Natural Person Tax Schemes in Canada

Natural Person / No Tax / Detax / Tax Schemes

In our industry we call these people tax protestors. Typically they can be found making arguments like “I’m not a person as defined by the Income Tax Act and therefore I am not subject to taxes”. These arguments have been routinely and consistently rejected by the courts.

Prior to 2012 Cawston and Associates rarely came into contact with these people and if we did we would do one of two things:

  1. Help them to become compliant with all of their tax obligations
  2. Send them on their way

Calgary Tax LawyersIn the past two years we are seeing a scary trend where these ideas are being sold as “CRA Approved” financial planning strategies. Typically targeted at seniors who had their retirement plans devastated in the 2008 economic downturn.

The promoters of these schemes will typically guarantee you a refund of all or most of the tax you have paid in recent years. For this services they will take a “small percentage” of your refund, and only when you have received it do you have to pay. Usually in a few weeks this refund check comes from the Canada Revenue Agency, the promoter takes their fee and you get the balance.

Does this seem too good to be true, that’s because it is.

How your trouble with the CRA begins

To get this refund the promoters will send a fabricated T1-Adjustment on your behalf to the CRA claiming that you owned a business that incurred a large loss and that you are in fact entitled to a refund. These adjustments are typically processed by CRA’s computer system who issues the refund but flags the file for review at a later date when a person is available to look at it. When the file is eventually in the hands of a CRA employee (usually 6 months – 2 years) they can immediately tell that you never owned a failing business and that you were never entitled to the refund. This leads to three things:

  1. You must repay the refund you received
  2. You must pay a large penalty
  3. You must pay the interest on both the refund and penalty

Usually the final tax bill is about four times the amount of the original refund received. The sad truth is that many of these people who participate in these schemes end up in bankruptcy.

Regardless of age or circumstance the Canada Revenue Agency is EXTEREMLY UNSYMPATHTIC toward participants in these schemes. An application to have penalties and interest removed under the taxpayer relief provision is at best a hope shot. The reason for this is because at its core participants have instructed someone to commit tax evasion on their behalf by falsely amending their tax returns to obtain a refund they were never entitled to. In most cases participants are not even aware that any of this has happened.

If you have participated in one of these schemes and have not been contacted by CRA you may be in time to file a Voluntary Disclosure to protect yourself from penalties and prosecution.

If you just want to know what your options are please give us a call 403-251-5925. Don’t wait until it is too late.

Here is what CRA has to say on the issue: