Due to new developments, this time I have decided to go back and elaborate on a comment that I made a couple of articles back.
As many of you may have guessed, even though I spent most of my working career trying to reduce the tax bill for my clients, it was always to do so legally. I believe in a fair taxation system and to quote Oliver Wendell Holmes: I also believe “Taxes are the price we pay for civilization.” It may seem difficult to write that cheque to the Receiver General at times, but it is much better to live in Canada than in many countries with either no or too low income taxes. In fact, it can arguably be said that it is better to live in a higher taxed economy than a lower taxed country, but that is for another discussion.
Anyways, to cut to the chase, I said a fair taxation system. It is necessary that a tax system be seen to be fair as well as being fair. I commented in a previous column that Canada Revenue Agency (CRA) was cutting back on enforcing the rules for individuals and corporations hiding revenue off shore. There seemed to be a lack of expertise being devoted to finding these off shore accounts. Meanwhile there has been an increase in audits and enforcement of the smaller taxpayer. I made the comment based on anecdotal observations and comments by employees of CRA.
The reason for this column and update is a news item in the Globe and Mail on Saturday, September 20, 2014 that confirms my observations and discussions. Below is the internet address for your opportunity to see this item:
One ironic thing about this policy is that small business is the greatest generator of new jobs in Canada and these offshore hideouts are potentially the most profitable use of audit expertise. I am not naïve enough to believe that there is no fraud or abuse by some small companies. CRA should continue to audit and to review small.businesses to ensure compliance , but quite frankly most small businesses that cheat are comparably like hanging fruit and relatively easy to catch. I say this as a former auditor for the tax department, knowing that CRA may never catch everyone and we could increase staff working on compliance with these small companies. Actually, catching more tax cheats would encourage compliance. The same also applies to bigger fraudsters that use international tax havens. There is nothing like thinking the system is unfair and others are getting away with something to encourage otherwise honest taxpayers to try and get their share.
The one question that does come up, however, is why would Canada Revenue cut back on enforcing the law on wealthy taxpayers? There is the potential for making the enforcement look fair and balanced. As well, huge amounts of avoided taxes could be recovered. The United States and European countries are actively pursuing their cheats. Even the CBC has been able to identify many possible abusers who are using external tax havens.
The only “new” initiative that has been announced by CRA has been to pay a commission of between 5 and 15% to citizens who can provide leads on tax cheaters. A major problem with this approach is almost by definition these off shore schemes are set up at large cost and are effective due to considerable discretion by the planners. It is very unlikely that many people are aware of any plan. There may be some success, but relying on voluntary leads is unlikely to substitute for active investigation.
I believe we should demand answers from the government. All abusers of the tax system should be actively pursued to the best of resources. I cannot think of a better way to reduce the tax burden for the rest of us.
Terry Robert B.A., C.M.A., C.G.A.
Please note that this column deals with details and circumstances in a general way and comments are meant solely as a guide. For your protection, a professional accountant is recommended and should be consulted before making any decisions regarding anything discussed in this column.