Canada Revenue Agency and Dishonest Accountants.

The Context:

Canada Revenue Agency (CRA) announced Monday that it has extradited Aurelius Carlton Branch to Canada from Costa Rica to face charges of tax fraud. It is alleged that the Branch participated in preparing false T1 Income Tax and Benefit Returns for individuals. Thereby committing an offence contrary to section 380(1) of the Criminal Code.

Avoid Being Collateral Damage by Getting Caught in Their Mess.

Late last year CRA successfully pursued criminal charges against an Edmonton accountant for similar offences. Chander Mohan Sharma of Sherwood Park, Alberta was sentenced to six years in jail. According to CRA Mr. Sharma filed false business losses and employment expenses on his client’s income tax returns totalling more than $2.9 million.

According to CRA between April 1, 2006, and March 31, 2018, the courts have convicted 68 tax preparers for tax evasion, both personally and on behalf of clients. The courts sentenced the tax preparers to over $5.8 million in fines and 83 years of jail time.

In order to gather evidence, CRA audits tax returns of all clients of suspected tax prepares.  If they discover false claims of expenses or business losses, the clients not only end up returning all the money they received from CRA but also end up paying interest and penalties. In some cases, the interest and penalties can add up to a substantial amount. The gross negligence penalties under subsection 163(2) of the Income Tax Act adds an additional tax of 50 % on top of the normal tax that clients seeking to avoid. Thus, it can put some taxpayers in severe financial hardship. Eight of Mr. Sharma’s clients submitted victim-impact statements to the court that described in detail how Mr. Sharma’s actions negatively affected their lives.

Avoid Paying for Your Accountant’s Mistakes:

In order to avoid getting caught in this mess, a taxpayer needs to review their tax returns carefully before they sign off on the return. Courts have ruled that you cannot simply hold your accountant liable and avoid all penalties. You are responsible and held accountable to make sure your tax return accurately reflects your income and expenses. Here are some tips to avoid paying for your accountant’s mistakes or acts of selfishness:

#1: Accountant Fees Based On Refund Value:

If your accountant charges fees based on refund you are getting from CRA instead of fee-based on work he or she is doing, it should be a red flag to you. You are entitled to full refund of your taxes that CRA legally owes you and your accountant is entitled to charge fees for the work he or she is doing on your behalf.

The offer to share your refund with your accountant gives incentive to your accountant to claim illegal expenses or business losses so that he or she can make more money by illegally deducting expenses or increasing your business losses which you will end up paying back later with interest and penalties. Thus, always negotiate a fee based on work your accountant is supposed to do, not based on the amount of refund or taxes you have to pay.

#2: T183 Summary

Before your return can be submitted to CRA your accountant must give you a summary (form T183) of your total income, total tax credits and amount of taxes owing, or refund expected.  Your accountant cannot submit your return to CRA until you sign off on this form. Review this form carefully before you sign, make sure it accurately reflects your total income and tax credits, if you have any doubts, talk to your accountant and have him or her explain how the numbers are calculated. Once you sign this form you will be responsible for any mistakes that your accountant might have made in calculating your taxes.

#3: Experience Matters

Shop around for the best, honest accountant who has time to explain things to you. Don’t look for cheap or free tax or accounting services. We all know there is nothing free, if someone is offering free or very cheap accounting services you know either they don’t have the necessary qualifications to compete in the market or they are going to make money from you by some other means. Also, make sure your accountant has time to sit down with you to review your financial statements and answer your questions. A very busy accountant may not review your returns carefully and correct mistakes that their assistants or junior bookkeepers might have made in preparing your financial statements or tax returns.

#4: When in Doubt, Get a Second Opinion

Too often we hear “well this person has been doing my financials for a long time, changing accountants would be such a hassle”. Sometimes it takes something as simple as a second opinion to understand what opportunities and risks exist with your current situation. Do not be afraid to get a second opinion if you suspect something is not proper with your tax filing. If your accountant is telling you that you can claim expenses which nobody else has ever claimed before or your return does not show all the income you earned, get a second opinion.

You have the right to plan your financial affairs so that you pay the least amount of taxes. An experienced tax accountant can help you with legal tax planning. A dishonest, busy and or selfish accountant might help you avoid taxes temporarily but will get you in deep financial problems later. When it comes to negligence or tax fraud there is no statute barred limit that will stop CRA from reassessing previous years’ tax returns. They can go back as far as they want and reassess all your previous years’ tax returns and assess interest and penalties on top of normal taxes and even pursue criminal charges.

I hope this article helps you if you have any tax planning questions or want a second opinion on any tax matters please call our office for an appointment. I also invite you to visit our website www.calgarytaxpro.ca for more useful information on tax-related matters.

Kam Grewal

Senior Tax Advisor

Calgary Tax Pro

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