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If you come across claims that you don’t have to pay income taxes in Canada because you’re a “natural person,” you’d be well advised to ignore them, or Canada Revenue Agency may be coming after you.
Canada’s federal tax collector has suffered “staggering losses” due to an anti-tax campaign that claims only “legal persons” have to pay income taxes, while “natural persons” are exempt, according to documents obtained by by the subscription news site Blacklock’s Reporter.
“The Canada Revenue Agency is the victim of a widespread and continually growing scheme to defraud the federal government of millions of dollars in tax revenues,” the agency’s Enforcement and Disclosures Directorate said in the documents.
“Law-abiding taxpayers need to be reassured that fraud does not pay, or they will look to join the multitude of fraudsters.”
Though no estimates were provided for exactly how much money the feds are losing to “detaxers,” as the CRA calls them, the documents urge aggressive enforcement because “the number of participants is growing quickly.”
Since 2000, there have been at least 23 convictions of “natural persons” who argued they didn’t owe income taxes, the Langley Advance reports.
The principal argument goes like this: The “legal person” established by the government, complete with Social Insurance Number, has to pay income taxes. But the “natural person” behind that legal person is a separate entity. If you “transfer” your wealth from the legal person to the natural person, you don’t have to pay income tax.
The CRA neutrally describes these theories as “opinions,” but warns that “individuals who mistakenly confuse opinions with facts may expose themselves to serious financial and legal problems if this results in their failure to comply with the Income Tax Act and other tax laws.”
Some people who have followed the advice of “detaxer” groups have ended up paying the price in the justice system. An Ottawa-area dentist and her husband weresentenced last year to two-and-a-half and four years in prison, respectively, for following the advice of Paradigm Education Group, which lectures on the “natural persons” theory.
Paradigm Education Group, based out of B.C., was itself targeted for tax evasion. The group’s leader, Russ Porisky, was last year convicted of tax evasion and counselling others to commit tax fraud, and sentenced to four-and-a-half years.
“Remember also that many groups and individuals stand to profit considerably from the perpetuation of certain tax myths,” the CRA website states. “Don’t let them profit at your expense!”
Some critics of the government’s approach to tax evasion argue the feds spend too much time on relatively small tax evasion cases, such as the “natural person” cases, while not doing enough to go after larger tax cheats who take advantage of offshore tax havens.
Canada’s wealthiest people are paying a shrinking amount of the country’s total tax burden, according to an analysis of new StatsCan data.
The share of federal and provincial taxes paid by the richest one per cent of earnersfell to 20.8 per cent in 2011, from 23.3 per cent in 2007, says an analysis from the Globe and Mail’s Economy Lab.
That’s not because the rich are getting poorer; StatsCan’s data on high-income earnings finds little change in recent years in the share of income taken by the wealthiest Canadians.
It’s another potential sign that Canada’s tax system is incrementally becoming more favourable to high-income earners, as well as to corporations.
For the first time ever, in 2014 more than half of the federal government’s revenue will come from personal income taxes, the result of aggressive tax cuts for corporations over the past decade and a half.
But the shrinking share of taxes paid by the richest Canadians may have to do with the collapse in stock prices during the last recession, StatsCan analysts told the Globe, because wealthy people earn more of their income through investments than middle earners, and those investments took a beating in the last recession.
Some analysts argue the rich are still paying more than their fair share of taxes. While the top one per cent paid 20.8 per cent of taxes in 2011, they collected half that share of total income — about 10.6 per cent of all earnings.
A recent study from human resources firm MacDowall Associates said the CEOs at Canada’s 60 largest publicly-traded firms made 133 times the average industrial wage in Canada in 2010 — $6.2 million, compared to an average $46,600.
But the study found taxes paid by those CEOs were 316 times the taxes on the average earner, with the top-60 CEOs paying an average of $2.52 million in income taxes, compared to just under $8,000 for the average earner.
“Do Canadian executives pay their fair share in taxes? We believe the answer is a resounding ‘yes’ based on our research,” the study concluded.
All the same, an ever-larger share of taxes in Canada is being paid by middle- and low-income earners. Personal income taxes next year will account for 50 per cent of the federal government’s total revenue, up from 30 per cent five decades ago, according to an analysis from economist Toby Sanger of the Canadian Union of Public Employees.
Opposition parties have been hammering the Harper government over “hidden” taxes that they say impact middle- and low-income Canadians in particular, such as hikes in EI premiums, which have been rising steadily, and tariff hikes in the government’s latest budget, that the opposition says will raise prices for consumers.