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.”
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If the idea of a loophole that allows you to avoid taxes sounds to good to be true, it is. Courts have repeatedly rejected the “natural person” defence in tax evasion cases.
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 were sentenced 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.