Toronto employment agency owner convicted of tax evasion

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With staffing agencies under CRA control, the Voluntary Disclosure Program could help some people, says David J. Rotfleisch, CPA, CA, JD, de Rotfleisch & Samulovitch PC

TORONTO – On September 30, 2020, the Canada Revenue Agency announced that two employment agencies, Jane General Services Ltd. (JGSL) and 2322944 Ontario Ltd., operating as Tri-Han Staffing Solution (TSS) and their shareholder, Vanessa Jane Canlas, were fined approximately $ 830,000 and imprisoned for two and a half years. . In June 2020, JGSL, TSS and Ms. Canlas pleaded guilty to four accounts of tax evasion related 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 with taxes totaling up to $ 1.6 million. Ms. Canlas not only chose not to include all sales invoices in the spreadsheets provided to her accounting for filing corporate income tax returns, but also removed sales on GST / HST returns for both. agencies.

Staffing agencies bring CRA more attention to tax audits

The conviction is not surprising, as tax evasion is a crime under the Criminal Code and the Income Tax Act. However, the CRA’s Tax Audit Division has paid more attention to companies that use employment agencies in recent years and recent experience indicates that the CRA may have a project underway to review the employment agencies. employment agencies. Indeed, previous CRA investigations found that some employment agencies were involved in a sham to help businesses falsely claim input tax credits. The following example is a typical scenario:

The employer, a GST registrant, hires temporary workers through a third-party employment agency, StaffingCo. StaffingCo then bills the employer for the cost of workers and GST / HST, which allows the employer to claim income tax credits for GST / HST based on the invoices provided by StaffingCo. However, StaffingCo fled without paying the GST / HST. Sometimes StaffingCo hires a subcontractor to provide the labor and the subcontractor later disappears with the GST / HST that should have been paid before the CRA could collect it.

Other common tax evasion issues with recruiting agencies include using multiple bank accounts but reporting income from only some of them and performing unreported cash transactions. The consequence is that the CRA will generally be start a tax audit the company that hired the employment agency as well as the employment agency itself. The CRA will then attempt to gather evidence that business owners knew or should have known that the placement agency was a sham and this often leads to a reassessment to deny input tax credits or tax expenditures already. claimed by the company. To tackle this issue, the CRA has also issued an increasing number of Section 288 and 289 inquiries under the Excise Tax Act in recent years to seek compliance. taxpayers who did not provide the requested information.

Therefore, it is essential for business owners to seek professional tax advice from an experienced Canadian tax lawyer to understand both their obligations to the CRA and the protections they have when served such claims.

Voluntary disclosure to the rescue

Tax evasion is a crime and it could lead to serious financial and legal consequences, including jail time, as in this case. Taxpayers found guilty of tax evasion could face a fine of double the amount of tax evaded and jail time of up to five years. Fortunately, the Voluntary Disclosure Program (“VDP”), also known as tax amnesty, is designed for taxpayers to submit unreported income or any type of irregular tax returns in exchange for relief from penalties, interest and lawsuits. 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 companies with gross income in excess of $ 250 million, and a program general for everything else.

A request for voluntary disclosure must meet the following requirements to be accepted:

  1. He must be voluntary;
  2. The information provided must be complete;
  3. The information disclosed must be overdue for one year;
  4. The information provided must be linked to a sanction;
  5. He must provide payment of estimated taxes owed.

However, the CRA’s decision to accept a voluntary disclosure request depends on the particular circumstances of a case. Since the CRA’s mission is to tackle potential fraud in the recruitment agency context, it is strongly recommended that business owners working with employment agencies seek professional tax advice.

David J Rotfleisch, CPA, CA, JD, is the founding tax lawyer of Rotfleisch & Samulovitch PC, a Toronto-based tax law firm. With over 30 years of experience as a lawyer and chartered professional accountant, he has assisted start-ups, resident and non-resident business owners and corporations with their tax planning, with will and estate planning. , voluntary disclosures and the resolution of tax disputes, including tax litigation. Visit www.taxpage.com and email David at [email protected]

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