# Don't mess with Canada Revenue



## Racer (Feb 3, 2010)

Because even when you win, you lose!

This isn't a real topic... I just wanted to celebrate the fact that we have finally had our CRA-imposed freeze on tax refunds lifted after 3 years of trying to deal with an administrative snafu for one of hubby's old companies. 

They had been threatening to charge us taxes on a deemed income of $250,000 for 2005 and 2006, despite the fact that we'd told them that the company ran out of money in 2004.

Now they've sent us a cheque for $32K, including about $2,500 for interest. No letter or any indication of why they are now satisfied...

What a relief. I knew it was stressful, but not how stressful until it was resolved.

Sheesh.

Now we can start feeling motivated to contribute to RRSPs again!


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## CanadianCapitalist (Mar 31, 2009)

It is amazing how many people choose to mess with the CRA by participating in tax charity shelters and other questionable tax shelters. I mean CRA says in bold print on its website not to participate in these things and people still do. What they don't realize is that it makes no financial sense for average Joes to tangle with the CRA. Like you say, even in the off-chance that you win, it will turn out to be a Pyrrhic victory.


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## rookie (Mar 19, 2010)

we have an old saying that when one choses to go to a court (could even be CRA), the winner still loses and the loser is dead.

it does not sound as good in english as it does in the native language.


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## the-royal-mail (Dec 11, 2009)

CanadianCapitalist said:


> It is amazing how many people choose to mess with the CRA by participating in tax charity shelters and other questionable tax shelters. I mean CRA says in bold print on its website not to participate in these things and people still do. What they don't realize is that it makes no financial sense for average Joes to tangle with the CRA. Like you say, even in the off-chance that you win, it will turn out to be a Pyrrhic victory.


Hmmm. I'm a bit surprised by this opinion. I thought that it was completely acceptable to donate and then claim credits for charitable contributions as long as the charity appeared on CRA's website list of approved registered charities. Haven't we discussed doing this in other threads before? Sorry if I've misunderstood your post.


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## bean438 (Jul 18, 2009)

I think CC is referring to donating and then the charity issues an inflated tax receipt, along with a letter from some accountant that says this is a legit scheme.

A bunch of guys at work bought into this and bragged about how they dont pay tax. They were all re assessed by CRA and are paying back $$$$$$$.


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## CanadianCapitalist (Mar 31, 2009)

bean438 said:


> I think CC is referring to donating and then the charity issues an inflated tax receipt, along with a letter from some accountant that says this is a legit scheme.
> 
> A bunch of guys at work bought into this and bragged about how they dont pay tax. They were all re assessed by CRA and are paying back $$$$$$$.


Yes, that's what I'm referring to. Not the donations we give to the Cancer Society or United Way. Some people choose to participate in mind-numbingly complex charity schemes where you essentially make a "donation" for $1,000 and receive a receipt for $5,000.


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## Cal (Jun 17, 2009)

Yeah, I had a co-worker do that, got asked for receipts for the charitable donation #, as certain numbers were deemed ok, and others not. They asked for repayment, of what he would have owed on earned income, disallowing the receipts, he appealed, and that's where it stands now.


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## slacker (Mar 8, 2010)

I too have a coworker who participated in a similar scheme. Basically, purchase and donate generic brand AIDS drugs to third world countries, and claim the tax credit for the price of brand name AIDS drugs. Last I checked, he still had his money.


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## MoneyGal (Apr 24, 2009)

Check with him after four tax years have expired. CRA takes a while to catch up to these schemes, because there are so many. But they have committed to audit EVERY "buy low, donate high" tax arrangement.


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## bean438 (Jul 18, 2009)

The promoters of these schemes cloud the issue by telling people it is legal to donate and claim a deduction.

CRA has no problems with donating. Everybody wins. The question is the value of your donation.

If "something" is worth a grand at just about everywhere you shop but you happen to luck out and buy "something" at a garage sale, or estate sale for 500 bucks then you donate it and claim fair market value of a grand.

But if everyone and their dog is paying 500 bucks for "something", be it art, school supplies, software, drugs then the market value is 500 bucks.

Seems simple to me. Run away from these schemes.

However I also hold CRA accountable for these schemes.

WHen I first came across a global learning systems tax scheme, I phoned CRA. They told me that were aware of the company but would not comment due to privacy laws, etc. They suggested contacting a tax professional.

I guess CRA are not tax pros? SHame on them.


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## dagman1 (Mar 3, 2010)

They don't want to give an opinion for it requires indepth review of the scheme, research, analysis, etc. to properly give one. They aren't at liberty to do a cursory review should you later come back and say they gave you the go-ahead.

A thorough is the job of your tax lawyer/accountant, the CRA isn't in the business in reviewing schemes at the will of the taxpayer (short of an ATR).

I think the message is simple: proceed at your own peril.


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## bean438 (Jul 18, 2009)

I disagree. CRA has an obligation to the taxpayer. You have a question they should have an answer.
Sure they can't comment on a specific case per say, BUT they should be able to tell you that a similar scheme WILL result in a re assessment.

In depth analysis? I dont think so. ALL of these schemes are identical . The only differences are what is being donated.

CRA should be able to explain that it is legal to donate to registered charities and that artificially inflating tax receipts will result in re assessment.

CRA is always vague in what they tell you. They dont know the answers to your questions or they transfer you to many other employees that also do not know the answers. In other words they are incompetent in their jobs, and there employment should be terminated accordingly.

It is very simple. You ask if RSPs are legal. Yes they are. They should know the answer. Have a more complicated question?? They should have the answer.
If you were the first and only person to be in a situation that they have not come across then fine. But these donate schemes have been around a long time.

The only other occupation that you can not know anything and keep your job is the weather man.


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## MoneyGal (Apr 24, 2009)

There's a big difference, IMO, between someone answering the phone on CRA's call-in line and official CRA policy. Just because someone answering an info line doesn't know the answer, this does not mean that "CRA does not know the answer" (by the way, you can always request that someone higher-up or with more specialized knowledge return your call, and they will). 

CRA has been very explicit and forthcoming in addressing the "buy low, donate high" charitable donations schemes. I already linked to an information circular which announces their intention to audit EVERY one of these schemes. If you look, you will also find a tremendous additional amount of information on their web site on this topic. 

In particular, CRA issued a new definition of the term "fair market value" in 2003 in response to these schemes: "deemed fair market value." Here's the circular which provides basic info: 

http://www.cra-arc.gc.ca/chrts-gvng/chrts/prtng/rcpts/dtrmnfmv-eng.html

and here is a more detailed explanation (not from CRA) on the topic of determining FMV for charitable donations: 

http://www.charityvillage.com/cv/learn/PDFs/fairmarketvalue.pdf


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## davext (Apr 11, 2010)

How long can the CRA come after you for? I think it's for the rest of your life so maybe if you're old or you know that you're dying, or you some how have nothing to lose then you'll have an upper hand. 

I wouldn't mess with them, their power, vagueness and ignorance make for a good 1-2-3 combo. 

I remember one time they sent me a assessment for foreign income that I earned for $20,000+. However, someone called me the mail even came to me to ask if I paid yet. I'm like.. what are you talking about? By the time the letter came in the mail, I owed more than $100+ in interest between the time the letter was printed and the time it arrived.

Anyway, I didn't owe them that much money after providing evidence of paying foreign tax. I think I ended up owing less than $5,000. That's what happens when you go and work for a company that has a marginal tax rate less than Canada. That's most countries!


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## andrewf (Mar 1, 2010)

On the bright side, if you manage to get some political connections, they'll give you a break on tax evasion:

http://www.canadian-money-advisor.ca/threadview/2276.html


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## Jungle (Feb 17, 2010)

Guys cra does have a voluntary disclosure for money you owe. Just make sure you get to it before they get to you. 

http://www.cra-arc.gc.ca/gncy/nvstgtns/vdp-eng.html


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## kcowan (Jul 1, 2010)

I was audited once an we agreed to a reassessment of two years. So the prior five years were left alone. I had already stopped making the claim.


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## bean438 (Jul 18, 2009)

MoneyGal said:


> There's a big difference, IMO, between someone answering the phone on CRA's call-in line and official CRA policy. Just because someone answering an info line doesn't know the answer, this does not mean that "CRA does not know the answer" (by the way, you can always request that someone higher-up or with more specialized knowledge return your call, and they will).
> 
> CRA has been very explicit and forthcoming in addressing the "buy low, donate high" charitable donations schemes. I already linked to an information circular which announces their intention to audit EVERY one of these schemes. If you look, you will also find a tremendous additional amount of information on their web site on this topic.
> 
> ...


Agreed, but try to get the correct information.

I wrote to CRA out lining a classic Smith Manouevre. I wasnt asking for an advanced tax ruling, but a tax opinion.

It took just over one year to get my response, which didnt really give me my answer. It was written in legal goobly **** that requires 2 masters degrees in gobbly ****.

Much of CRA's language includes words like "should, may, might, could, possibly", etc.

AT the end of the day I wasnt confident in deducting compound interest on an investment loan. Simple interest yes.


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## bean438 (Jul 18, 2009)

davext said:


> How long can the CRA come after you for? I think it's for the rest of your life so maybe if you're old or you know that you're dying, or you some how have nothing to lose then you'll have an upper hand.
> 
> I wouldn't mess with them, their power, vagueness and ignorance make for a good 1-2-3 combo.
> 
> ...


I think generally it is something like 6-7 years or so.

But if they really want you for something they can go back as far as they like.

Recently I read about the Montreal mafia familly whos patriarch was being taken to tax court on matters that happened back in the early to mid 80's, so it looks like they can go back as far as 25 years.

I wont mention the name cause I dont wanna get whacked!


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## MoneyGal (Apr 24, 2009)

If it is a criminal offense (or a suspected criminal offense), there is no limit on how far back they can go. They can also audit your friends and family if they suspect criminal tax evasion.


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## bean438 (Jul 18, 2009)

So basically, they can go back as far as they like for anybody then. 
The only reason they would go back is if they suspected tax evasion.

Charitable donation scheme thieves beware you are never really off the hook.


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## sags (May 15, 2010)

I think the fact that the CRA requires all charities and tax shelters to be "registered" confuses a lot of people into thinking they must be legitimate. The registration is for CRA administrative purposes only and allows them to keep track of the promoters of the schemes. It has nothing to do with the legal status of the charity or scheme. They inform people of that fact, but it seems to get lost in the stratosphere somewhere.

I could be wrong but I believe I read that people can claim the "fair market value" or the "actual purchase price" whichever is lower. So, if a person pays 1000 for drugs they may be "worth" 5000 in another country, but the person may only claim the 1000. 

Based on this, none of these charitable tax schemes would be attractive as they would generate a tax deduction of less than the donation.

Canada has lax laws and weak enforcement regarding white collar crime. 

Canada has such weak penalties for the promoters that scammers can come in and rip people off and pay minimum fines. One recent case before the Alberta Securities Commission found promoters guilty of illegally selling worthless securities for 26 Million dollars. The penalty was a lifetime ban on security trading (which these people didn't do anyways) and a 1 Million dollar fine. A net return of 25 Million after fines isn't bad. And no jail time or criminal record......

Some of the same scammers have done it over and over again.

It just isn't right........


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## Robillard (Apr 11, 2009)

For most individual taxpayers and Canadian-controlled private corporations, the normal reassessment period is 3 years from the date of mailing of your original notice of assessment. 

For other corporations and mutual fund trusts, the normal reassessment period is 4 years from the date of mailing of the original notice or assessment. 

Under some circumstances (detailed in paragraph 152(4)(b) of the Income Tax Act), the CRA can have an additional 3 years on top of the normal reassessment periods. 

Of course, there is no limitation period on the CRA's ability to assess and reassess where the taxpayer has made a *misrepresentation* that is attributable to *neglect*, *carelessness* or *fraud*.


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## houssam hammoudi (May 31, 2011)

blablabla


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## fraser (May 15, 2010)

I have had a few CRA audits-two minor 'desk' audits and then a series of follow up requests on a legitimate tax defferal project that I subscribe to(I ended up with a refund on the latter). I also handled a desk audit on behalf of my mother and one for my daughter within the last few months. Never an issue. All of the individuals that I have dealt with were polite and knowledgeable. I did not particularly like one of the re-assments but it was fair and correct.

I am however, always completely amazed when someone tells me that they can donate $1. to a charity, get a tax receipt for $3 or $5. and actually expect that CRA will accept this. 

At what point does common sense go out the window. I know several friends who bragged about this (next mistake) and were subsequently re-assessed. No surprise-and this is how it should be.


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## Cal (Jun 17, 2009)

houssam hammoudi said:


> Hi I have a question in regards to tax payments. I am a canadian living abroad in Morocco now. I left canada on march 2007 and I had 4000 dollars of unpaid taxes. I went to spain to get a better job but I couldn't pay. Now I am in morocco where the salaries are really low. I am afraid that I come back to canada and be facing jail. Any advices knowing that I already tried to contact revenue canada and didn't get any response.
> 
> Please advice me.
> 
> Houssam


Try some of these links to call them:

http://www.cra-arc.gc.ca/cntct/menu-eng.html


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## DanFo (Apr 9, 2011)

I'm pretty sure as long as you call them and try to do the right thing there won't be jai, l but imagine a big penalty for the back taxes...they'll prob work out a payment plan with you for that.


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## DanFo (Apr 9, 2011)

As for the charity scams.....I work with quite a few people who had to repay thousounds back to gov't because of them (one guy over 40K), I stayed out of it becuase it seemed too good to be true... I mean someone tells you to donate 2000 and you'll get reciepts saying 10 000 ..you had to know something was shifty


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## justmissu (Jun 1, 2011)

*love*

I also handled a desk audit on behalf of my mother and one for my daughter within the last few months. Never an issue. All of the individuals that I have dealt with were polite and knowledgeable. I did not particularly like one of the re-assments but it was fair and correct.


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## ghostryder (Apr 5, 2009)

houssam hammoudi said:


> Hi I have a question in regards to tax payments. I am a canadian living abroad in Morocco now. I left canada on march 2007 and I had 4000 dollars of unpaid taxes. I went to spain to get a better job but I couldn't pay. Now I am in morocco where the salaries are really low. I am afraid that I come back to canada and be facing jail. Any advices knowing that I already tried to contact revenue canada and didn't get any response.
> 
> Please advice me.
> 
> Houssam



I don't know of anyone who has ever gone to jail just for non-payment.

People go to jail for being convicted of criminal tax evasion.

People go to jail for not filing returns, getting prosecuted for it, being convicted and the judge orders the person to file within a specific time frame and they don't. Then they might go to jail for contempt of court, because they defied the judge's order. But they don't go to jail just because they didn't file, or didn't pay.

CRA wants the money you owe. It would be hard to garnish your wages if you are sitting in a jail cell.


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## fraser (May 15, 2010)

CRA appears to be running a program to catch CPP payments on self employed income.

My daughter just got dinged. She about 12K and 8K respectively of income over two years, in addition to T4 income, that was cash money. She declared the income. As a result of a desk audit, she now has to pay the employee and employer portions of CPP on this income. I think that it will work out to about a 9 percent hit.

My accountant seemed to indicate that this was actually a CPP funded audit through CRA and many people are getting re-assessed.


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## MoneyGal (Apr 24, 2009)

She will have to pay a total of 9.9% on the amount above $3500 and below the YMPE for the year ($47,200 for 2010; $46,300 for 2009) as allocated between her employment and self-employment earnings (typically just the portion of self-employment earnings that exceeds her employment earnings and is below the YMPE for that year). 

The employer portion (4.95%) is a deductible expense. The employee portion gives rise to a non-refundable tax credit at the rate of 15%. 

If she had used tax preparation software, the missing amounts due would have been automatically calculated and added to her total payable.


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## Plugging Along (Jan 3, 2011)

fraser said:


> CRA appears to be running a program to catch CPP payments on self employed income.
> 
> My daughter just got dinged. She about 12K and 8K respectively of income over two years, in addition to T4 income, that was cash money. She declared the income. As a result of a desk audit, she now has to pay the employee and employer portions of CPP on this income. I think that it will work out to about a 9 percent hit.
> 
> My accountant seemed to indicate that this was actually a CPP funded audit through CRA and many people are getting re-assessed.


I am little confused. I thought that CPP payments are voluntary on self employment income.


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## MoneyGal (Apr 24, 2009)

Nope. It's still employment income, it's just that you are the employer. 

In the example given, the person would owe the employer and employee portion (for 9.9% total) of the amount by which their TOTAL employment income (from both third-party and self-employment) exceeds $3,500 and is under the YMPE for the year in question. 

If you only have self-employment income, you still owe CPP on the eligible portion - it is calculated based on your net business income. 

Service Canada reference: http://www.servicecanada.gc.ca/eng/isp/cpp/contribrates.shtml


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## Four Pillars (Apr 5, 2009)

Plugging Along said:


> I am little confused. I thought that CPP payments are voluntary on self employment income.


Oddly enough, that's what I used to think as well. Once I hired an accountant, I found out differently (as MG has pointed out).


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## Plugging Along (Jan 3, 2011)

I just figured out why I'm confused. I was mixing up dividends vs salary income.


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## fraser (May 15, 2010)

We did use tax prep software but just slammed it in under 'other income; (line 104..I forget). 

I am told the project underway has letters going to everyone who claimed above 'X$' amount on this other income line, and had income of a certain threshold, asking for clarification. Almost everyone gets dinged.


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## MoneyGal (Apr 24, 2009)

Now that I have those few more details, I think that the relative size of the amounts on line 104 is what is triggering CRA's attention. 

The election to pay CPP contributions on line 104 income (via a Schedule 8) normally is framed as optional...but if you look at the list of circumstances they note in which you can elect to pay into CPP, the underlying assumption is that the amount is very small (i.e., employment for less than 7 days, employment earning less than $250 in total, etc.)

I'd be interested to hear how this ultimately shakes out.


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## Charlie (May 20, 2011)

The CPP thing has been going on for a couple of years. It's definitely a 'project' of CRA. 

Employee Profit Sharing Plan payments also go on this line -- and they're currently legitimately not subject to CPP. Per the Harper budget, these plans will be 'reviewed' to see if they're being used to avoid CPP.

So...yup...if you have income that might be subject to CPP, or any line 104 income -- expect a call, and you could get hit.


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## willie1959 (Mar 10, 2011)

Kind of interesting this blog. I owed $13 k in back taxes for 2009 year but they would not enter in tax court just refused to do my returns. So I registered a family trust and to my amasement yesterday got a call from not one but two auditors saying that they would approve the $183k capitol loss to be returned to the trust. 

Go figure 

They also said that they would be finally assessing my 2009 and 2010 T1 tax returns. 

Both are refunds.


??????????


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