Mark Feldstein & Associates

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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Raymond Stephen Lepage of Richmond, Ontario appeared in the Ontario Court of Justice in Ottawa on July 22, 2010.  Mr. Lepage pleaded guilty to one count of tax evasion.  He evaded a total of $438,655 in federal taxes by under-reporting his income for the 2002, 2003, 2004 and 2006 taxation years.  The Court levied a fine of $75,000, this amount being 75% of the federal taxes Mr. Lepage evaded.  The Court allowed him fourteen days to pay the fine.  Additionally, he had to pay all taxes and interest owing, as well as the penalties imposed by the Canada Revenue Agency (CRA).

During a CRA investigation it became apparent that there was a discrepancy between Mr. Lepage’s personal living expenses and the income reported on his tax returns.  As a commissioned sales agent employed by the same company for over 10 years, Mr. Lepage received a summary compensation letter detailing his commission income at the end of each tax year.  As a result of understating his gross revenue earned as a commission sales agent in 2002, 2003 and 2004, $56,100 in federal income tax was evaded.  After the CRA initiated an investigation, Mr. Lepage filed his 2006 tax return.  By not filing this tax return $43,900 of federal income tax was evaded.  Mr. Lepage’s cooperation with the CRA resulted in an expeditious resolution of the CRA investigation.

CRA penalties and charges can be avoided by filing delinquent tax returns and/or reporting undisclosed income under the Voluntary Disclosure Program.  This is only possible if the taxpayer has not already been contacted by the CRA.  Once the CRA has initiated an action or investigation against the taxpayer, eligibility for the Voluntary Disclosure Program is no longer available.

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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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 As a result of charges of income tax evasion, GST evasion and obtaining tax refunds and credits to which he was not entitled, Joey James Kezar of Bobcaygeon appeared in the Ontario Court of Justice in Lindsay, Ontario on June 17, 2010.  He pleaded guilty to the charges and was fined $16,592 for the tax evasion charge, $1,517 for the GST evasion and $3,981 for the charge of obtaining tax refunds and credits to which he was not entitled.  In addition to court fines Mr. Kezar will be required to pay additional taxes owed, penalties, interest charges as well as repay unwarranted refunds and credits.  The total amount owed is in excess of $116,000.

During an investigation by the Canada Revenue Agency it was discovered that Mr. Kezar had not fully disclosed his income when his tax returns for the 2005 and 2006 taxation years were prepared.  He had not reported the sales from his business, block and brick work and chimney repair services, on his GST Returns and had understated his net business income by more than $167,000 during the aforementioned taxation years.  As a result of inaccurately reporting his income he received a tax refund for the 2005 taxation year and his family received unwarranted GST credits and Canada Child Tax Benefits (CCTB) for 2005 and 2006.

All taxes owing, interest and penalties determined by the CRA, as well as court fines must be paid following a conviction of tax evasion.  Where gross negligence occurs the penalty may be up to 50% of the unpaid tax or improperly claimed benefit.  Further, a fine of 50% to 200% of the tax evaded and a jail sentence of up to two years may be imposed by the court on summary conviction.

CRA penalties and/or prosecution can be avoided.  If eligible, the taxpayer can file delinquent returns and claim previously unreported income under the Voluntary Disclosures Program.  The only stipulation regarding eligibility is that the tax returns must be filed and undisclosed income must be reported prior to any action or investigation initiated by the CRA.  Once the CRA initiates an action or investigation eligibility for the Program disappears.

Mark Feldstein Corporate Taxes, Personal Taxes Tax Evasion, Unclaimed Income

The sole Director and shareholder of Gold Seal Homes (K-W) Inc., Mr. Dumitru Lazar, appeared in the Ontario Court of Justice in Kitchener on June 16, 2010, at which time Mr. Lazar pleaded guilty to four counts of tax evasion.  Mr. Lazar was fined a sum of $75,280, which represented 50% of the federal taxes evaded.  Gold Seal Homes was fined $29,717.  Mr. Lazar and Gold Seal Homes will be required to pay not only the court fines, but also any civil penalties levied by the Canada Revenue Agency (CRA), as well as taxes and interest owing.

During an investigation by the CRA it became evident that Mr. Lazar built and sold 15 houses, but only reported the sale of one house.  In failing to report the sale of all 15 houses, income totaling $474,599 was not reported, resulting in evasion of federal income tax in the amount of $113,934.  Mr. Lazar also neglected to report GST totaling $36,626 for the 2001 and 2002 taxation years.

In addition to the above, it was learned that Gold Seal Homes paid $107,849 for non-deductible expenses related to construction of Mr. Lazar’s personal residence, having been directed to do so by Mr. Lazar, who alone has signing authority for Gold Seal’s bank account.  The Company did not report and remit GST totaling $39,735 for the 2002 to 2005 taxation years and underreported its income by $107,849, thereby evading income tax in the amount of $19,698.  Mr. Lazar was responsible for the information provided in Gold Seal’s tax returns. 

CRA penalties and charges can be avoided.  Provided the CRA has not initiated an action or investigation, the taxpayer is eligible for the Voluntary Disclosures Program.  Under this Program delinquent tax returns can be filed and previously undisclosed income can be reported.  By entering the Voluntary Dislosures Program, the taxpayer may only be required to pay the taxes owing, plus interest.

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As a result of a charge of tax evasion, Mr. Michael James Savage, of Port Coquitlam, British Columbia was fined $40,000 by the Ontario Court of Justice in Toronto on June 9, 2010.  Mr. Savage pleaded guilty to the charge.  His fine represents 88% of the federal income taxes he evaded in 2000 and 2001.   The court gave Mr. Savage one year to pay the fine.

An investigation by Canada Revenue Agency (CRA) revealed that Mr. Savage, the founder and President of Savage Telecom, as well as one of three shareholders in the firm, transferred money from the company to pay for personal expenses.  Substantial amounts were transferred:  $74,673 in 2000 and $88,871 in 2001.  These amounts were not reported by Mr. Savage on income tax returns and as a result a total of $45,074 in federal taxes were evaded in the 2000 and 2001 taxation years.  It was discovered that Savage made use of the bank accounts of his sister and his girlfriend in his attempt to evade taxes on the transferred funds.

Had Mr. Savage been aware of the Voluntary Disclosures Program, he would have had the opportunity to declare the unreported income and could have avoided prosecution.  Under this Program, undisclosed income can be reported and outstanding tax returns can be filed, as long as the taxpayer has not been contacted by the CRA and/or no investigation has been undertaken by the CRA.  If there is full disclosure of undisclosed income, and delinquent returns are filed under the Program, it is possible that the taxpayer may only have to pay taxes and interest owing.  However, eligibility for this Program disappears as soon as the CRA contacts the taxpayer.

Mark Feldstein Corporate Taxes, Personal Taxes, Tax Convictions Tax Evasion

In the Ontario Court of Justice in Kitchener,  Bolton Dental Manufacturing Inc. and Mr. Robert Bolton, President and sole shareholder of the company, pleaded guilty to tax evasion.  Mr. Bolton’s non-deductible personal expenses totaling $421,890 were claimed by the corporation on its 2003 and 2004 tax returns.    By claiming these disallowed expenses the corporation evaded paying federal income tax amount of $76,268.  There was also an evasion of $24,717 in GST, as the corporation also claimed false GST input tax credits relating to the non-deductible expenses they had claimed.  While the corporation was fined $100,985, Bolton was fined $129,475.  The amount of Bolton’s fine is 100% of the federal income taxes he temporarily evaded by not reporting income of $446,466 on his 2003 and 2004 personal tax returns.

A routine audit by the Canada Revenue Agency (CRA) revealed Mr. Bolton made a number of unsupported cash withdrawals  from the corporation bank account that were then expensed by the corporation.  Mr. Bolton’s personal expenses, including legal fees, maid services, landscaping and insurance expenses had been paid for and expensed by the company.  Mr. Bolton personally issued cheques to pay for the expenses and then directed the company controller to attribute the expenses to various accounts, including numerous expense accounts, capital assets accounts, his personal dividend account and his personal loan account.  As much as 40% of the credit card charges made on three corporate credit cards were personal expenses of Bolton.   These expenses were subsequently attributed to the corporation.  When the Enforcement Division  of the CRA determined that the shareholders appropriations received by Mr. Bolton  were not reported as income on his 2003 and 2004 personal income tax returns and had been expensed through the company a charge of tax evasion was laid.

In order to avoid prosecution and/or penalties the taxpayer can file outstanding tax returns and report previously undisclosed income through the CRA’s Voluntary Disclosures Program.  If the CRA has not initiated any action or investigation, outstanding tax returns can be filed and unreported income can be declared.  The taxpayer may be allowed to pay the taxes and interest owing without penalty or prosecution.

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Mr. Gary Felder of London, Ontario, self employed in the construction industry, pleaded guilty to three counts of failing to file income tax and GST returns.  The Ontario Court of Justice in London imposed a fine of $3,000.  Mr. Felder had neglected to file an individual tax return for the 2005 taxation year as well as two GST returns related to his business.  Following the laying of charges by Canada Revenue Agency (CRA), Mr. Felder filed the outstanding tax returns.

Upon conviction of failure to file tax and/or GST returns the individual/corporation must file the delinquent returns, pay the taxes and interest owing, as well as any penalties determined by the CRA.

To avoid penalties and/or prosecution by the CRA, delinquent returns must be filed and undisclosed income must be reported under the Voluntary Disclosures Program prior to action or investigation by the CRA.  Eligibility for the Voluntary Disclosures Program is dependent on the taxpayer taking action before they are contacted by the CRA.  In taking pre-emptive action, the taxpayer may only be required to pay the taxes and interest owing.

Mark Feldstein Personal Taxes, Tax Convictions London, Tax Evasion, Unclaimed Income

In the Ontario Court of Justice in Newmarket a Campbellford resident, Alex Humberto Piedrasanta pleaded guilty to four counts of tax evasion.  The fine imposed of $22,600 represents 50% of the federal taxes Mr. Piedrasanta tried to evade.

The Canada Revenue Agency (CRA) discovered the failure to report income and remit GST during a routine audit.  When working as a subcontractor for two painting contractors in the Vaughan area, Mr. Piedrasanta prepared invoices and collected payments from contractors.  In 2002 and 2003 income in the amount of $120,688 was not reported and as a result the tax owing, $27,349, was not paid.  There was also a failure to remit GST for the period of January 1, 2002 to December 31, 2004 in the amount of $17,851.

All taxes owing, interest and any penalties assessed by the CRA must be paid following a conviction of tax evasion.  A penalty of up to 50% of the unpaid tax or improperly claimed benefit can be applied in cases of gross negligence.  On summary conviction the court has the authority to impose a fine of 50% to 200% of the tax evaded and rule that the taxpayer serve time in jail for a period of up to two years.

There is a mechanism by which taxpayers can avoid penalty and/or prosecution if they have failed to file tax returns or have not reported income.  Provided that the CRA has not instigated any action or investigation, the delinquent returns can be filed and the income can be reported through the Voluntary Disclosures Program.  It is possible that the taxpayer will  only be required to pay the taxes and interest owing.

Mark Feldstein Tax Convictions Campbellford, Tax Evasion, Unclaimed Income

Dr. Jack Klundert, an optometrist in Windsor, Ontario was found guilty of one count of tax evasion in the Superior Court of Justice in Windsor on May 20th , 2010.  At the trial the jury heard that Dr. Klundert reported his professional income as nil on his 1993, 1994 and 1997 personal tax returns, when in fact he received $1.4 million in professional income.  Federal income taxes amounting to $348,000 were evaded by his failure to report this income.  Returns had not been filed for the 1995 and 1996 taxation years. 

Dr. Klundert maintained that he had a moral obligation to challenge the validity of the Income Tax Act.  His argument was that the government does not have the authority to collect income tax.  Fortunately for Dr. Klundert, he was in a financial position to take his challenge to court.    On two previous occasions Dr. Klundert was acquitted for the same offence.    Unfortunately, his third attempt was not successful.   Following his conviction Dr. Klundert  was fined $500,000 and given a one year jail sentence.

Failing to comply with the Income Tax Act has serious consequences.  As well as interest and penalty charges, there is the possibility of garnishment of wages and/or bank accounts, seizure of assets, criminal prosecution and court fines.

Upon conviction of tax evasion, taxpayers have to pay all taxes owing, plus interest and any penalties as assessed by the Canada Revenue Agency (CRA).  Where the case is one of gross negligence, the CRA can impose a penalty of up to 50% of the unpaid tax and improperly claimed benefit.  On indictment the court may fine the taxpayer  100% to 200% of the tax evaded and impose a jail sentence of  up to five years.

The Voluntary Disclosures Program allows individuals or corporations who are delinquent in filing tax returns or who have not reported all of their income to do so without the threat of penalty or prosecution, provided they take action prior to any investigation initiated against them by the CRA.  By voluntarily disclosing unreported income and filing outstanding tax returns the taxpayer may only be required to pay the taxes owing, plus interest.

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