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

Walter Pontiero General Contracting Ltd of King City, pleaded guilty on September 17, 2009 of GST evasion. There was a fine levied in the amount of $91,063 in the Ontario Court of Justice in Newmarket. The fine was 100 percent of the taxes evaded.

CRA’s investigation revealed that the company which is a subcontractor to homebuilders, filed GST returns for the periods July 31, 2002 to April 30, 2005, in which the total sales of the business were under reported by over $2.75 million dollars. Therefore, the company understated the GST it collected on sales by $198,238 and it understated its input tax credits by $107,174, resulting in $91,064 GST evaded.

Individuals or companies that have not filed their returns or have not reported all of their income, can apply under the voluntary disclosure program. CRA will not penalize or prosecute them if they make a full disclosure before CRA commences an action. If Mr. Walter Pontiero General Contracting Ltd applied under the VDP program there would be no penalties or prosecution but the taxes would have to be paid along with interest.

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Nester Raymond Pinga of Newmarket Ontario pleaded guilty in the Ontario Court of Justice on 14 charges of failing to file tax returns. He was fined $14,000. When individuals or corporations are convicted of failing to file returns, they still have to file the returns and pay the full of amount of taxes outstanding plus interest and any civil penalties that may be assessed by the Canada Revenue Agency. If Nester Raymond Pinga contacted CRA before CRA commenced an action under the voluntary disclosure program, there would be no penalties or prosecution only interest and taxes would be due.

Mark Feldstein Tax Convictions criminal charges, Tax Evasion, Unclaimed Income

Roger Miller of St. Jacobs pleaded guilty in the Ontario Court of Justice in Kitchener on nine charges of failing to file tax returns. He was fined $9,000. When individuals are convicted of failing to file tax returns they are still obligated to file the returns and pay the amount of taxes owing, plus interest as well as any civil penalties that may be assessed by CRA. Mr. Miller operated a T-shirt business and was fined for not filing his 2003 to 2006 personal tax returns as well as five GST returns.

Individuals who have not filed returns for previous years or who have not reported all of their income can apply under the voluntary disclosure program and bring their tax affairs up to date. They will not be penalized or prosecuted if they make a complete and full disclosure before CRA starts an investigation. Taxes and interest will still have to be paid.

Mark Feldstein Corporate Taxes, Tax Convictions Unclaimed Income

Joseph Berardi of Lakefield Ontario pled guilty in the Ontario Court of Justice in Peterborough on one count of income tax evasion. Mr. Berardi was fined $173,907 which represents 100% of the taxes due. The fine is in addition to any taxes and interest owed, as well as any civil penalties that may be assessed by CRA.

CRA’s investigation revealed that Mr. Berardi neglected to disclose the rental income that his company earned and that he appropriated the funds in the 2001 to 2003 tax years. The total unreported income amounted to $642,221 over the three years and thus attempted to avoid paying $173,907 in taxes.

In cases of gross negligence, CRA can assess a penalty of 50% of the unpaid tax. In addition, the court may on summary conviction charge a fine in the amount of 50% to 200% of the tax evaded and impose a jail sentence of up to two years. Consequently, the total penalties on tax evasion can reach up to 250%.

If Mr. Berardi applied under the voluntary disclosure program before CRA began their investigation, then he would have had to pay the taxes and interest and would avoid prosecution and penalties.

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

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.

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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

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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