Retirement Savings at Risk of Fraud?

Retiring taxpayers may find their RRSP or locked in savings plan at risk if they acted on promotions of a particularly clever fraud schemes.  Amongst the schemes, perpetrators caused victims to purchase non-qualified investments in their RRSPs or use contents of RRSPs or RPPs as collateral for a loan. . .leaving the taxpayer to face not only a tax liability but funds that disappeared too!
 
CRA announced last week that over 300 investigators and other CRA officers have been executing search warrants across Western Canada to investigate alleged fraud related to fictitious Registered Retirement Savings Plans and other tax evasion scams. 
 
This follows an earlier announcement last fall which said "RRSP and investment scams are popping up across Canada and the CRA is making its presence known by auditing and investigating the promoters who back these schemes."  A 2007 "Tax Alert" from the CRA indicated that 3,100 taxpayers had already been reassessed for participation in fraudulent RRSP schemes and that 1,800 additional taxpayers were being audited at the time of the Alert.
 
Typically, such schemes involve the use of a self-directed RRSP. The promoter of the scheme directs the RRSP holder to purchase a particular investment, such as shares in a private corporation, units in a co-operative, or a mortgage, often at inflated prices. The promoter then promises to return the money to the RRSP holder through a loan-back arrangement, off-shore bank account, or off-shore debit or credit cards. In some cases the promoter disappears with the funds and cannot be found.
 
On January 18, 2008, such a scheme lead to a conviction.  Laurent Boulianne, of Saguenay, Quebec was found guilty and fined $37,000 for his participation in a scheme in the 1997 to 1999. Mr. Boulianne was found to have enabled 16 taxpayers to not report amounts totalling $350,300 withdrawn from their RRSPs, RPPs, or LIRAs.
 
Taxpayers are warned to watch out for announcements which promise:  "Take advantage of your RRSP now - no tax to pay!!," or "I will loan you $5,000 to $250,000 over five years if your RRSP is locked in."
 
Participation in such schemes not only puts retirement savings at risk, but may also result in the inclusion in income of the full amount invested in ineligible investments or used as collateral for loans, plus interest and penalties for not reporting the income.
 
Best to check with a qualified tax advisor first before making a move.