CRA finding new tools in quest for avoiders, including use of snitch lines, lawyer advises
Fiona Anderson
Sun
Dave Morgan of CRA shows off the web site that explains how you can voluntarily ‘correct’ tax filings. Photograph by : Ian Smith, Vancouver Sun
Canadians may give many reasons for fudging their tax returns: the government has a surplus; members of Parliament are overpaid; or in the case of “detaxers,” taxing is illegal. However, there is one very good reason to be open and honest when telling the government exactly what you made: it’s a crime not to.
“Canadians are very highly taxed, so they naturally say they don’t want to pay any more than they need to,” said Paul DioGuardi, a tax lawyer with offices across Canada, including Vancouver, “but it’s not true. You [must] pay your taxes.”
People don’t realize how serious tax evasion is, or they just think they won’t be caught, DioGuardi said.
Being caught can lead to fines of up to 200 per cent of the tax sought to be evaded, plus five years in jail. On top of that, the taxes, plus daily interest, still must be paid.
“The daily interest alone can wipe you out,” DioGuardi said.
In 2004, 68 per cent of people surveyed told the Canada Revenue Agency that, given the opportunity, they would hide income or overstate an expense or deduction to avoid paying tax. Seventy-six per cent of those surveyed believed the CRA would not know about income received in cash unless the taxpayer declared it.
Yet, in the last fiscal year, the CRA yielded 250 convictions for tax evasion or fraud, which led to fines of $13.3 million and more than 26 years worth of prison sentences, the agency’s annual report to parliament said.
Some evasion can be inadvertent, such as seniors who don’t realize they must include foreign pensions as part of income, DioGuardi said. “If you are a resident of Canada, you [must] pay tax on your worldwide income,” he said.
The most common forms of evasion — not reporting self-employment income, over-stating expenses, or not declaring money made offshore — are usually not so innocent, he said.
Also, it’s becoming harder and harder to get away with tax evasion. Even if money is hidden in so-called tax havens, governments, in the name of anti-terrorism, have new sophisticated techniques of finding it, DioGuardi said.
CRA’s “snitch line” enables disgruntled ex-partners or jealous neighbours to anonymously tip off the government of possible under-reporting, he said.
In 2001, CRA received more funding to carry out more audits, according to its annual report.
Also, the CRA’s extensive powers to gain access to documents from all kinds of sources, including the taxpayer’s bank or accountant, it is only a matter of time before cheating taxpayers are caught, DioGuardi warns. There is no statute of limitations, he said.
However, there is possible relief for Canadians who have been less than completely honest when filing their tax returns: Canada’s volunteer disclosure or tax amnesty program.
“Canada has one of the best amnesty programs in the world,” DioGuardi said. “The beauty is you can repair a bad mistake [and] get on with your life.”
Under the program, taxpayers can approach the CRA about omissions in previous tax filings. In return, the CRA will look at granting the taxpayer concessions, such as forgoing criminal prosecution and lowering the fines that would be payable, said Dave Morgan, CRA’s communications director. The taxpayer will still be required to pay the tax and interest, he said.
If the CRA already has the taxpayer in its sights, it’s too late, Morgan warned. The disclosure has to be completely voluntary and not because the taxpayer is being audited, he said.
Also, the taxpayer must be completely honest and forthcoming about previous shortcomings. If the information is less than the whole truth, any agreement with the CRA is void and the government can use the information the taxpayer provided to go after the taxpayer.
Approaching the CRA in hopes of obtaining a reprieve from past sins can be a delicate situation, warned DioGuardi, who has written a book on the topic. If the negotiations fall through, all the information provided to the CRA can be used against the taxpayer.
The CRA allows “no-name” disclosure to enable discussions to take place anonymously until a deal is reached. Only then is the taxpayer required to provide his name. DioGuardi cautions that only a lawyer can protect the client’s identity if a deal is not reached. Even an accountant, or a friend, acting on behalf of the no-name taxpayer, can be subpoenaed to provide information, including the taxpayer’s name. Only a lawyer has solicitor-client privilege.
However, Morgan says that if the disclosure is voluntary and the taxpayer is completely honest and forthcoming, a deal will be struck, so there is nothing to worry about.
Most people in Canada are honest, Morgan said.
“The vast majority of taxpayers in Canada want to comply,” he said. “It’s just a matter of us providing them with the means and information they need.”
Taxpayers who aren’t sure what needs to be reported and what can validly be deducted can check out CRA’s website at www.cra-arc.gc.ca.
Those who want to seek amnesty can go to DioGuardi’s website at www.taxamnesty.ca.
© The Vancouver Sun 2006
