article? Don't miss another one. Follow us on Twitter or Facebook.For example: someone asks you to pay a fee that will help get you straight into tax-free Nirvana. Seriously. The fee will border on the outrageous but, the perpetrators will tell you, it's more than recompense you within a year or two on the taxes you've saved.
Sounds great, except ... except it's a scam. The Canada Revenue Agency (CRA) says its officials "will reassess your income tax return, and (the agency will) require you to pay interest. You may be charged penalties, and even be prosecuted for tax evasion."
Besides, you'll get into the news as soon as you're convicted. The reason the CRA publicizes such convictions is simple: to scare off would-be tax-evaders, and to show everybody else that the system works: those who wouldn't comply are punished while you, a law-abiding citizen, are enjoying (at least in part) the fruits of your labour.
Top Five tax scams
Natural person? Legal person? A bit on the split-personality side: you're not who you think you are, and – more importantly - you're definitely not who the government thinks you are.Simple, beautiful – and illegal. Here's the deal:As a flesh-and-blood person, you're entitled to all of the fruits of your labour. The person the government is aware of is just a piece of paper, a series of digits. That legal person spends whatever it's got to maintain you, the real person, in standard you've become accustomed to. It may spend even more, just to be entitled to refunds. The CRA describes the process thus:
A minor glitch: tested in courts, the judgments have been consistently saying the Income Tax Actis legal, and nowhere does it permit such tricks. Doctors as professional corporations, yes, but that arrangement exists more for insurance purposes, and even THAT does not get the medical people off the hook. If you want to know more about this, the CRA is offering more information on the topic.
Tax-free Registered Retirement Savings Plan (RRSP) and Registered Retirement Income Fund (RRIF) withdrawals. According to the CRA, what happens here is a bit more involved. The promise is that the company you're dealing with will return part of your investment by offshore debit or credit cards, offshore bank accounts, or loan back arrangements. Besides, you will get immediate access to assets in "locked-in" RRSPs or RRIFs, as well as income tax receipts providing deductions of three or more times the amount invested in an RRSP, plus unrealistic returns on investments. All you (the owner of a self-directed RRSP or RRIF) have got to do is buy an investment through a specific trustee. This kind of products includes goods as diverse as shares in a company, units of participation in a co-operative, a mortgage, or other types of investments, all of which are owned/controlled directly or indirectly by the promoters.
Except:if you fall for it, you may end up losing your entire retirement savings. It may interest you that the amount you withdraw from your RRSPs or RRIFs counts as additional income and will be taxed in the year the investment was made or when the withdrawal occurred, even when your savings have disappeared with the promoters. For more information, seeRRSP Tax-free Withdrawal Schemes.
False claims of losses or expenses. Promoters convince you that you can claim large losses or expenses equal to your personal expenses. These might include payments for mortgages, personal loans, vehicle loans, and common everyday expenses. You are provided with a CRA business number and an "RZ account" (an information account) used to submit information slips for amounts related to your personal debts and expenses. These slips include the T5008Statement of Securities Transactions, the T5Statement of Investment Income, and the T4AStatement of Pension, Retirement, Annuity and Other Income. The amounts from the slips are reported on T1 tax returns as business losses, professional income losses, capital losses, or as expenses.
Alas, under theIncome Tax Act, if you're not a business, you cannot deduct personal expenses. The CRA says even more about the topic.
False charitable donation receipts.This oneis perhaps the most cynical trick in the book. It abuses your charitable sentiments and willingness to part with your hard-earned cash to help others, those who are down on their luck. People who are preparing tax returns for you will try to sell you a large charitable donation receipt for a fraction of the value of the receipt. Except, these receipts are false. No matter which charity is listed on the receipt (and it can be even one that the promoter of such schemes had just made up), the money (YOUR money) ends up in the promoter's jeans.
Reality: the law is pretty simple here. You cannot buy a receipt for tax purposes. If you do, and claim it, you will face thorough reassessment.
Why not buy precious gems or other high-value collectibles?This one comes straight from some of American writer O'Henry's stories about con-men. Buy expensive goods such as gems as an investment, a Canadian business owner hears, claim the GST/HST input tax credits, and then sell the stones to a buyer in another country. Which country? Don't you worry, the alleged seller will tell you. You will never see the gems: Again, don't you worry, the buyer will "hold on to" the items in a secure location. You will save the cost of transporting and insuring the high-value item. Of course, the proposed "buyer" lives in Ruritania or elsewhere, safely out of the reach of Canadian law enforcement agencies. Ergo, no GST/HST.
How much did you pay for the gems? Consider it money lost. (And no, you can't claim it as a legitimate loss.) No goods changed hands, and no goods moved from point A to point B. Hence, so far as GST/HST is concerned, there was no sale. Of course, you might have been one of the few luckier victims and there WAS some merchandise. But, more often than not, it's just a worthless imitation. Ergo, no buyer. The CRA will reassess your GST/HST return and reverse the credits that you had claimed.
Now what?
If you are seriously thinking about some kind of a deal that would cut your taxes due in half (or more), talk to someone who knows something about both taxes and laws. Make sure the person you're talking to has nothing to do with whatever move you're thinking of making.
More information
Keep yourself informed. That's your best protection against scams and fraudsters. For details, check out www.cra.gc.ca/fraudprevention. You can also call the CRA at their toll-free number: 1-800-959-8281.
Also: Signs that show you're falling face first into a tax-fraud scheme
Liked this article? Don't miss another one. Follow us on Twitter or Facebook.
When in doubt, check it out. If someone calls you and says they're from the Canada Revenue Agency (CRA), or if you get a letter that looks like it came from the tax office but you have suspicions, call their toll-free number (1-800-959-8281) immediately.
Here's some information, courtesy the agency:
- No one, including family members and spouses, can have access to your information on CRA records without your written authorization. In addition, the CRA never sells your personal information to third parties.
- The CRA will not request information of any kind from you through e-mail or by texting your cell phone.
- The CRA will not leave a message containing any of your confidential personal or tax information on your voice mail.
- Benefit payments are always issued on specific dates, and the CRA will not send you information about your benefits or payments by e-mail. More details about benefits can be found at www.cra.gc.ca/benefits.
- Sign up for direct deposit and be assured that your payments will reach you no matter what. Get information at www.cra.gc.ca/directdeposit.
- Sign up for the agency's other secure electronic services, where you can access your tax file and much more. Besides, here's the list of services CRA offers online.
- If you think you've been a victim of fraud or any type of tax or benefit scam, call the agency, toll-free, at 1-800-959-8281. Also, notify your bank and the local police forthwith.
For more information, go to www.cra.gc.ca/fraudpreventionor call the agency at 1-800-959-8281.
Also:Tax time's upon us, and so are tax-fraud schemes
Liked this article? Don't miss another one. Follow us on Twitter or Facebook.For example: someone asks you to pay a fee that will help get you straight into tax-free Nirvana. Seriously. The fee will border on the outrageous but, the perpetrators will tell you, it's more than recompense you within a year or two on the taxes you've saved.
Sounds great, except ... except it's a scam. The Canada Revenue Agency (CRA) says its officials "will reassess your income tax return, and (the agency will) require you to pay interest. You may be charged penalties, and even be prosecuted for tax evasion."
Besides, you'll get into the news as soon as you're convicted. The reason the CRA publicizes such convictions is simple: to scare off would-be tax-evaders, and to show everybody else that the system works: those who wouldn't comply are punished while you, a law-abiding citizen, are enjoying (at least in part) the fruits of your labour.
Top Five tax scams
Natural person? Legal person? A bit on the split-personality side: you're not who you think you are, and – more importantly - you're definitely not who the government thinks you are.Simple, beautiful – and illegal. Here's the deal:As a flesh-and-blood person, you're entitled to all of the fruits of your labour. The person the government is aware of is just a piece of paper, a series of digits. That legal person spends whatever it's got to maintain you, the real person, in standard you've become accustomed to. It may spend even more, just to be entitled to refunds. The CRA describes the process thus:
- prepare your T1 return and claim fictitious losses;
- apply for a CRA business number in your name and create false information slips to report losses on securities;
- not file a return at all, based on the argument that you are not taxable and, therefore, not required to do so.
A minor glitch: tested in courts, the judgments have been consistently saying the Income Tax Actis legal, and nowhere does it permit such tricks. Doctors as professional corporations, yes, but that arrangement exists more for insurance purposes, and even THAT does not get the medical people off the hook. If you want to know more about this, the CRA is offering more information on the topic.
Tax-free Registered Retirement Savings Plan (RRSP) and Registered Retirement Income Fund (RRIF) withdrawals. According to the CRA, what happens here is a bit more involved. The promise is that the company you're dealing with will return part of your investment by offshore debit or credit cards, offshore bank accounts, or loan back arrangements. Besides, you will get immediate access to assets in "locked-in" RRSPs or RRIFs, as well as income tax receipts providing deductions of three or more times the amount invested in an RRSP, plus unrealistic returns on investments. All you (the owner of a self-directed RRSP or RRIF) have got to do is buy an investment through a specific trustee. This kind of products includes goods as diverse as shares in a company, units of participation in a co-operative, a mortgage, or other types of investments, all of which are owned/controlled directly or indirectly by the promoters.
Except:if you fall for it, you may end up losing your entire retirement savings. It may interest you that the amount you withdraw from your RRSPs or RRIFs counts as additional income and will be taxed in the year the investment was made or when the withdrawal occurred, even when your savings have disappeared with the promoters. For more information, seeRRSP Tax-free Withdrawal Schemes.
False claims of losses or expenses. Promoters convince you that you can claim large losses or expenses equal to your personal expenses. These might include payments for mortgages, personal loans, vehicle loans, and common everyday expenses. You are provided with a CRA business number and an "RZ account" (an information account) used to submit information slips for amounts related to your personal debts and expenses. These slips include the T5008Statement of Securities Transactions, the T5Statement of Investment Income, and the T4AStatement of Pension, Retirement, Annuity and Other Income. The amounts from the slips are reported on T1 tax returns as business losses, professional income losses, capital losses, or as expenses.
Alas, under theIncome Tax Act, if you're not a business, you cannot deduct personal expenses. The CRA says even more about the topic.
False charitable donation receipts.This oneis perhaps the most cynical trick in the book. It abuses your charitable sentiments and willingness to part with your hard-earned cash to help others, those who are down on their luck. People who are preparing tax returns for you will try to sell you a large charitable donation receipt for a fraction of the value of the receipt. Except, these receipts are false. No matter which charity is listed on the receipt (and it can be even one that the promoter of such schemes had just made up), the money (YOUR money) ends up in the promoter's jeans.
Reality: the law is pretty simple here. You cannot buy a receipt for tax purposes. If you do, and claim it, you will face thorough reassessment.
Why not buy precious gems or other high-value collectibles?This one comes straight from some of American writer O'Henry's stories about con-men. Buy expensive goods such as gems as an investment, a Canadian business owner hears, claim the GST/HST input tax credits, and then sell the stones to a buyer in another country. Which country? Don't you worry, the alleged seller will tell you. You will never see the gems: Again, don't you worry, the buyer will "hold on to" the items in a secure location. You will save the cost of transporting and insuring the high-value item. Of course, the proposed "buyer" lives in Ruritania or elsewhere, safely out of the reach of Canadian law enforcement agencies. Ergo, no GST/HST.
How much did you pay for the gems? Consider it money lost. (And no, you can't claim it as a legitimate loss.) No goods changed hands, and no goods moved from point A to point B. Hence, so far as GST/HST is concerned, there was no sale. Of course, you might have been one of the few luckier victims and there WAS some merchandise. But, more often than not, it's just a worthless imitation. Ergo, no buyer. The CRA will reassess your GST/HST return and reverse the credits that you had claimed.
Now what?
If you are seriously thinking about some kind of a deal that would cut your taxes due in half (or more), talk to someone who knows something about both taxes and laws. Make sure the person you're talking to has nothing to do with whatever move you're thinking of making.
More information
Keep yourself informed. That's your best protection against scams and fraudsters. For details, check out www.cra.gc.ca/fraudprevention. You can also call the CRA at their toll-free number: 1-800-959-8281.
Also: Signs that show you're falling face first into a tax-fraud scheme
Liked this article? Don't miss another one. Follow us on Twitter or Facebook.
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