Mark Feldstein & Associates

Julia Blanchard of St. Catharines was sentenced on September 16, 2009 on five counts of failing to file corporate income tax returns and one count of failing to file GST returns. She was fined $1,500 for each count for a total fine of $9,000. Julia Blanchard pleaded guilty to these charges on March 17, 2009.

CRA made several request for the missing tax returns before serving notice demanding that the returns be filed. Failure to comply with the requests resulted in charges being laid. All of the outstanding returns have now been filed. CRA takes delinquent filers very serious. It is always advisable to file all tax returns on time and stay off CRA’s radar.

Mark Feldstein Corporate Taxes, Tax Convictions CRA, criminal charges, Tax Evasion, 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.

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Swiss banking giant UBS AG has agreed to turn over details of 4,450 Swiss bank accounts suspected of holding undeclared assets to the IRS.

The deal will provide the IRS with thousands of long-sought account names. UBS has an estimated 52,000 accounts of US customers. The 4,450 accounts being provided to the agency were the ones most suspected of containing undeclared assets.

Revenue Minister Jean-Pierre Blackburn asked Finance Minister Jim Flaherty to consider legal changes that would make it easier to investigate tax-avoidance cases in the same way the United States does.

If you have a foreign bank account that earns income and you have not reflected this on your tax returns you can be subject to criminal prosecution, penalties and interest. CRA has an agreement with the IRS to share information.

If you apply under the voluntary disclosure program to CRA before they initiate an audit, then criminal prosecution and penalties will be waived.

Mark Feldstein Corporate Taxes, Personal Taxes CRA, foreign income, 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.

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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.

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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

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.

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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

Matthew Norman Burse of Stoney Creek pleaded guilty on July 2, 2009 in the Ontario Court or Justice. Mr. Burse was charged with income tax evasion for 2003 and 2004.

CRA’s investigation revealed that Mr. Burse did not report his income earned from the delivery of newspapers. During the course of the audit, Mr. Burse did not disclose to the auditor a bank account where the majority of his income was being deposited. The CRA investigation revealed that $71,737 was not reported in 2003 and $70,715 was not reported in 2004.

Mr. Burse was fined $13,942 which represents 50% of the federal tax evaded and was ordered to pay within 30 months. If Mr. Burse filed a voluntary disclosure before he was audited, there would have been no penalties or prosecution. He would only have to pay taxes and interest.

Mark Feldstein Personal Taxes CRA, fraud, tax penalties, Unclaimed Income

CRA garnishes your income or puts a lien on your property only as a last resort.

Generally, these measures are applied if you have not filed tax returns for a number of years and have ignored the many letters and phone calls that CRA has initiated. In some cases, CRA will take information from the past and do an arbitrary assessment based on what they feel the taxes should be. Their estimated numbers will not be in the taxpayer’s favour. They will then put a lien on your house, freeze your bank account and garnishee your wages in order to collect the amount they have determined that you owe. Once your bank account is frozen, the CRA can take the money and apply it to the taxes and penalties that are owing. CRA can also criminally charge an individual for not filing their taxes. This is very serious and the situation can be resolved if CRA is communicated with.

If you operate a business, the CRA can garnishee your receivables. After they have completed an audit, they will know who your clients are. They can send a letter of garnishment to your clients, and instead of paying the money they owe to you, your clients pay the money to CRA. This is very embarrassing for a business owner because their customers will know that they are having financial troubles.

If you receive any notice from the CRA, your best option is to get in touch with a collections officer. They will look at the information you bring, showing your assets, liabilities, equity, net worth, and living expenses. Once you have provided them with the details they need, they will work with you on a fair basis of paying your debt. The only time I have ever seen Canada Revenue resort to garnishment is when they are ignored.

If you are receiving notices from CRA or if you discover that they have put a lien on your house or frozen your bank account, you should consult a qualified tax accountant. A tax accountant knows the level of details that the CRA needs to satisfy their requirements. A tax accountant can also help you put together the years of uncompleted tax returns to make sure that you are applying the appropriate deductions and paying only what you need to pay.

Mark Feldstein Corporate Taxes, Personal Taxes CRA, garnishment