The Canada Revenue Agency announced on October 23rd that only 50 Canadian Ebay merchants have come forward to pay their back taxes since July 2009.
The Revenue Minister gave Ebay sellers one last chance to pay the taxes without penalties and prosecution. Ebay has announced that it has sent thousands of names to the CRA. CRA has announced that it has begun launching audits of Ebay sellers. CRA is looking at sellers that have sales of at least 20,000 and had 24 sales transactions in one year or made more than 100,000 in a year regardless of the number of transactions.
It is evident that Ebay sellers are not taking CRA seriously in these matters.
CRA has hired many new auditors including many experienced individuals from the Ontario Minister of Finance. Once CRA has commenced an audit it is too late. There will be extensive penalties, interest and possible criminal charges.
Time is quickly running out for Ebay sellers.
I have done several voluntary disclosures for Ebay sellers. These individuals can relax now knowing that they have come clean and that there will be no penalties and prosecution.
Mark Feldstein Corporate Taxes, Personal Taxes, Tax Amnesty ebay seller, tax penalties, Unclaimed Income
In September 2009, eBay Canada received a court authorized requirement from the Canada Revenue Agency. Ebay must now release the account information and sales data of Canadian eBay members that meet the following conditions:
- Sales of more than $20,000 and at least 24 sales transactions in any of the calendar years 2006, 2007 or 2008, (irrespective of membership in eBay’s PowerSeller program); OR
- Sales of more than $100,000 in any of the calendar years 2006, 2007 and or 2008, regardless of the number of sales transactions.
If the seller meets the above conditions, then the following information will be handed over to CRA:
- full name,
- user id,
- mailing address,
- billing address,
- telephone number,
- fax number,
- email address, and
- the selling prices of the items.
This is the second court order that eBay has received from the Canada Revenue Agency. In November 2008, after lengthy litigation with CRA, eBay was required to hand over the information of members who held PowerSeller status in 2004 and 2005.
CRA announced on July 30, 2009 that they will aggressively audit Ebay sellers commencing September 2009. If CRA has not commenced an audit on an Ebay seller, then they can apply under the voluntary disclosure program to bring their taxes up to date without criminal prosecution or penalties.
If a voluntary disclosure has not been done and CRA commences an audit, there can be severe penalties, prosecution and interest charges. Time is quickly running out for Ebay sellers who have not done a voluntary disclosure to properly reflect their taxes.
In my office we have already commenced doing voluntary disclosures for Ebay sellers. Once a voluntary disclosure is made, the taxpayer has 90 days to amend their returns and properly reflect their Ebay sales. I usually prepare the voluntary disclosure in my first meeting with my clients and send it immediately to CRA. From this point on, the taxpayer is protected from penalties and prosecution. My clients usually will have peace of mind from the moment I send the disclosure to CRA. Most people tell me that they have not been able to sleep at night for years knowing what they were doing was illegal.
Mark Feldstein Corporate Taxes, Personal Taxes, Tax Amnesty CRA, criminal charges, ebay seller, tax penalties, Unclaimed Income
Canadians must report all of their worldwide income. Individuals working in industries where cash transactions are prevalent must take extra care that all of their income is reported accurately. The books and records of the business must be immaculate and reflect their income.
If the books and records are inaccurate and sloppy, then CRA can undertake a net worth audit and will examine the life style of the taxpayer and their family. The CRA auditor will reconcile the income reported on the income tax returns for the family to the standard of living in the household. If CRA cannot find all of the personal expenses then they will use statistics Canada averages for a family of a particular size. For example, if a family of five pays cash for their groceries during the year, then CRA will determine what a family of five consumes a year in groceries.
Years ago, I had a client that was audited and CRA used the net worth audit technique on them. CRA even estimated the consumption of family alcohol and cigarettes. In my discussions with CRA, I informed them that my client did not drink or smoke. Consequently, these numbers were dropped in their audit calculations.
When CRA completes a net worth audit, the onus is on the taxpayer to prove them wrong. If the taxpayer disagrees with the findings on the audit, they can go to the Tax Court of Canada to dispute the audit findings. The problem is that the taxpayers has to prove their lifestyle expenses and if they cannot, then they will not be successful in court and the process will be very expensive.
It is imperative to keep copies of personal expenditures if you are in a cash business, because if CRA performs a net worth audit it will usually be very expensive for the taxpayer. CRA will take the difference between the income that they calculated for the family based on lifestyle and they will deduct this from the income reported on the personal income tax returns. The difference will be taxable and subject to severe penalties and interest charges. Therefore it is important that if you are in a cash business that you maintain excellent books and records.
If you are in a cash business and have not declared all of your income, then you can apply under the voluntary disclosure program to avoid penalties and prosecution. This program is only available before CRA commences an audit investigation.
Visit my website for more information or assistance on the voluntary disclosure program.
Mark Feldstein Corporate Taxes, Tax Amnesty CRA, net worth audit, Unclaimed Income
CRA will commence auditing EBay sellers this fall. Jean-Pierre Blackburn, the Revenue Minister announced on July 30, 2009 that anyone who has sold products on EBay could avoid audits, penalties, interest and criminal prosecution by doing a voluntary disclosure and declaring the income to the CRA.
Doing business on EBay is no different than regular business and the income should be reported.
CRA won a decision in the Federal Court of Canada against EBay Canada and now has access to EBay sellers’ revenue information. CRA is not interested in individuals who infrequently sell personal items at a loss. You do not pay tax on personal use property at a loss. CRA obtained information from EBay and is now going through a matching process to look for potential audits. They will be matching the information from EBay to GST and tax returns filed. CRA has now put EBay sellers on notice.
Once a voluntary disclosure is made with CRA the taxpayer has 90 days to amend or file the tax or GST returns. During the 90 day period, the taxpayer is protected from prosecution.
Mark Feldstein Corporate Taxes, Personal Taxes, Tax Amnesty CRA, ebay seller, Tax Amnesty, Tax Evasion, Unclaimed Income
Fairway Travel Inc was found guilty on July 8, 2009 for tax evasion. During the course of a CRA audit, it was discovered that there were non-deductible expenses claimed in the amount of $325,602. Consequently, the company evaded paying federal income taxes in the amount of $75,395. The Company was fined $150,000 in addition to taxes and interest.
If the company would have applied under the voluntary disclosure program before CRA commenced an action, then there would have been no penalties or interest. CRA can assess a penalty of up to 50% of the unpaid taxes due to gross negligence. In addition, the court on summary conviction can levy a fine from 50% to 200% of the tax evaded and sentence them to jail for two years.
Mark Feldstein Corporate Taxes, Tax Amnesty, Tax Convictions CRA, Tax Evasion, tax penalties, Unclaimed Income
There are a number of situations that would lead to someone being accepted into the Voluntary Disclosure program. The program applies to people:
- who have not filed their personal tax return, trust return or corporate tax return or who have failed to report income. This includes foreign pension income that was never reported.
- who have not filed GST returns. Input tax credits may be claimed after four years for those who did not remit source deductions for employees.
- who have filed, but whose return includes mistakes or inaccuracies, for example, claiming too much in expenses.
- who have made fraudulent claims.
Other situations that might apply include people not reportinig income earned off-shore or from a cash basis. In situations like these, the chartered accountant may use a “No-Name” disclosure which allows the taxpayer to keep their identity unknown to the Canada Revenue Agency for 90 days without prosecution while the information is being submitted to the government. The taxpayer can correct any mistakes and submit a complete disclosure without interference from the government. After 90 days, the file is considered closed.
Overall, the system works well because it benefits everyone and it is not adversarial. There is a 10-year limit on eligibility for the Voluntary Disclosure program but the key is that the taxpayer must apply for amnesty before the government starts investigating for tax irregularities.
Mark Feldstein Tax Amnesty fraud, non-name disclosure, Tax Amnesty, Tax Evasion
Abosede Adeoye of Toronto was found found guilty of GST fraud on January 28, 2009. There were six counts of filing false GST returns. On April 30, 2009, Mr. Adeoye was sentenced to 90 days in jail, three years probation and fined $12,050. The fine represents 50% of the amount of false GST refund obtained and attempted to obtain.
CRA’s investigation revealed that Mr. Adeoye claimed $342,114 of business expenses and received a GST refund in the amount of $19,355 and he attempted to receive a GST refund of $4,595 for 1999 tax year. CRA’s analysis confirmed that Mr. Adeoye never operated a business.
Taxpayers who claim false returns are subject to a maximum penalty of 200% of the tax evaded and up to five years in jail. Mr. Adeoye could have come clean by applying under the voluntary disclosure program before CRA commenced their investigation. Penalties would have been waived and there would be no criminal prosecution.
Mark Feldstein Tax Amnesty, Tax Convictions CRA, fraud, Tax Amnesty, Tax Evasion
The Canada Revenue Agency is warning taxpayers about tax investment schemes that will increase tax losses. These investments are watched closely by the CRA and if reassessed there can be substantial penalties and interest charged.
The typical scenario is where a taxpayer buys a non-registered investment with large losses in excess of their investment. The loss usually results in a substantial tax refund. Typically, these are poor investments and they will often be reassessed by CRA. Do not be fooled by the fancy promotions that the promoters provide. If the tax shelter sounds too good then it is probably not.
If the Canada Revenue Agency denies the tax shelter deduction then the cash investment will also not be deductible since it was acquired to produce tax losses. If the taxpayer knowingly participated in a unregistered tax shelter to get a tax benefit, then the penalty could be an additional 50% of the taxes payable.
If you are involved in a tax shelter arrangement and want to avoid penalties, you can apply under the voluntary disclosure program before enforcement action has been taken against you. You will have to pay the taxes plus interest but will not face penalties and prosecution in the courts.
Mark Feldstein Personal Taxes, Tax Amnesty investment schemes, Tax Amnesty, tax shelters
Joseph Kolic of Thunder Bay, pleaded guilty on February 17, 2009 on two counts of tax evasion in the Ontario Court of Justice in Thunder Bay. He was fined $24,449 which is 100% of the taxes that he attempted to evade. Mr. Kolic also had to pay civil reassessments amounting to $76,559 for federal taxes, provincial taxes, GST, penalties and interest.
Mr. Kolic operates Joe Kolic Masonry and failed to report business income in the amount of $74,230 on his personal return and his GST returns. The total tax evaded was $19,300 in personal tax and $5,149 in GST. The CRA investigation revealed that the unreported business income was deposited into the personal bank account. If Mr. Kolic would have decided to come clean; he could have applied under the voluntary disclosure program and he would not have been penalized or prosecuted. He would only have owed the income taxes, GST and interest.
Mark Feldstein Corporate Taxes, Tax Amnesty, Tax Convictions Tax Amnesty, Tax Evasion, Unclaimed Income
On January 9, 2009, Morley Brian Haynes of London Ontario, pleaded guilty in the Ontario court of Justice in London Ontario for failing to file income tax returns. Mr. Haynes was charged four times and was fined $1,000 per charge totaling $4,000.
In addition to fines, penalties and interest, individuals and corporations are still required to file past tax returns and pay the amount that is due. Mr. Haynes, was fined for not filing his 2003 and 2004 personal income tax as well as two quarterly GST returns for his business. Mr. Haynes filed the outstanding tax returns after CRA charged him.
Mr. Haynes could have applied under the voluntary disclosure program to avoid penalties and prosecution as long as he was not notified first by CRA. Once CRA contacts the tax payer, it is too late to apply under the voluntary disclosure program. The voluntary disclosure program provides a one time gift to a taxpayer to avoid penalties and prosecution. Under some circumstances, CRA will allow a second application under the program.
Mark Feldstein Tax Amnesty, Tax Convictions CRA, Tax Amnesty, Tax Evasion