dave@lsuc.UUCP (04/16/87)
This week we'll explore what you can and can't get away with
in income tax. Caveat: don't rely on this posting to take specific
action; consult a tax or legal advisor.
Tax Evasion
===========
Tax evasion is illegal. Basically, you are evading tax if
you misrepresent or suppress facts. Not reporting income
is an obvious example; there's nothing wrong with being paid
in cash, but you still have an obligation to report income.
(This includes, incidentally, interest on loans to relatives.)
Claiming deductions that aren't supportable by the facts is
another example (e.g., business expenses you didn't incur).
The cost of tax evasion, when detected, can be substantial.
Normally you will be looking at having to pay:
- the tax evaded;
- interest (compounded daily at a varying rate, now 8%)
- a penalty of 25% of the tax evaded;
- if a criminal prosecution is launched, an additional
fine of between 1/4 and double the tax evaded.
In additional, on a criminal prosecution, the person committing
the offence may be jailed for up to 2 years. (Jail terms for
tax evasion are relatively rare.) The criminal offences include
making false or deceptive statements, making false or deceptive
entries in records or books of account, destroying or altering
records (to evade payment), and conspiracy to do any of the above.
Whether or not Revenue Canada, Taxation will actually detect
evasion isn't relevant to whether an offence is being committed.
Tax Planning
============
Tax planning is the perfectly legitimate activity, approved by
both the courts and Revenue Canada, Taxation, of structuring your
affairs to minimize tax. Some obvious examples: incorporating a
business in circumstances where incorporating results in less tax
payable; contributing to an RRSP; investing in flow-through mining
shares, a MURB or a film tax shelter; structuring a sale of property
so that the entire capital gain is eligible for the capital gains
exemption.
Tax Avoidance
=============
Between legitimate tax planning and tax evasion lies a large grey
area. As long as you are not misstating or omitting facts, you
aren't evading tax. But you may choose to interpret the law (a
particular provision of the Income Tax Act), as applying to the
facts of your case, differently that would Revenue Canada.
In some cases you may be using a provision otherwise than was
originally intended by the people who drafted it, who may not have
thought of your situation at all.
Revenue Canada, if it audits you and figures out what you are doing,
may choose to reassess based on its view of the law. At that
point you would have to choose between paying the extra tax (and
interest) or objecting and appealing. (I'll discuss the process
for objecting to assessments in a separate posting, if people are
interested.)
David Sherman
Consultant
The Law Society of Upper Canada
Toronto
--
{ seismo!mnetor cbosgd!utgpu watmath decvax!utcsri ihnp4!utzoo } !lsuc!dave