Ottawa estimates corporations dodged up to $11.4 billion in 2014 tax payments

Very interesting article published on June 18th, 2019 via the Canadian Press, regarding what appears to be Canadian Corporations avoiding the payment of $11.4 billion dollars in taxes owing to the CRA.

My initial reaction to that headline was likely similar to what others who saw this headline probably felt – that corporations are not paying their fair share of taxes, that corporations get all these tax breaks and that the government allows corporations to not pay taxes.

But before I would be able to properly comment on this, I would have to read the article a few times to figure out what the actual story is.

According to the article, the issues are these;
“Corporations avoided paying Ottawa between $9.4 billion and $11.4 billion in taxes in 2014″, according to a new federal report created by the Canada Revenue Agency (CRA), which estimated these figures.

The report estimates the “tax gap”, or the difference between what is owed to the government and what was collected by the CRA — for small and medium enterprises is between $2.7 billion and $3.5 billion and for large corporations, between $6.7 billion and $7.9 billion.

“The corporate figures bring the total estimated 2014 tax gap from a series of studies by a dedicated CRA unit to between $21.8 billion and $26 billion — or 10.6% to 12.6% of revenues — not including funds recovered or lost due to audits.”

By not including funds recovered or lost during audits, and not going into detail as to what “audit” specifically means, it could represent the amount of taxes assessed during an audit (where the CRA found additional taxes owing), or lost (where the CRA had assessed a corporation, only to find out during an audit that the assessment was inaccurate or invalid, and thus reversed, revised or reduced).

Taking a closer look at the figures, might be a huge shock to anyone who feels that corporations get it easy in Canada.

In 2014, Corporate tax filers reported approximately $298 billion in taxable income and $40.9 billion in total federal tax payable. Even though they made up only about 1% of the 2.1 million corporate tax filers, large corporations reported about 52% of the total corporate taxable income and contributed about 54% of the federal tax.

More than half the taxes collected in this country come from large corporations!

After being fed data which explained that the corporate tax gap for 2014 was between $9.4 billion and $11.4 billion, then the government goes on to mention that the “total” estimated 2014 tax gap is $21.8 billion and $26 billion, meaning between $12.4 billion and $14.6 billion is taxes owed by individuals who are not paying their taxes…

Then the government explains that after the audits, which were left out of the equation, are finalized, the corporate tax gap will actually be reduced by between 31-40% for small enterprises and between 64-75% for large corporations, which means overall, the corporate tax gap for 2014 is actually somewhere between $3.3 billion and $5.3 billion and not $9.4 billion to $11.4 billion.

Clear, right?

So that means the actual tax gap, taking into consideration the post-audit figures that the CRA anticipates, is actually between $15.7 billion to $19.9 billion, and of those taxes owing, most of it is owing from individual Canadians who are not paying.

Meanwhile, large corporations pay 54% of the total taxes paid to this country to fund services, roads, healthcare, and the many benefits that we have all come to appreciate.

Why is this article geared towards corporations? Shouldn’t it be thanking the corporations and pointing fingers at the Canadians who are not paying their fair share? Why was it positioned this way?

Since that answer could be anything, ranging from inaccurate reporting to political manoeuvring, then the only question that remains from this article surrounds what constitutes “taxes owing”? Is that figure based on amounts reported by Canadians who just never paid the taxes, or does that figure include assessed amounts owing that the CRA created, and which may or may not be owing? If it’s the latter then it’s highly likely that the tax gap is even smaller.

NOTE

Ask me one day to tell the story about the notional assessments that I raised while working at the CRA at the request of my team leader to “get the attention” of the business… It got the attention of more than the business! It got the attention of the Minister of Finance. Lesson learned.

So, to conclude, there is a tax gap. There will always be a tax gap because not every Canadian has the ability to pay their taxes in full and on time, each and every year. As well, not every Canadian files their taxes on time, or are required to file on time, which means the full picture will never be forthcoming because of all the moving parts.

The timing and content of this article leads me to believe that the Federal government and the CRA going to come after corporations.  They shouldn’t, based on the actual figures, but corporations do not vote in elections – people do.

What the true intent of this article is, however, is very unclear to me.

Winnipeg insulation company to pay nearly $500K in fines and back taxes for tax evasion

The Canada Revenue Agency (CRA) has announced on their website that a Winnipeg-based insulation company has been fined after underreporting its taxable income by more than $1 million.

The CRA’s Investigators found irregularities in the books and records of Thermo Applicators Inc., such as, that the company’s president included personal expenses in the company’s books, including construction costs for a cabin near Kenora, Ont. and a vacation home in Mexico, as well as a fly-in fishing trip. None of these are eligible tax deductions.

Thermo pleaded guilty in Manitoba provincial court on May 21 to two counts of making false or deceptive statements in the 2009-14 tax years. The court found $1,139,000 million in taxable income went unreported, in addition to the claiming of ineligible expenses.

As a result, the company is being ordered to pay $190,142 in income tax and $47,611 of sales tax that should have been withheld. In addition to paying the taxes, the company was fined $237,753.

Once penalties and interest are added to the debt dating back to 2009 the balance will shoot up well over $500,000.

This conviction is a clear reminder that failing to declare income and claiming false expenses can be very costly should the CRA perform and audit and find it.

Keep good records, report all income and claim eligible expenses.

Cobourg, Ontario Resident Sentenced by CRA for Tax Evasion.

The Canada Revenue Agency (CRA) announced that, on December 4, 2017David Porter Wilson of Cobourg, Ontario, was sentenced to a fine of $97,173 after pleading guilty in the Ontario Court of Justice in Cobourg, Ontario, to two counts of income tax evasion.

In addition to the court imposed fine, Wilson will also have to pay the full amount of tax owing, plus related interest and any penalties assessed by the CRA.

A CRA investigation revealed that Wilson failed to report income that he earned as a commissioned salesperson for a marketing company, totalling $449,745 on his personal tax returns for 2006 and 2007, thereby evading federal income taxes totalling $97,173. While under investigation, Wilson left Canada, and after the charges were laid an arrest warrant was issued on September 7, 2011. Wilson did not return to Canada until August 9, 2017.

All case-specific information above was obtained from the court records.

The CRA takes tax evasion very seriously.

Tax evasion occurs when an individual or business wilfully ignores or disregards Canada’s tax laws. For example, those participating in tax evasion under-report taxable income or claim expenses that are non-deductible or overstated.

Those who do not fully comply with tax laws place an unfair burden on law-abiding taxpayers and businesses and jeopardize the integrity of Canada’s tax base.

For the five-year period of April 1, 2012 to March 31, 2017, the courts have convicted 408 taxpayers – This involved $122 million in federal tax evaded and court sentences totaling approximately $44 million in court fines and 3,103 months in jail.

If you have made an omission in your dealings with the CRA, made a tax mistake or left out details about income on your tax return, the Agency may give you a second chance to correct your tax affairs and avoid criminal prosecution.

The Voluntary Disclosures Program (VDP) may give you the opportunity to come forward, make things right, and have peace of mind. Disclosures that are made before the CRA launches an enforcement action such as an audit or criminal investigation may only result in you having to pay taxes owed plus interest. That being said, the VDP is currently under review. Changes were announced in the fall of 2017. More information on the VDP can be found on the CRA’s website at Canada.ca/taxes-voluntary-disclosures.

The CRA has set up a free subscription service to help Canadians stay current on the CRA’s enforcement efforts.

Associated Links

Offshore Tax Informant Program
Informant Leads Program
Voluntary Disclosures Program

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To receive updates on what is new at the CRA, you can:

SOURCE Canada Revenue Agency

What Do Lionel Messi, Cristiano Ronaldo and Floyd Mayweather Have in Common?

What Do Lionel Messi, Cristiano Ronaldo and Floyd Mayweather have in common aside from being top atheletes in their respective sports, and extreme wealth?

Tax Troubles!

Ronaldo and Messi with the Spanish Tax Authroity, and Mayweather with the IRS, which just goes to show you that no matter how much money you have, or don’t have, you still have to report income, file on time and pay your taxes!

In Ronaldo’s case, the Spanish Hacienda tax authority believes Ronaldo failed to pay €14.7 million in taxes pertaining to income earned on his “image rights” between 2011 and 2014.  The belief is that he used (and still uses) a shell company in the British Virgin Islands and Ireland, to hide at least €78m in image rights.

Ronaldo’s camp claim that he has fulfilled all his tax obligations, maintaining that the majority of his image-rights income is earned abroad and therefore not liable for Spanish tax.

How does Ronaldo’s situation differ from Lionel Messi’s tax case?
Barcelona star Lionel Messi and his father Jorge were found guilty of tax fraud in July 2016 after it was found they had hidden image-rights income from the Spanish authorities. Messi was fined €3.6m and sentenced to 21 months in prison (which was suspended) for defrauding €4.1m between 2007-09.

The Messi family had previously paid over at least €10m in back taxes and charges, long before their case made it to court.

In Messi’s case, the court determined there was a total failure to fill his tax obligations on image rights income.

A huge concern stemming from the The Supreme Court’s judgement in the Messi surrounded the role that Messi’s tax and financial advisors played and how both parties were not indicted as part of the prosecution since they there was evidence that they advised the player on how to evade taxes.

In Spain, a  guilty verdict for an aggravated tax crime means a mandatory jail time of two to six years, while conviction of the lesser offence brings a suspended sentence.  If Ronaldo admits to the details in front of the judge within two months after being accused, and pays over the amounts allegedly defrauded, his punishment could be reduced.

Messi’s 21-month prison sentence for tax fraud was reduced to a €252,000 fine, while his father’s 15-month prison sentence was reduced to a €180,000 fine.

These fines are in addition to the re-payment of the taxes originally owing plus any penalties and interest accrued to the balance.

Floyd Mayweather, and his estimated net worth of $340 million is in trouble with the IRS and has apparently filed a petition asking for a temporary reprieve from unpaid taxes from 2015 until after his fight with Conor McGregor in August.

Apparently, while he has substantial assets, those assets are restricted and primarily illiquid. The upcoming fight against McGregor, however, would provide Mayweather with enough liquid cash to pay the IRS debt from 2015 in full.

Mayweather, made $220 million alone from his 2015 fight against Manny Pacquiao. It is unclear how much he owes the IRS in taxes.  Given a 15-month lapse since the 2015 tax due date, Mayweather would owe 7.5% in penalties plus accruing interest on top of what he was already scheduled to pay.

Forbes estimated Mayweather’s net worth at $340 million in January.

 

So the moral of the story is this;

Not everyone wants to pay their taxes, and some will go to great lengths to reduce or avoid paying taxes. If that is something that you feel you must do, you have to be prepared for the consequences of your actions when and if the government comes back to you.

File on time.

Pay on time.

Don’t pay the government more than you should.

If you need help because you’re carrying a balance with the CRA and you want to discuss options, contact us today!

http://www.intaxicating.ca

@inTAXicating

info@intaxicating.ca

416.833.1581

 

How We Help With CRA Issues: GST/HST, Deemed Trust, s.160 Assessment and T2’s

How inTAXicating solved a complex CRA tax issue relating to GST/HST, Deemed Trust, s.160/325 Assessments, CRA Collections where the incorporated director was advised to go bankrupt.

A couple of months ago, I received a call from a senior law partner at one of Toronto’s top law firms asking me if I could help out a client of theirs with a messy Canada Revenue Agency (CRA) tax problem because their firm was just too expensive for the couple.

Upon accepting the offer, I was told there was a balance owing to the CRA for GST/HST, and that the firm was essentially bankrupt, with no ability to pay.  The business directors felt that they did not owe the CRA anything, and because they were essentially insolvent, they had stalled and delayed the CRA As much as they could.

Until the CRA advised them that they were going to proceed with the raising of a S.160, Non-Arms Length Deemed Trust assessment for a payroll debt and a S.325 Non-Arms Length Deemed Trust assessment for GST/HST.

This, however, was a huge problem because when raising a s.160/325 assessment, the CRA essentially takes the debt that the corporation has not paid, and transfers it to another corporations or person who benefitted through dealings with that corporations to the detriment of the CRA.

That 3rd party eventually turned out to be family…

It was all over $45,000 owing to the CRA.

While a solution sounds simple enough – confirm the balances owing to the CRA, then confirm the legitimacy of those debts, tie up some loose ends on the compliance side, and then make arrangements between the client and the CRA to resolve both matters.

One huge issue is that the client spoke to the CRA and the collector knows that the s.160/325 is a problem (but the collector doesn’t know why).  In the collector’s eyes, she has the upper hand because the assessment touches a nerve with the client, but on the other hand, without knowing the nature of these concerns, the CRA are taught to think the worst, and thus are more eager to raise the assessment because they suspect the client is hiding something.

So I connected with the couple, got their side of the story, then met their accountant and got her side of the story.  I took all of that information, and had a nice long chat with the Collector at the CRA.

Here is the CRA’s side;

The couple owned a business, which accumulated debt through the filing of GST/HST but never paying it.  They also failed to file T2 returns.

The company had at one point in time sought financing and ended up pledging their inventory in return.  When the business began to slow down, the lender took the assets, and sold them to pay back the money they had lent to the business.

There was a shortfall.

The CRA did not like this at all because they didn’t get paid.

With money owing to the CRA, the collector was prepared to use their Deemed Trust provision and raised a s.160/325 Non-Arms Length assessment against the lender for taking the inventory and disposing of it without paying the CRA.

The CRA were just waiting for the corporations director to file for bankruptcy before they actioned the s.160/325 because that would survive the bankruptcy and would result in the CRA getting paid on all fronts.

Having worked in the CRA’s collections department for almost 11-years, logic told me that a business which was legitimately struggling would not have significant amounts of GST/HST owing in its final years.  They would not have had the financial resources to buy inventory to sell if the business was failing, rather, they would be selling off their inventory at a deep discount to recover the maximum amount possible.

Something did not seem right.

I called back the CRA Collections office who, quite frankly, was extremely unhappy about having to answer additional questions about the origin of the debts… Again.

I had asked her to go through the last 3-years worth of filed GST/HST returns and give me verbal figures for Total Sales, GST Collected, and Input Tax Credits.

She started.

The first year was fine.

The second year was fine.

The third year, she started, “Total Sales were $25,000”, “GST Collected was $1,500” and ITC’s were …

… she paused…

“No ITC’s, eh?” was my response.

“No.  No ITC’s”, she said, completely puzzled.

“So I don’t expect there to be any ITC’s on any of the returns going forward, is that accurate?” I asked.

“No ITC’s on any of the returns going forward… That’s so unusual”, was her response.

We re-filed the last 6 GST/HST returns to include the ITC’s.  The CRA quickly arranged for a desk audit of the refunds, and the client quickly provided the supporting documentation to support the majority of the ITC’s, and within 2-weeks, the audit was done, the returns accepted and sent for posting.

Upon posting, the revised returns knocked down the balance owing considerably.  All of it.  The payroll debt too.

As a result, the CRA cancelled the s.160/325 assessments turned their attention to the T2’s which we had completed and filed in the interim.  The credit from the GST/HST is sitting on the CRA’s systems waiting for the T2’s to post in full.

That’s how inTAXicating Tax Services helps!

Knowing the ins and outs of the CRA’s collections department is a skill which very few possess.  Thinking to ask the CRA for information related to the GST/HST filings and to ask the CRA to amend them even though they fell beyond the 4-year limitation period for allowing Input Tax Credits (ITC’s) is a request that many accountants will not make.

Our prior CRA collections experience allows us to stand out.  inTAXicating Tax Services.  Contact us at info@intaxicating.ca

 

 

How To Prevent Being Scammed By A Fake-CRA Call…

The best way to avoid being scammed by a fake CRA caller.

Hang up.

If they start raising their voice, threatening you, or tell you that you are going to be arrested, or that the government is going to seize your house, or car, and especially if they tell you that they are going to take away your children.

Just hang up.

If you receive an email from a scammer but it looks legitimate, check the return email address. Government email addresses end with “.gc.ca”, oh, and if claims to be from the Canada Revenue Agency (CRA), you should be aware that the CRA employees are they’re not supposed to and not allowed to email outside the office.

If you’re not sure, don’t buy into the threats, and certainly do not give them any information at all.

Hang up.

Happy New Year (2016) from the Internal Revenue Service (IRS)