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Tax Shelter or Scam?

January 17th, 2023 | by admin admin | in Security Advice |    13   comments

T1_Tax.jpgFiled your taxes already? Or planning to join the line up outside the CRA office at 11:55 p.m. on April 30th? Either way, it’s time for a friendly reminder about tax fraud: if it sounds too good to be true, it probably is.

Here are the Canada Revenue Agency’s top five tax scams:

1. Natural Person vs. Legal Person

Promoters distinguish between a flesh-and-blood “natural person,” and a “legal person” entity created by the government. The income you earn belongs to the natural person, who is not subject to Canadian income tax law.

As part of this scam, the promoters might suggest that you:

  • prepare your T1 return and claim fictitious losses;  
  • apply for a CRA business number in your name and create false information slips to report losses on securities;
  • not file a return  at all,  based on the argument that you are not taxable and, therefore, not required to do so.

Don’t Buy into Illegal Tax Protester Schemes

2. Tax-free Registered Retirement Savings Plan (RRSP) and Registered Retirement Income Fund (RRIF) withdrawals

Typically, promoters persuade the owner of a self-directed RRSP or RRIF to invest through a specific trustee. In return, they promise:

  • to return part of your investment by offshore debit or credit cards, offshore bank accounts, or loan-back arrangements.
  • immediate access to assets in “locked-in” RRSPs or RRIFs
  • income tax receipts providing deductions of three or more times the amount invested in an RRSP, plus unrealistic returns on investments.

These withdrawals count as additional income and will be taxed accordingly, even after your savings have disappeared with promoters: RRSP Tax-Free Withdrawal Schemes

3. False losses or expenses

Promoters persuade you to claim personal expenses, such as mortgage payments and personal loans, as business or professional income losses or expenses. They provide you with a CRA business number and an “RZ account” (an information account) to submit information slips for amounts related to your personal debts and expenses.

If you claim false losses or expenses on your tax return, you can be fined, penalized or convicted.

4. False charitable donation receipts

The person preparing your tax return offers to sell you a large charitable donation receipt for a fraction of its face value. The receipts are false, and no donations are made.

You cannot purchase a receipt for tax purposes, so your tax return will be reassessed.

5. Purchase of precious gems or other high-value collectibles

You, a business owner, buy expensive goods, such as gems, and claim the GST/HST input tax credits. The seller offers to hold onto the items for resale to a foreign buyer, thus saving you transportation and insurance costs. Since the proposed buyer is out of the country, there is no GST or HST payable on the resale.

However, since there is no actual transfer of the goods, there is no actual sale for GST/HST purposes. If there are actual goods, they may not be worth as much as the individual tells you they are, and a buyer may never materialize. The CRA will reassess your GST/HST return to reverse the credits claimed. 

Always consult an independent tax professional. Make sure you understand the legal and tax implications of any scheme before you participate.

Source: CRA, Tax Scams Have Serious Legal Consequences


Note: This blog discusses general safety and security topics. It is not intended to provide comprehensive advice or guidance. In all matters of personal safety and security, we encourage readers to research topics in depth and consult a security professional about specific concerns.

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