CANADA'S income tax system might be based on self-reporting. But don't let that tempt you to report less income or claim more deductions than you should.
Canada Revenue Agency has an impressive arsenal of weapons to "encourage" you to do the right thing - from computer matching to regular reviews and audits to following up leads from anonymous informers.
And the guilty are responding: Between 2008-2009 and 2010-2011 the number of annual voluntary disclosures increased 20 per cent to 12,811. (If you voluntarily disclose "mistakes" you made before the tax office comes looking, you can avoid fines and penalties, and need pay only the tax owing plus interest on that amount).
I always remember hearing about an individual who reported income and expenses from several nonexistent revenue properties. Some years he showed a few dollars of profit but most years he had substantial losses which he deducted from his other income, reducing his tax by several thousand dollars a year.
Did he ever confess, or was he caught? I don't know, but if he were caught he would face fines and/or penalties up to double the tax he owed, plus interest - and possibly even a jail term up to five years . all accompanied by media exposure to discourage others from evading taxes.
If you have a disgruntled person in your life - ex-partner (or possibly even existing partner), jealous or otherwise unhappy (former) friend, neighbour, employee, tenant, business associate - who knows or suspects you have been evading taxes, all it takes is one phone call or email to put the CRA on your trail.
Also try to avoid attracting the CRA's attention by making mistakes that would be picked up by computer matching of tax information slips with what you report, or by other computer or personal review programs to deal with mistakes or misunderstandings.
Once your tax affairs have been reviewed, depending on the reasons for the review, your file could be flagged for further review or even a full-scale audit.
For a list of common errors, go to cra-arc.gc.ca.
Mike Grenby is a columnist and independent personal financial advisor; he'll answer questions in this column as space allows but cannot reply personally. Email [email protected].
