How to recognize and report those who sell aggressive or illegal tax schemes
(Illegal) schemes take resources away from the tax system — resources needed to support important social programs
If someone offers you tax advice that sounds too good to be true, watch out: there’s a chance that it could be an illegal or aggressive tax planning scheme.
The Canada Revenue Agency (CRA) is coming down hard on unscrupulous tax preparers, promoters and other third-party representatives who draw Canadians into fraudulent or aggressive schemes that they promote by making misleading promises. Since June 2000, the CRA has assessed approximately $218 million in third-party penalties against those who sell aggressive or illegal tax arrangements, plans or schemes. These people are known as “promoters,” and the products they offer can end up costing Canadians dearly, especially if they reduce their tax burdens too aggressively or, worse, illegally.
“The CRA is actively cracking down on promoter schemes that promise large returns, tax-free income or other creative ways to pay less than what one owes,” said Lisa Anawati, deputy assistant commissioner for the CRA’s International, Large Business and Investigations Branch. “Unfortunately, these schemes are rarely legal and take resources away from the tax system — the very resources needed to support important social programs we all benefit from.”
Promoting aggressive tax schemes that run counter to the overall spirit of the law can lead to serious civil penalties. Promoting illegal tax schemes that attempt to defraud the government can lead to criminal prosecution and may result in penalties, court fines and even jail time. In either case, the consequences are serious.
The government of Canada has made it clear that it is cracking down on this type of activity with an unprecedented investment into the CRA, aimed at providing the agency with the tools and resources it needs to pursue this kind of tax cheating.
This investment allowed the agency to expand the Promoter Compliance Centre, which is dedicated to identifying, deterring and unravelling tax avoidance schemes set up by promoters through increased audits, business intelligence, communication and the resources to better warn Canadians.
“I urge Canadians to be cautious of tax schemes that promise very large returns for very small investments,” Anawati said. “Unscrupulous promoters can be very persuasive; it is, therefore, important to be mindful that these individuals may be suggesting products that are too aggressive to be compliant with the law.”
The CRA regularly updates Canadians on current schemes that don’t comply with the Income Tax Act through its website, tax alerts, news releases and social media. If you’re uncertain about advice or products that you are considering or products that you’ve received in regard to your taxes, the CRA recommends speaking with an independent tax specialist before making a decision.
“If a deal sounds too good to be true, if you have questions regarding a financial product being offered to you, or if you feel pressured to respond quickly to a financial planner, take the time to ask for a second opinion,” Anawati said. “Canadians work hard for their money and their savings. Getting a second opinion can help you make better decisions that will protect your investments and you from unnecessary fines that can get in the way of your financial goals.”
By cracking down on promoters, the CRA is ensuring that all Canadian taxpayers are paying their fair share.