March 27, 2014
Wow, just wow …
Today the RCMP announced that it had arrested six people allegedly involved in a $100 million dollar+ tax scam. See link to cbc.ca article
The idea was that the “investors” could buy a big tax refund by investing in shares that would somehow throw off huge corporate tax losses that individuals could deduct. Now there is something called an Allowable Business Investment Losses” (ABILs), but the list of requirements to qualify is long and complicated. Moreover, under Canadian tax law, you can’t really buy tax losses as an individual, you have to suffer them. i.e, you actually have to invest in a business, and lose all your money, and then you get a slice of it back. But only a small slice. No more.
As usual, at least one Canadian newspaper managed to misinterpret basic tax concepts… again, still, some more. The Toronto Star referred to it as “a tax avoidance scheme”. Umm, tax avoidance Is legal. You “commit” tax avoidance every time you file a tax return and claim a deduction. This was tax fraud, pure and simple. The only thing distinguishing this case was the scale.
So once again, we can see greed overcome caution. Of course, the issue of tax opinions comes up as well. Apparently, as we have blawged before, there are a lot of tax shelters out there. Some of them actually work, for a while, until the CRA shuts them down. Most of them do not work, or they did, and now the don’t, so too late. Just because it has a tax shelter number, does not mean it is OK. Just because it is sold to you by a financial advisor does not mean that it is OK. Just because it is sold to you via your house of worship, or is endorsed by a religious or charitable group does not mean it is OK. And especially if Just because there is a “tax opinion” available or waived in front of you, certainly does not mean that the investor can rely on it to avoid tax, penalties and interest thereon if the structure does not work.
Always always, always read any tax opinion given to you back-to-front. If someone shows me an opinion, I skip to the last page or pages where you will find the caveats, qualifications, exclusions and limitations language of the opinion. It is in this section the advisor issuing the opinion puts in all of their “CYA” language, and specifies who may rely on the opinion and in what circumstances. Generally speaking, good tax advisors will limit the opinion to only apply to the “client” and only on the basis of certain facts. Usually, the person buying the “investment” is not included as a client (because they did not pay for the opinion) and often specifically excluded.
If you are shown a tax opinion for a financial product, and the vendor of the product is not willing to let you have the opinion reviewed…. RUN!. Do not Walk. RUN AWAY! However, if they have an opinion, and they are willing to let you have your own advisor review it, then I would be glad to help for a very reasonable fee, given what is at stake…