The Canada Revenue Agency is actively looking for Offshore Accounts too…

I have received confirmation from a senior official at the Canada Revenue Agency that the CRA is in fact actively investigating individuals suspected of being involved in the recent offshore account problem overseas.  Thus far, no one has been named publicly and my source at the CRA has confirmed that each person contact thus far has willingly come forward to pay amounts owing in full and that the number of people thus far targeted by the CRA totals less than 100.

The list remains private because the CRA does not want to tip-off those involved that they are coming for them, nor do they want to admit that they are severely short of qualified staff needed to make arrangements with these taxpayers and their numerous numbers of representatives.

The CRA suspects that the list is available elsewhere and that it might be coming to light sooner than many wish which could hurt the CRA and will certainly shame those involved.

The CRA will certainly be looking for additional offshore funds with speculation abound that there will be incentives down the road for taxpayers and financial organizations to disclose to the CRA situations where an individual or organization is placing it’s assets out of the reach of the CRA for tax evasion purposes.

Stay tuned!

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CRA employees steal $300,000 in refunds from Canadian Taxpayers

The Canada Revenue Agency’s (CRA) credibility is reeling after an Access to Information (ATIP) Probe revealed that 2 senior employees in the Debt Management division were found to have been stealing from Canadian Taxpayers.

This massive fraud was detected in 2008 and had been going on for almost 8 years in both cases, which shows that it was very detailed and well thought out because no one knew about it for such a significant period of time.

At the time this fraud was brought to light, there was a belief that it further implicated the lack of quality management inside the CRA – that it’s just not up to par with the responsibilities they are required to perform.  With access to people SIN numbers, and the ability to move billions of dollars annually, the current crop of team leaders, managers and all of senior management are shown yet again to lack the competency to properly manage staff and protect the interests of Canadian taxpayers.

What makes this fraud even more appalling is that while uncovered in 2008, the CRA kept news of it from going public for more than a year, until the facts were released through a request under access-to-information law.

In the one case, a veteran male CRA employee routed approximately $300,000 generated from illegitimate returns into his bank accounts. In the other case, a veteran female employee defrauded the Canadian public of approximately $100,000 through manipulating their systems into issuing refunds and payments to accounts she had set up and controlled for this purpose.

On September 16th, 2009, the CRA refused to name the fraudsters or reveal whether they were fired or charged and convicted, saying that to identify them would violate “privacy laws”.  The CRA also refuse to confirm or deny that any or all of the stolen monies were recovered after the fraud was discovered in 2008.  CRA spokeswoman Caitlin Workman did, however, reveal that “They no longer work here,” she said.  She also dismissed the notion that this fraud would erode the publics’ credibility in the CRA and that these two individuals actions an anomaly, “We have close to 45,000 employees here, and they deal with millions of tax and benefit files on a daily basis. And here we are talking about two individuals.  Yes, we take it very seriously, but it should also be put in perspective.”  Ms. Workman said internal fraud of this magnitude is very infrequent, “I don’t have any numbers for you but they are very rare.”

The Crime

The male employee took more than $300,000 by routing bogus refunds and related Canada Child Tax Benefit and GST credit payments to his personal accounts, the ATIP documents revealed.  “For the last eight years, at least, he had filed tax returns and claimed [benefits and credits] for individuals he did not know,” the Internal Audit investigation revealed.  “Based on the information gained and the list of social insurance numbers found at his workstation, it is reasonable to believe that [he] may have had a role to play in the issuance of illegitimate refunds on more than 50 accounts.”

The female CRA employee, prepared and filed hundreds of illegitimate returns, ensuring the tax refunds and goods and services tax credits were routed to her own bank accounts.

This was made public through access-to-information requests made by researcher Ken Rubin.

An important note is that anyone is entitled to make an ATIP request into their own personal tax information at any time.

Internally, this fraud was brought to light after other CRA employees became suspicious when they tried to verify some of the claims and could not reach the taxpayers in question.  The ATIP request found internal documents stating; “After reviewing the motor vehicle records and conducting credit bureau checks … [a staffer] was unable to determine the whereabouts of the taxpayers involved and could not establish whether or not they actually existed.”

Where it appears that CRA management failed the Canadian public the most is that the internal investigation turned up that both employees had made thousands of unauthorized searches into taxpayers’ accounts, including gaining access to their own files, and members of their family.

Unauthorized access is the most severe offense at the CRA, a current employee who did not want to be named stated that, “We are required every year to sign a document stating that we will not access information that does not directly relate to our work-load and for every account we enter, we are required to fully diarize the reasons for accessing it.  We are told that if we access information that we should not be accessing, we will have our access suspended immediately pending investigation and if found guilty, suspended or fired”.  There is no way that “thousands” of an authorized accesses should have been allowed.  It just goes to show that management let down the Canadian public by not knowing what employees are doing on a daily basis, or for allowing these accesses to occur without punishment.

It might come down to the fact that these (now former) employees were part of the “old boys network” and that their transgression were tolerated until it was brought to the attention of someone senior at the CRA who would not let it occur anymore.  The contact at the CRA stated that there are others who have been suspected of carrying out similar frauds who still are employed by the CRA including putting themselves on the payroll of companies they are auditing, or by accessing information of friends, colleagues or even staff their manage.

The bottom line here is this… Your information is safe at the CRA, and the CRA employees take privacy and security extremely seriously. There are significant consequences relating to access to information which can result in suspension or termination.  Every time there is a breach, the CRA immediately steps up and puts plans and procedures in place to make sure it never happens again.

So before you start bitching about the CRA, and about taxes – which is your right – make sure you take care of your own backyard and file your taxes on time, pay your taxes, and don’t carry a balance owing at the CRA.

CRA Tax Question: T5008. Divorce. Court Order.

In the process of managing the processing of 2 million tax slips for my employer, the world’s largest transfer agent, the following question came across my desk:

A husband and wife divorced during the year and the husband did not make his child support payments as required by court order.  As a result, family court here in Canada passed a judgement stating that any stock he held be removed from his name and either cashed in so those funds could be given to his wife, or the stock be transferred to his wife so that she may cash them in as she needs them.

So here is the question:

Who gets the T5008?  Him or her?

Note:  Traders or dealers in securities have to file a T5008 information return to report purchases of securities as principal for their own account, and sales of securities they make as an agent or nominee, for any vendor.

Issuers of securities and their agents or nominees use this (T5008) information return to report redemptions, acquisitions, or cancellations of securities.

Might this be considered a deemed disposition?

Deemed dispositions

You do not have to report deemed dispositions on a T5008 slip, in certain circumstances, the Income Tax Act considers that a property has been disposed of, even though no real compensation in the form of money or other consideration has been received.

Some examples of when a deemed disposition may occur are:

  • transfers of property to a trust;
  • gifts of property (that is, the name of the beneficial owner of the property is changed);
  • the owner dies; or
  • the owner ceases to be a resident of Canada.

In this guide, “sale” generally refers to a transaction where the ownership of property is transferred from one person or entity to another for a sum of money or other consideration. In the case of a deemed disposition, ownership of the property is not transferred for money or other consideration. In addition, a deemed disposition is not a purchase, redemption or cancellation of a security. Consequently, a deemed disposition is not considered for the purposes of Income Tax Regulation 230 and a T5008 slip is not required.

Answer to follow…

In-TAX-icating

In-TAX-icating.

Definition:

a: To excite or stupefy by taxation to the point where physical and mental control is markedly diminished

b: to excite or elate to the point of enthusiasm or frenzy… about taxation.

Passionate about Taxation.  Passionate about helping you!

Could a Canadian FATCA be in the works?

Since this case broke in February, governments around the world have been investigating the possibility that their citizens have offshore accounts set up mainly to avoid paying taxes.  Germany, which as of late 2008, is leading the international crackdown on tax evaders, has reportedly collected up to 250 million euros from more than 200 tax evaders who have turned themselves in, and  from 330 citizens who wrongly believed they were on the list of accounts stolen from LGT Group (the largest family-owned private wealth and asset manager in Europe, owned by the Prince of Liechtenstein and thought by many to be the factor behind the US crackdown on tax evasion through their FATCA legislation.

When prompted for a comment regarding Canadians, the CRA refuses to comment.

The CRA would not even throw the press a bone by offering how many Canadians are involved, if the CRA is investigating, and if the CRA would accept voluntary disclosure from those involved in order to help them come clean without the fear of penalties and / or prosecution.

One can wonder if the silence is a result of a crack team of CRA staff who have known about and are working on resolving the Canadians attached to this list, or whether this whole situation came out of left field and the CRA is scrambling to get more information before they can respond publicly.

For those of you who are unaware, this came to light when in February when a former LGT computer technician name Heinrich Kieber stole and sold account information of about 1,400 wealthy clients to the German foreign intelligence service, the Bundesnachrichtendienst.  Germany then shared the data with other countries which triggered an international crackdown on tax evasion.

Kieber, for his part, has been given a new identity and placed in witness protection in an undisclosed country.  During a hearing in the US, surrounding US citizens’ use of banks in Liechtenstein and Switzerland, Kieber answered questions and outlined the extensive efforts and schemes enlisted by the bank to ensure secrecy.

Swiss banks will now refuse to hold offshore money from US citizens and the US plans on suing the bank.  This is just the beginning!

Should Canada follow the lead of other countries investigating their citizens who have accounts in Liechtenstein?   Those countries have made public the number of people who have stepped forward and declared their offshore income.  Is there is reason why Canada remains quiet?

Only time will tell.