There is an old understanding that taxpayers have the right to structure their tax affairs so as to pay the least amount of money possible.
It鈥檚 right there in the . Taxpayers can expect to receive benefits鈥redits鈥� refunds and to pay no more than 鈥渞equired under the law.鈥�
Many Canadians seek advice from tax experts to make sure they only pay what they owe. But what happens if you pay thousands of dollars and then get bad advice?
For the 2009 tax year, nearly 1,800 Canadians were sold a program by a company called Fiscal Arbitrators run by Larry Watts. They were told that their taxes could be structured so that they could claim huge business losses and they were promised big refunds.
Their taxes were prepared and they signed on the dotted line. It seemed like a good deal.
Glenda Gurtina is a technical coordinator in Surrey, B.C. She paid her financial advisor $5,000 and they recommended the Fiscal Arbitrators program.
Gurtina recalled being told taxpayers used the program the year before and got refunds. 鈥淟arry Watts and company know the process. They鈥檙e the ones providing the services.鈥� she said.
But Gurtina never saw that promised hefty refund. Instead, she got a letter from the Canada Revenue Agency asking for proof she had a business. She asked for help and was instructed to let Larry Watts draft the answer to the CRA.
That response letter, which Gurtina later sent to the CRA, was, in tax lawyer Duane Milot鈥檚 words, 鈥渟imply nonsensical.鈥� It was peppered with curious Latin phrases and bizarre references to old tax legislation.
Milot represents about 50 former clients of Fiscal Arbitrators. 鈥淎 lot of taxpayers questioned the language but they were told, we鈥檙e the experts, this is what you should send,鈥� he said.
What Gurtina didn鈥檛 know was that while she was using the services of Fiscal Arbitrators and Larry Watts, the Canada Revenue Agency had launched a criminal investigation into his tax business scheme.
An Application for a Search Warrant obtained by W5 reveals the investigation was definitely underway by Dec. 15, 2009.
The CRA`s Taxpayer Bill of Rights promises 鈥淵ou have the right to expect us (CRA) to warn you about questionable tax schemes in a timely manner.鈥� But there was no warning from the CRA before the 2009 filing deadline of April 30, 2010 鈥� months after the CRA investigation began.
Gurtina said she tried to check out Fiscal Arbitrators on the web. 鈥淭here鈥檚 no alert from CRA, nothing to identify鈥hat this is not a legit program.鈥�
The CRA finally issued a on May 19, 2010 鈥� three weeks after the 2009 filing deadline.
Susan Betts, is Director General at the CRA. She told W5 that 鈥渁s soon as we knew that there was a scheme in place we put out the tax alert.鈥�
Asked about the 2009 investigation, Betts said 鈥淚 am not aware of the timeline on the investigation so I can鈥檛 really comment.鈥�
Larry Watts was eventually charged in November 2012. By then, Gurtina and hundreds of other clients were facing gross negligence penalties for signing false tax claims. The CRA ruled the taxpayers were willfully blind.
Gurtina was assessed gross negligence penalties and now owes $39,000 plus interest.
鈥淭he CRA has tremendous power, they have the discretion to waive all or part of these penalties鈥� said Milot her lawyer.
But Betts told W5 the CRA has no discretion. 鈥淭he law states that the gross negligence penalty is fifty percent of the tax evaded.鈥�
That much is true but the Income Tax Act clearly states there is discretion in waiving penalties after they are applied, 鈥淭he Minister may waive or cancel all or any portion of any penalty or interest otherwise payable.鈥�
Betts also insisted each case involving this business tax scheme was evaluated on its own merits. 鈥淎n individual decision was made on whether or not to apply gross negligence penalties,鈥� Betts told W5.
However, W5 obtained CRA Penalty Recommendation Reports on some of these cases. They state: 鈥淎 decision has been made by the Canada Revenue Agency to assess penalties on all these cases under subsection 163(2) of the Income Tax Act.鈥�
Milot has reviewed a number of these Reports related to the Fiscal Arbitrators scheme. 鈥淭he Canada Revenue Agency decided that every single person that participated in this scheme was grossly negligent. This decision to assess penalties across the board is unheard of, it鈥檚 unprecedented,鈥� he said in an interview with W5.
The Tax Court of Canada has already heard a number of cases involving Fiscal Arbitrators. A in 2013 upheld the gross negligence penalties although the judge wrote, 鈥淚 am concerned about the devastating effect the magnitude of the penalties will have鈥� (on the taxpayers).
Despite that ruling, Gurtina is hoping her own case before the Tax Court will reduce the gross negligence penalties applied by the Canada Revenue Agency. 鈥淭hey need to focus to stop Larry Watts and not punish the taxpayers.鈥�
