Tax Schemes - More things you should know

As most of you know by now I used to work for the CRA.  You should also know I still have lots of friends and acquaintances who still work for the CRA.  I had the misfortune of having to deal with one of these friends in a professional manner recently and need to warn you.  Now before I get too far you need to understand that while I may have friends at CRA that DOES NOT mean I get special favors or treatment.  In fact I would say that it is exactly the opposite.  People I know will go out of their way to ensure that there cannot ever be any accusations of wrong doing or favoritism (just to be clear).  The advantage I do have is that I know the procedures and legislation better than most accountants and can make a better case to the CRA as to why they are wrong, or at least why they should not penalize you for being stupid.

Anyhow this friend works in Aggressive Tax Planning (used to be known as Tax Avoidance) and was looking at something one of my clients did prior to becoming a client.  I am not going to say what strategy or “scheme” they did by name, but in short it involved the sale of the corporations Goodwill, and then leasing it back.  I am not going to get into whether it is right or wrong, but the CRA definitely think it is wrong, and based on the information I have seen, I have to say that I tend to agree.

What I really want you to get from this story is that if you are going to push the boundaries of Tax Law, or potentially unknowingly cross them you need to try and protect yourself.  Firstly, if the “schemers” say that they have a legal opinion, ask to see it and make sure you get a copy of it so that your accountant, and or lawyer can review it.  Just because someone says they have one does not mean that you are safe to use the “strategy”.  You need to do your own due diligence, and to do so you need the legal opinion to understand the strategy and the tax sections that are supposedly being used and complied with.  If they won’t give it to you run away, and do not look back.  If they won’t let you show it to your accountant or lawyer then run away even faster.

Another thing you need to consider is the obvious “If it sounds too good to be true, it probably is”.  There are many “schemes”, I call them schemes because they are untested, and unproven, and have not been attacked by the CRA.  Some will tell you, you are buying a business franchise, or investing in software, or technology.  In short if you are getting a large tax benefit then there is likely going to be an audit, and you better have your documents ready and in order.

One last point I would like to make is that you should not act rashly.  Investigate, question, review, get professional help and do your homework.  You may think that it sucks to pay taxes, but it sucks a lot more to pay taxes plus 50-100% penalty, and potentially have to pay large legal and accounting bills as well.  Just sayin’.