Mark Feldstein & Associates

Subsequent to a four day trial in July, 2010 the Ontario Court of Justice in Windsor found John Spooner guilty of one count of making false statements and 13 counts of evading GST payment.   The Court sentenced Mr. Spooner on January 21, 2011, imposing a fine of $27,000 as well as a conditional sentence of 120 days to be served in the community.  The fine is equal to 147% of the federal taxes evaded.  Taken together, the fine and federal taxes owing amount to $45,396.

As a self-employed sales agent, Mr. Spooner operated a business in the Windsor area, J B & B Enterprises.  For the quarter ending March 31, 2003, Spooner had made false statements on the GST return for his business.  The net GST owed was understated by $1,312.  There was also a failure to file eleven consecutive quarterly returns from April 2003 to December 2005 and the GST owing for this period of time was not remitted.  Total GST evaded was $18,396.

In all such cases, upon conviction, all taxes owing, plus interest, Canada Revenue Agency (CRA) penalties and Court fines must be paid.  It should be noted that the Court may impose a fine of up to 200% of the taxes evaded as well as a jail sentence of up to five years.

If full disclosure is made under the Voluntary Disclosure Program, it is possible that the taxpayer will avoid penalties and/or prosecution by the CRA.  Under this Program delinquent returns can be filed and previously unreported income can be disclosed, provided that the CRA has not taken action or initiated an investigation against the taxpayer.

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On July 28, 2010 in the Ontario Court of Justice in Sudbury, 979055 Ontario Limited, operating as Walden Welding pleaded guilty to one count of tax evasion.  The Court levied a fine of $160,000 which represented 200% of the federal taxes that would have been evaded.  In addition to the fine, all taxes and interest owing, as well as civil penalties assessed by the Canada Revenue Agency (CRA) had to be paid.

Walden Welding  provides welding, fabrication and installation services.  It is jointly owned by Marlon and Judith Adams, who each own 50% of the company’s shares.  During a CRA investigation of the company, it was discovered that personal expenditures, such as home and cottage renovations, personal trips and other large personal purchases, had been claimed as business expenses by the company in the 2004 to 2007 taxation years.  This resulted in the company’s taxable income being under-reported by $483,182 and as a consequence federal taxes totaling $80,517 were evaded.  A civil reassessment, including taxes owed, interest and penalties, in the amount of $142,505 was received by the corporation and was subsequently paid in full.

As noted above, following conviction all taxes, interest, civil penalties and court fines must be paid when individuals or corporations are convicted of tax evasion.   Where gross negligence has occurred the CRA can assess a penalty of up to 50% of unpaid taxes or improperly claimed benefits.  As well, on summary conviction, the Court may levy a fine of 50% to 200% of the tax evaded and impose a jail sentence of up to two years.

In order to avoid CRA penalties and prosecution, undisclosed income can be reported and delinquent returns can be filed under the Voluntary Disclosure Program.  However, eligibility for the Voluntary Disclosure Program is limited.  As soon as the CRA begins an action or investigation against the taxpayer, the Voluntary Disclosure Program is no longer available.

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It doesn’t pay to let the filing of GST returns lapse – it costs – a lot!  During the period of January 1, 1997 to March 31, 2008, Paul Heaslip, sometimes operating business as Third Wave Communications and Third Wave Corporate Communications & Graphic Design, failed to file several GST returns.  He  appeared in the Ontario Court of Justice in Newmarket on July 20, 2010 and at that time he pleaded guilty to ten counts of failing to file GST returns.  The Court levied a fine of $1,000 per count, resulting in a total fine of $10.000.  In addition to court fines, Mr. Heaslip was required to file all outstanding GST returns and pay all interest and taxes owing, as well as all civil penalties assessed by the Canada Revenue Agency.

Canada Revenue Agency has a Program which allows the taxpayer to correct their tax affairs.  Provided the taxpayer has not been contacted by the Canada Revenue Agency, delinquent returns can be filed and previously undisclosed income can be reported under the Voluntary Disclosure Program.  However, once the CRA initiates an action or investigation against the taxpayer, the Program is no longer available to that individual.

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Perhaps you haven’t gotten around to filing those annual GST/HST returns.  You might not want to delay any longer.

Christopher Hewgill of Barrie, Ontario postponed filing corporate GST/HST returns for the 1993 to 1999 taxation years and as a result was fined $7,000 in the Ontario Court of Justice in Barrie in July, 2010.  In addition to the fine, the taxes and interest owed, Mr. Hewgill was required to file the delinquent returns and pay the penalties imposed by the Canada Revenue Agency (CRA).

Want to avoid CRA penalties and charges?  If eligible, you can file outstanding tax returns and/or report previously undisclosed income under the Voluntary Disclosure Program.  If you have not been contacted by the CRA, if they have not initiated an action or investigation against you, then you are eligible for the Program.  Rather than paying penalties and court fines, you may only have to pay the taxes and interest owing.

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Every conviction of failure to file a tax return has a price.  In Ontario courts that price is $1,000 for each return not filed, as Andreas Christopoulos discovered.  Mr. Christopoulos, formerly of Sarnia, Ontario, did not file personal tax returns for 1999, 2000 and 2001.  He also failed to file two monthly 2000 GST returns for Bill’s International Pizza or Pizzaland, a business he operated in Sarnia during the period in question.  As a result of not filing the returns, the Canada Revenue Agency (CRA) laid charges against Mr. Christopoulos.  He appeared in the Ontario Court of Justice in Sarnia on July 16, 2010.  At that time he pleaded guilty to five counts of failing to file tax returns and was subsequently convicted and fined $1,000 per count for a total fine of $5,000.

Once convicted, in addition to paying all taxes and interest owing, all CRA penalties and all court fines, the taxpayer must also file all delinquent returns.  This scenario can be avoided by filing outstanding returns and declaring previously undisclosed income under the Voluntary Disclosure Program.  All taxpayers are eligible for this Program, as long as the Canada Revenue Agency has not initiated an action or investigation against them.

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There is a high price to be paid for making false statements on tax documentation. This past January Burrows Lumber Inc. of Winnipeg made false statements on their 2001 to 2004 T4 information returns. The company pleaded guilty to the charge and the Court imposed a fine of $175,076 – no small amount!

During the 2001 to 2004 taxation years, Burrows Lumber Inc. recorded the home address of one of their senior employees as Calgary. The employee was in fact a resident of Manitoba during the years in question, however, he paid federal and provincial taxes as if he were a resident of Alberta. The provincial taxes in Manitoba were much higher than those of Alberta during the four year period. In consequence the amount of provincial tax paid was $350,154 less than the amount of tax that should have been paid.

In order to correct the employee’s tax account, all outstanding taxes, interest and penalties were paid. The $175,076 fine levied by the Court is 50% of the taxes not paid by the employee due to the false statements prepared by the Company. Again, the cost is high when false statements are made on tax documentation!

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Time flies and before you know it, the deadline has passed – again!  A few years behind in filing your tax returns?  If the answer is yes, it will cost you – $1,000 for every year that you have not filed an income tax return.  On July 12, 2010 the Ontario Court of Justice in Sarnia levied a fine of $3,000 against Mr. Richard Thornton of Grand Bend, Ontario.  Mr. Thornton, a self-employed tradesman, appeared before the Court on July 12, 2010 facing three counts of failure to file tax returns.  He had failed to file tax returns for the 2005 to 2007 taxation years.  Subsequent to being charged, Mr. Thornton filed all outstanding tax returns.  Over and above the court fines, he will have to pay any civil penalties determined by the CRA, as well as all taxes and interest owed.

It is not too late to file delinquent returns.  Under the Voluntary Disclosures Program, outstanding tax returns can be filed and undisclosed income can be reported without penalty and/or prosecution by the CRA.  However, the one condition for entry into the Program is that eligibility rests on the fact that the CRA has not initiated any action or investigation against the taxpayer.  If the taxpayer meets this requirement and files tax returns and/or reports previously undisclosed income, it may be that only the taxes and interest owing will have to be paid.

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A fine of $4,000 was levied against Norris Overhead Door Incorporated in the Ontario Court of Justice in London on July 6, 2010.  Mr. Rory Norris, the sole Director of the Company, pleaded guilty to two counts of failing to file corporate income tax returns and two counts of failing to file annual corporate GST returns.  The Company had failed to file income tax returns for 2005 and 2006 and had not filed two annual corporate GST returns for the period of June 1, 2004 to May 31, 2006.

A good plan of action to avoid penalties, prosecution and Court fines is to enter Canada Revenue Agency’s Voluntary Disclosures Program.  Under the Program, the taxpayer can voluntarily disclose information by filing delinquent tax returns and claiming previously unreported income.  However, one condition must be met before the taxpayer is accepted into the Program.  All outstanding tax returns must be filed and undisclosed income reported prior to any action or investigation by the CRA.

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Davan Enterprises Limited of Concord, Ontario, was charged with tax evasion after a Canada Revenue Agency (CRA) investigation revealed that commission expenses of $613,875 had been falsely claimed on the company’s 2001 to 2003 tax returns.  The Company temporarily evaded federal income taxes and GST totaling $80,540.  Davan pleaded guilty to the charge in the Ontario Court of Justice in Kitchener and a fine of $116,270, representing 144% of the taxes owed, was levied.  In addition to the fine, Davan was required to pay all taxes, interest and civil penalties as assessed by the CRA.

Davan became involved in the scheme through their accounting firm, Trican Management Services, which is owned and operated by Michael Witen.  Various goods or services that were never delivered were invoiced by Mr. Witen through several non-operating corporations that he controlled.  Applicable GST was charged on these invoices.  Once Mr. Witen’s clients paid these invoices, they would then claim the non-existent goods or services as expenses on their tax returns.  The payments made by the clients were funneled by Mr. Witen through various bank accounts back to the shell corporations.  Mr. Witen deducted a commission for himself, withheld the GST portion of the invoice and then paid the original sums back to his clients.  In turn, the clients did not report the money they received from Witen as income on their tax returns.  As a result of Davan’s participation in the “false invoice/circle of payments” scheme, the CRA conducted a criminal investigation of the Company.

Davan’s principal provided blank cheques, drawn on the company bank account, to Mr. Witen.  Mr. Witen filled out the blank portions of the cheques and subsequently recorded fraudulent commission expenses totaling $510,428 (net of GST) in Davan’s records.  The Company then claimed the commission expenses on their 2001 and 2002 tax returns, which were prepared by Witen, the individual responsible for returning funds to Davan.  Further, Witen included non-deductible personal expenses  relating to renovations made to the residence of Davan’s principal in the amount of $103,447 as fraudulent entries in Davan’s books and records.

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Mr. Harold Epp, an officer of 1712164 Ontario Ltd., sometimes operating as Hepp Contractors, appeared in the Ontario Court of Justice in St. Catharines on June 28, 2010 to face charges of failure to file corporate

 tax returns.  Mr. Epp pleaded guilty to failing to file company tax returns for the 2007 and 2008 taxation years.  The Court levied a fine of $1,000 per count, for a total fine of $2,000.  The outstanding tax returns have been filed.

The charges against the Company could have been avoided had requests by the Canada Revenue Agency (CRA) to file the outstanding returns not been ignored.   Following a conviction of failure to file tax returns the taxpayer is required to file the delinquent returns and pay all taxes, interest, penalties determined by the CRA  and fines imposed by the court.

The Voluntary Disclosures Program is a mechanism by which the taxpayer can file outstanding tax returns and disclose previously unreported income without penalty or prosecution.  The only requirement to enter the Program is that the tax returns be filed and the income be reported prior to any action or investigation by the CRA.  In filing delinquent returns and reporting undisclosed income voluntarily it is possible that only the taxes and interest owing will have to be paid.

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