CRA Audit Activity, Jurisprudence Supports Taxpayer Responsibility

Two recent cases and a fact sheet from CRA on how it reviews returns Reviewing returns at the Canada Revenue Agency, underscore how expensive non-compliance can be, and in these turbulent times, trouble with the tax department is the last thing that frazzled investors need.

The owners of Dominion Transmission Inc. have pleaded guilty in the Provincial Court of Manitoba to three charges of tax evasion for the years 2002 to 2004 and have been fined a total amount of $140,000. In this case the owner kept 2 sets of books, one for cash sales and one for non-cash sales, with the result that fines were levied on all three levels of taxationópersonal, corporate and GST. On the corporate side, the fines represented 100% of the taxes attempted to be evaded. On the personal side, a fine representing 132% of the evaded personal federal taxes for the years 2002 to 2004 on income that was not reported was levied. A third fine penalized under-reported GST.

In the case of Spence v CRA, 2011 FC 426, we are reminded that it pays to double and triple check returns. The CRA is unrelenting when it comes to inaccurate returns, even if a third party makes the mistakes for you!

ëThe Fairness Rules' give the CRA a wide discretion to waive or reduce some of the penalties involved in late filing or payment of taxes, but the penalties and interest charged must have resulted from circumstances beyond the taxpayer's control. Illness, accident, serious emotional or mental stress caused by a death in the family or natural disasters can trigger the fairness legislation.

Unfortunately for Mr. Spence, he did not meet those criteria and so the court found in favor of CRA. This is a wake up call for all taxpayers and tax advisors- be careful because the moral is simply this: You are responsible for what's reported on your return