Canada: The owner of a Toronto employment agency has been convicted of tax evasion
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On September 30, 2020, the Canada Revenue Agency (the “CRA”) announced that two staffing agencies, Jane General Services Ltd (JGSL) and 2322944 Ontario Ltd operating as Tri-Han Staffing Solution (TSS ) and their shareholder, Vanessa Jane Canlas, was fined approximately $830,000 and jailed for two and a half years. In June 2020, JGSL, TSS and Ms. Canlas pleaded guilty to four counts of tax evasion related to tax evasion on their corporate tax returns. Additionally, Ms. Canlas also pleaded guilty to a tax evasion account on her individual tax return.
According to a CRA investigation, the two employment agencies and Ms. Canlas deliberately defrauded the Government of Canada of taxes totaling up to $1.6 million. Ms. Canlas not only opted out of including all sales invoices in the spreadsheets provided to her accounting for the filing of corporate tax returns, but also deleted the sales on both agencies’ GST/HST returns. .
Placement Agencies Get More Tax Audit Attention From CRA
The conviction is not surprising since tax evasion is a crime under the Criminal Code and the Income Tax Act, however, the CRA’s Tax Audit Division has given more attention companies that have been using staffing agencies in recent years and recent experience indicates that the CRA may have a project underway to review staffing agencies. Indeed, previous CRA investigations found that some employment agencies were involved in a sham to help companies wrongly claim input tax credits. The following example is a typical scenario:
The GST-registered employer hires temporary workers through a third-party employment agency, StaffingCo. StaffingCo then invoices the employer for the cost of the workers and the GST/HST, which allows the employer to claim income tax credits for the GST/HST based on the invoices provided by StaffingCo. However, StaffingCo then flees without remitting the GST/HST. Sometimes StaffingCo will hire a subcontractor to provide the labor and the subcontractor will later disappear with the GST/HST that should have been remitted before the CRA could collect it.
Other common tax evasion issues with employment agencies include using multiple bank accounts but only reporting income from some of them, and carrying out unreported cash transactions. The consequence is that the CRA will generally begin a tax audit of the company that hired the placement agency as well as the placement agency itself. The CRA will then try to collect evidence that the business owners knew or should have known the placement agency was a sham and this often leads to a reassessment to disallow input tax credits or business expenses. income tax already claimed by the company. To address this issue, the CRA has also issued an increasing number of Sections 288 and 289 inquiries under the Excise Tax Act over the past few years to seek compliance from taxpayers who have failed to provide the requested information.
Therefore, it is essential that business owners seek professional tax advice from an experienced Canadian tax lawyer to understand both their obligations to the CRA and the protections available to them when they receive such requests. .
Voluntary disclosure to the rescue
Tax evasion is a crime and it could lead to serious financial and legal consequences, including jail time, because in this case, taxpayers found guilty of tax evasion could be subject to a fine equivalent to twice the amount of taxes evaded and a prison term of up to 5 years. Fortunately, the Voluntary Disclosure Program (“VDP”), also known as Tax Amnesty, is designed for taxpayers to submit unreported income or any type of improper tax returns in exchange for penalty relief. , interests and criminal proceedings. There are currently two streams under the VDP, one is a limited relief program for tax non-compliance with an element of intentional conduct or for corporations with gross revenue over $250 million, and a general program for everything else.
A request for voluntary disclosure must meet the following requirements to be accepted:
- It must be voluntary;
- The information provided must be complete;
- Disclosed information must be one year late;
- The information provided must be related to a sanction;
- He must provide payment of the estimated taxes due.
However, the CRA’s decision to accept your request for voluntary disclosure depends on the specific circumstances of your case. Consulting an experienced Canadian tax lawyer before submitting your application will maximize your chances of success.
Pro Tax Advice – Business owners should seek professional tax advice when dealing with employment agencies
Since the CRA’s mission is to address potential deceptions in the context of employment agencies, it is strongly recommended that business owners working with employment agencies seek professional tax advice from a Canadian tax lawyer. so they can spot the early warning signs and get the input tax credits they deserve. If you have undeclared income, contact our office to speak with an experienced Canadian tax attorney about the VDP, as you may have a chance to reduce potential penalties.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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