Mark Feldstein & Associates

Arlen Scherba of Sombra, an officer of 952768 Ontario Limited which operates as Restoration Masters pleaded guilty in the London Ontario Court of Justice for GST and income tax evasion. The corporation was fined $129,177. Scherba also pleased guilty personally on three counts of tax evasion and was fined $99,771. The fines delivered by the court represented 90% of the taxes evaded which is in addition to any taxes and interest due. CRA’s audit of Restoration Masters determined that during the years 2002 to 2004, the company understated its taxable income by $494,557. This resulted in reducing their corporation income tax by $133,935 and their GST by $9,595. Scherba did not report shareholder loan appropriations totaling $384,158 on the 2002 and 2004 personal income tax returns. Consequently, there was $110,856 in federal taxes evaded.

The CRA investigation determined that the company used different methods to reduce taxes, including corporate officers claiming personal expenditures as business expenses. Scherba claimed costs relating to renovating his home, landscaping services, furniture and electronic purchases, golf membership fees, sporting goods and family vacations. The son- in law of Scherba claimed boat repairs, towing, dockage fees, flooring costs and electrical work for the home, insurance, clothing and sporting goods as expenses charged to the company. When a shareholder and their families claim personal expenses as business expenses in a company, CRA will add back these expenses and will increase the corporations taxable income. They will also add back to the shareholder the benefit derived by the company paying for their personal expenses. For example, if a corporation paid $100,000 in personal expenses and claimed them as a business expense, CRA on an audit would add the $100,000 to the taxable income of the corporation and a another $100,000 to the taxable income of the shareholder. Therefore, the corporation and the shareholder will be taxed on a total of $200,000 plus penalties and interest. It is very costly to claim personal expenses in a corporation.

If Mr. Scherba and the 952768 Ontario Limited applied under the voluntary disclosure before a CRA investigation began, then they would be exempt from penalty or prosecution. They would only be liable for the income taxes and the interest.

Mark Feldstein Corporate Taxes, GST, Personal Taxes CRA, fraud, Tax Amnesty, Tax Evasion, tax penalties, Unclaimed Income

Stylianos Timkoglous of Stoney Creek pleaded guilty on June 3, 2009 on three counts of failing to file corporate income tax returns for the years 2004 to 2006. Timykoglous was fined $3,000 for failing to file the corporation tax returns. Colin Michael Fox also of Stoney Creek pleaded guilty on July 3, 2009 for failing to file his 2004 to 2006 personal income tax returns. Mr. Fox was fined $4,500 and if the fine is not paid according to the court, then there will be jail time on each charge. CRA made several requests for the missing returns before serving notices. These two individuals could have applied under the voluntary disclosure program to correct their tax affairs. They would not have been penalized or prosecuted if they contacted CRA before there was any action started on their file by the agency.

Mark Feldstein Corporate Taxes, Tax Convictions CRA, Tax Amnesty, tax penalties