Archive for the ‘Canada’ Category

Zappers OK in B.C. but Using Them Isn’t

Friday, July 19th, 2013

A Richmond, British Columbia firm marketed an interesting computer program. As I noted when I first wrote about this (in 2008):

Bradley Alvarez of the Canada Revenue Agency told The Province that, “Businesses are suspected of having hidden thousands of transactions and millions of dollars in sales across Canada.” The software, from InfoSpec Systems in Richmond, BC, will save an owner taxes. The RCMP noted in its application for a search warrant that an InfoSpec spokesman allegedly said that the software can be used for “deleting cash sales.” Additionally, the software vendor claimed that you can take the cash and “pay kitchen staff.” There’s no reason to stop at one felony when you can commit two, eh?

Well, the software vendor won a victory at the B.C. Court of Appeal. As the Vancouver Sun reported:

Four years after a Richmond computer company was charged and a year after it was convicted of tax fraud, the province’s highest bench has ordered the company acquitted…

“It is noteworthy that the law does not prohibit the making, possession, or sale of a zapper,” Justice Frankel said, even though a number of criminal code provisions target and restrict other instruments of crime used, for instance, in counterfeiting or falsifying credit cards.

“I do not accept the Crown’s submission that InfoSpec ‘engaged in a course of dealings that was by its very nature dishonest.’ InfoSpec participated in commercial transactions involving the sale of a computer program that is not prohibited by law; the restaurants got what they paid for. Whatever reasonable people might think about the propriety of such a sale, I am unable to say they would consider the vendor to have acted dishonestly.”

However, using the software to evade taxes was and still is a crime in Canada. It is likely that the Canada Revenue Agency will appeal this decision to the Canadian Supreme Court.

California Leads the Way (as Worst State for Business)

Tuesday, May 7th, 2013

If anyone wonders why I left the Bronze Golden State, yet another survey has come out regarding places to do business. Chief Executive Magazine rated all 50 states from top to bottom. Before focusing on the dismal state of California’s business climate, let’s highlight the top ten states:

1. Texas
2. Florida
3. North Carolina
4. Tennessee
5. Indiana
6. Arizona
7. Virginia
8. South Carolina
9. Nevada
10. Georgia

At the bottom was California:

41. Maryland
42. Pennsylvania
43. Hawaii
44. Michigan
45. Connecticut
46. New Jersey
47. Massachusetts
48. Illinois
49. New York
50. California

Looking at why California ranks where it does, one can see the problems are taxation and regulations. The comments note that the regulations and taxation is unreasonably and “…getting worse, if that is even possible.” Compare these to the comments regarding Texas: “Texas is the clear leader because of taxes and pro-business attitudes.”

Do I expect anything to change in California? No — I think the state will have to hit bottom (be broke) in order for real change to happen.

When an Agent’s Fees Are Not Deductible

Thursday, July 5th, 2012

Suppose you are a professional athlete and you hire a sports agent to negotiate with you. Those fees are, in the United States, generally deductible as an “ordinary and necessary” business expense. However, the same is not true in Canada.

The Canada Revenue Agency ruled several years ago that agent’s commissions are not deductible. Given that most athletes hire agents (who typically receive 3% to 5% of a player’s salary), this can be a significant issue. This impacts all four major sports leagues (there are several hockey teams in Canada, along with the Toronto Blue Jays of Major League Baseball and the Toronto Raptors of the NBA; additionally, the NFL’s Buffalo Bills play three home games a year in Toronto), and sooner or later some “lucky” athlete was going to be audited by the CRA.

That happened when Michael Caruso, a defenseman with the Florida Panthers, was audited. He lost, so he appealed his decision to the Tax Court of Canada. In Caruso v. Queen, Canada’s Tax Court ruled against Mr. Caruso.

Canadian tax law is similar to, but not identical to, American tax law. In the US, any business expense that is both “ordinary and necessary” is generally allowed. However, Canada’s Income Tax Act states, “Except as permitted by this section, no deductions shall be made in computing a taxpayer’s income for a taxation year from an office or employment.” It would seem that an agent’s fee would be deductible, given that Paragraph (8)(1)(b) states a deduction can be taken for, “(b) amounts paid by the taxpayer in the year as or on account of legal expenses incurred by the taxpayer to collect or establish a right to salary or wages owed to the taxpayer by the employer or former employer of the taxpayer;”

So are an agent’s fees legal expenses? Not in Canada:

In this case the services rendered by the agent were the services in negotiating the contract that was entered into between the Appellant and the Florida Panthers. When the Appellant was asked about the services provided by the agent, he referred to the additional $60,000 in signing bonuses that the agent was able to obtain for him…

To the extent that any of the services provided by AKT Sports Management Consultants Inc. (or MFIVE SPORTS) could be regarded as legal services, the services were not to collect salary or wages owed to the Appellant (the services were rendered before any contract was signed) nor were such services rendered to establish a right to salary or wages. The services were rendered to negotiate the contract. There was no right to any salary or wages until after the agreement was signed, which was after the services in question were rendered by the Appellant’s agent.

While there is a proposed amendment to this part of Canada’s Income Tax Act that would change the law, the judge in the case stated it would still not apply to agent’s fees:

As well, not all legal services will qualify. Only amounts paid for those legal services provided to collect amounts owed to the taxpayer or to establish a right to such amount will qualify for the deduction under this paragraph. Therefore even if such amendments were now effective the proposed changes would not result in the amount that was paid to the Appellant’s agent being deductible.

Now, decisions of this court can be appealed; however, based on this news story it appears that won’t be happening in this case. That said, this decision impacts every hockey player and many other athletes. Mr. Caruso did not earn a huge salary; I suspect some highly salaried player, such as Roberto Luongo of the Vancouver Canucks, will end up fighting this issue if he gets audited. (As an aside, Mr. Luongo will be competing in the main event of the World Series of Poker which begins on Saturday. Mr. Luongo’s $10,000 buy-in is being paid for by the British Columbia Lottery Corporation.)

Hat Tip: Robert Raiola

IRS Announces New Procedure on RRSPs; Jaywalkers Apparently No Longer Subject to Firing Squad

Wednesday, June 27th, 2012

The IRS announced yesterday a new procedure to deal with “low compliance risk” taxpayers who have innocently not filed FBARs or tax returns noting their RRSPs (a Canadian retirement account similar to a 401(k) or IRA). While the full details have not been released (the plan will go into effect on September 1st), it appears that the IRS has heard the complaints from tax professionals and others regarding the “one size fits all” voluntary disclosure plan.

Of course, the devil is in the details but they look reasonable at this point:
- Taxpayers will need to submit delinquent tax return for the last three years;
- Taxpayers will need to submit delinquent FBARs for the last six years; and
- Pay any tax and interest due with the submission.

Note that to qualify for the plan your unpaid taxes will need to be less than $1,500 per year.

Once the full details are announced (probably in late August) I’ll report on them.

More: Roth Tax Updates, Janet Novack

Corruption Alleged at Canada Revenue Agency

Tuesday, June 19th, 2012

There may be some shenanigans happening north of the border. Canada’s Globe and Mail reports that the Royal Canadian Mounted Police are investigating officials at Canada Revenue Agency over a a $1 Million alleged kickback scheme. The allegations revolve around an accountant whose firms received a $10 million tax bill. CRA officials told the accountant that for just $1 million (and later, for $300,000) they could make the problem vanish.

The problems appear to be centered in Quebec, and involve the accounting, construction, and restaurant industries.

“The accused allegedly attempted to extort money from restaurant owners in exchange for lower income tax assessments,” the RCMP said in a news release…

“The RCMP investigation into these allegations of corruption within the Canada Revenue Agency was initiated in 2008 and is still ongoing,” the RCMP said. “More charges could be laid in this matter.”

This isn’t the first case of corruption within the CRA. Back in 2009 two CRA auditors were found to share a $1.7 Million bank account in the Bahamas with the owner of a Quebec construction firm.

HatTip: @GamingCounsel

Bozo Tax Tip #1: Get Out of Town, Fast

Sunday, April 15th, 2012

There’s an old saying: When the going gets tough, the tough get going. Well, with Bozos things work differently. “Oh my,” a Bozo thinks. “Tax Day is just a couple of days away. I’m completely unprepared. I know: I’ll go visit Aunt Bertha and Uncle Abner in Ottawa. I’ll catch the hockey, and forget about tax.”

Believe it or not, this strategy actually works (for a while). If you are outside of the United States on the day taxes are due (April 17th this year), you get an extra two months (until June 15th) to file your federal taxes. There are no penalties, just interest.

So suppose you haven’t a prayer of paying your federal taxes and you go to Ottawa to see the Rangers face the Senators on both Monday and Wednesday (and stay all three days). Yes, you have until June 15th to file your taxes.

Now, this strategy doesn’t work for every state, though. Some states do follow the two-month extension (New York and North Carolina, for example); others do not. I’ve had clients stuck in Europe do a volcanic eruption (remember that volcano in Iceland that erupted a couple of years ago), panic, and I told them to relax.

Of course, if you can’t travel abroad, going from the city to the suburbs won’t change the tax deadline. And I must emphasize that this is just a temporary fix. Yet this is the one example of a Bozo maneuver that can really work.


That’s it for our Bozo Tax Tips for the 2011 Tax Filing Season. I hope you’ve enjoyed them. We’ll be back with actual tax posts at the end of the week.

Happy Tax Day!

Gambling Addiction Costs Ice Winery Head

Sunday, February 26th, 2012

Something I didn’t know until recently is that wine grapes are grown in all 50 states. They’re also grown in Ontario, Canada. One winery head dipped into the till because he liked to gamble.

From St. Catharines, Ontario, comes the story of Charles Pillitteri, head of the the Pillitteri Estates Winery. Mr. Pillitteri apparently liked to gamble, and back in 2004 and 2005 Mr. Pillitteri reached into the company’s cash and took $439,102 and $951,508 (Canadian Dollars). The Canada Revenue Agency found out, and the company was fined the amount of the back taxes: $122,031 and $202,510 for 2004 and 2005. The company has paid the fines assessed when Mr. Pillitteri pleaded guilty to tax evasion.

Mr. Pilliteri no longer gambles according to this news report. Connie Slingerland, the CFO and the sister of Mr. Pillitteri, told the National Post, “We’re very proud of what we do…. This happened a long time ago, and all the measures have been put in place for it not to happen again.”

The specialty of Pillitteri Estates Winery is ice wines; the grapes for the wines are frozen on the vine, picked, and then crushed while still frozen. It sounds like the perfect thing to try during a Las Vegas summer.

Revenue Canada Says “Just Say No” to the IRS

Wednesday, August 24th, 2011

Last Sunday I linked to two well-written articles by Don Cayo of the Vancouver Sun. One question that has interested individuals residing in Canada who are impacted by FBAR (Form TD F 90-22.1) is whether the Canadian tax authorities would collect penalties on behalf of the IRS.

Mr. Cayo corresponded with Revenue Canada (the Canadian equivalent of the IRS) and got the answer: No. You can read his correspondence here, but it boils down to CRA noting that the FBAR provision is not included in the US-Canada Tax Treaty. Additionally, CRA says they will not collect taxes for the IRS for an individual who is a Canadian citizen at the time the liability arose.

This will have even more meaning in the years to come as Congress is forcing foreign banks to collect information on Americans (beginning in 2013). I expect to see significant pushback, and it will be interesting to see how that plays out.

Hat Tip: Phil Hodgen

Gilbert Hyatt and the FTB (An Update)

Friday, February 11th, 2011

When last I reported on the Gilbert Hyatt case, Mr. Hyatt had won nearly $400,000,000 (yes, that’s $400 million) in a lawsuit from the Franchise Tax Board. This case began when Mr. Hyatt moved from California to Nevada in 1992, but the Franchise Tax Board didn’t think so. So agents of the FTB rummaged through Mr. Hyatt’s garbage in Nevada, and in the view of a Las Vegas court, committed torts against Mr. Hyatt. Including legal fees and continued interest, the tab is now around $500 million.

This case went to the US Supreme Court before it was tried; the FTB attempted to hold that California couldn’t be sued. The Supreme Court ruled against the FTB, and the case was tried in 2008…ten years after it was filed.

Not surprisingly, the FTB has appealed the decision. I’ve been trying for a while to discover the status of the case, and this evening finally found a blurb noting that the case is awaiting a date for oral arguments at the Nevada Supreme Court. [Go to page 12 of the link to see the status.] (Nevada does not have intermediate courts of appeal.) So sometime in the next year or so we’ll likely get a final verdict on how much the Golden State will be out in this case. Of course, the FTB could appeal this case to the US Supreme Court if they lose at the Nevada Supreme Court.

Meanwhile, the underlying alleged liability that triggered the whole fiasco–whether Mr. Hyatt was a California resident when he earned money off a semiconductor patent–is trickling through the California administrative hearing process.

Tax Day Up North

Sunday, April 29th, 2007

Tomorrow is Tax Day in Canada. The Edmonton Journal has an article about how Revenue Canada (their equivalent to the IRS) is not feared though it perhaps should be.

There’s an interesting quiz at the end of the article. The answers to those questions in the U.S. are almost identical to those in Canada.