Wednesday, May 30, 2007

Deemed Taxes on Deemed Income

I just finished examinations for discovery of a Canada Revenue Agency (CRA) auditor (I was on my best behaviour). My client had a lot of income attributed to him for tax purposes, the evidence of which is almost nil. What was most interesting is CRA attributing to my client the money to pay taxes in the total income. In other words, if CRA says that you have $50,000 in hidden income, they say that you must pay taxes on the income and they increase the amount of the income by the taxes you should have paid and readjust the tax figure upward. Or at least that's what I think they did because the auditor, to his credit, honestly stated that she could not tell me the logic of the policy or the calculator, simply that it was the policy of CRA.

Also interesting was the requirement to show a negative. Say my client does not smoke or drink but Statistics Canada says that the average Canadian spends a certain amount on tobacco and alcohol, the CRA attributes the Stats Canada amount to my client as expenditures which require the income to make the purchase. How my client can show no receipts for no cigarette purchases from no store is hard to understand, but what the hell.

The same goes for life insurance. My client does not have life insurance but has an income amount attributed based on the Stats Canada numbers. You cannot show a contract that does not exist.

It was an eye-opener.

I think that I should be able to get a positive result for my client despite a reverse onus that is almost impossible to meet simply because the onus is almost impossible to meet.

(cross post at Little Tobacco)


mariposa said...

So, CRA doesn't have to prove you have hidden income? If they suspect you do, that's good enough?

I don't know why that surprises me. I knew a businessperson who was audited, the CRA wanted over $200,000 in taxes, and he said "Will you take $60,000?" They said sure and he said "Ok, but I don't have it right now."

So I guess you can negotiate with them and offer money you don't even have. It's a game I don't fully understand.

Anonymous said...

I'm sure you will represent your client very ably, but it would be a mistake to think that there is any kind of logic or fairness underlying tax policy. Taxes in themselves are illogical, because it is absurd to think that government knobs in Ottawa or Toronto know better than your clients themselves how best to spend the money that they earned.

Actually there IS a logical reason for taxes, but it is simply the logic of plunder. And it is not just that the taxes themselves are plundered from you. It should be clear that the whys and wherefores of much of the actual regulation of taxes have the purpose not of making it fair, but to help squash small, independent entrepreneurs who would otherwise compete against large businesses - thus allowing the large businesses to get in on the plunder.

ALEXANDER: How dare you molest the sea?

PIRATE: How dare you molest the whole world? I have a small boat, so I am called a thief and a pirate. You have a navy, so you are called an emperor.

P.S. A guy was chatting with me in a bar a couple of months ago. "My buddy in the government says he's been ordered to work every Saturday, so his department can use up all the money in their budget and get more money next year. They have nothing to do, so he's spending all his time surfing the net and working on non-work projects." Oh yeah, that sucks, I was thinking - then I had an awful feeling. "What department?" Guess - "CRA". Hah. Your government taxes you because they really care for you. Suckers.