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.

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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.

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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.

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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

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.

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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.

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