Did you know that between 2006 and 2017, 75 tax scheme promoters were convicted of crimes relating to tax schemes. The total of fines resulting from these prosecutions amounted to a total of 7.15 million and resulted in a total of 936 months of jail time for those convicted.
Tax schemes are promoted heavily during tax season and taxpayers need to have the facts regarding tax schemes in order to avoid them.
What is a Tax Scheme?
A tax scheme can be an individual or an organization that is deceiving a taxpayer into believing that they will be able to pay less taxes through unreasonably large deductions or that they will be able to receive an unusually large refund. Tax schemes often use illegal methods to get clients larger refunds and. When faced with a tax preparer who is promising an unusually large refund, be cautious.
What Should You Look Out For?
Beware of tax promoters that are promoting a return that is much higher than the initial investment towards it. Returns that are grossly disproportionate to the amount of money that is actually paid should be a red flag that there is something suspicious going on. You should also be cautious if the promoter is discouraging you from speaking to the CRA or getting a second opinion from another tax professional.
A common scheme which resulted in billions of dollars in deductions being cancelled was the Charity Tax Shelter scheme which convinced Canadians that they could claim an amount equal to or greater than their charitable donation when filing their tax return. Donations paid to charities are only eligible to have a portion of the amount deducted. Charities must be registered with the CRA in order to issue official donation receipts and the CRA closely monitors charities and tax shelters to detect abuse of privileges. As a rule of thumb, donations for the purpose of only deducting taxable income are looked down upon by authorities and should be avoided.
Another common scheme involves promoters convincing unemployed individuals that they are eligible for the working income tax benefit(WITB) even if they have not worked during the year. The WITB is only available to low income individuals and families that have worked during the tax year. Schemes of these sorts take valuable tax dollars away from social programs and facilities for Canadians. The CRA takes participation in these schemes very seriously and invests large amounts of money towards preventing these schemes.
You Can Be Held Liable
Being a willing participant in a tax scheme can lead to serious consequences. If you knowingly participate in a tax scheme you can be prosecuted or penalized by the CRA to pay additional fees on top of the fees paid to a tax scheme.
Taxpayers that have knowingly participated in a tax scheme can visit the Voluntary Disclosures Program in order to disclose their information and fix their tax return. Disclosing involvement through the Voluntary Disclosures Program would allow for relief from prosecution in certain cases and limit the amount of penalties.