How to recognize a tax scheme  

As we are getting ready to file annual personal tax returns, it is important to be cautious of tax schemes.

Here are some common elements of tax schemes:

• they are positioned as financial products or business opportunities
• they are advertised (internet, social media, newspapers, fliers sent to households)
• there is often a sales pitch (free info session, paid seminar, webinars)
• they promise tax savings which often include large returns on small investments
• a portion of the anticipated tax refund is the promoter’s fee
• they seem “too good to be true”

The consequence of participation in a tax scheme can be and will be considered tax evasion, resulting in having to repay the full amount of taxes owing, plus interest and any civil penalties assessed by the CRA. In addition, the courts may fine them up to 200% of the taxes evaded and impose a jail term of up to five years.

In addition, the CRA will publicly share cases of individuals, corporations and trusts convicted of tax evasion.

Key Takeaways:

• Get a second opinion. If you are being sold or proposed a deal that seems too good to be true, you should seek independent advice from a reputable tax professional. Do not assume that these schemes and the promised tax benefits are legal under the Income Tax Act. Ask questions or enquire further before submitting your return.
• Stay away from tax preparers who offer you false tax claims such as charitable donations, child care expense claims, or even business expenses or losses. It is not worth the risk. There are serious consequences to you.
• If you don’t understand your return, don’t be shy about asking questions.
• Make sure the tax preparer gives you a copy of your return for your records.
• Never sign a blank tax form.
• Generally, if it sounds too good to be true, it probably is.