CRA Tax Myths

tax

Some CRA Tax Myths that may surprise you:

Myth #1
The CRA uses email to conduct “e-audits.”

The Facts
The CRA has been made aware of what appears to be an email audit scam currently going on in the United States. Although the CRA is not aware of any confirmed cases of such scams in Canada, we would like to alert Canadians to act prudently should they receive a similar email.

Here’s how a similar scam might work in Canada: A taxpayer would receive an email using “Canada Revenue Agency e-audit” as the subject line, giving the appearance that it was sent by the CRA. The recipient/taxpayer would be instructed to fill out a questionnaire and return it within 48 hours to avoid penalties and interest. The fraudulent questionnaire would require the taxpayer to provide his or her social insurance number, bank account numbers, and other confidential information. Once the scam artist has this confidential information, the taxpayer is a potential victim of fraudulent activities.

The CRA does not notify taxpayers about pending audits by email, nor does it conduct “e-audits.” Taxpayers should never respond to a request for confidential information without first confirming the identity of the requestor and assuring themselves that the requestor is legally permitted to request such information.

The CRA is committed to safeguarding the confidentiality of all taxpayer information. Because the Internet is not a secure medium of communication, the CRA does not use it to communicate with clients unless the taxpayer has first provided permission.
If you receive such an email, please contact your tax services office.

Myth #2
Federal income tax is unconstitutional and you can therefore refuse to pay income tax to the federal government, as confirmed by the Supreme Court of Canada in a decision in 1950.

The Facts
This myth is based on the faulty argument that the Canadian Constitution gives the power of direct taxation exclusively to the provinces. Section 91 of the Constitution says the federal government can raise money “by any mode or system of taxation.” Section 92 says the provinces can impose “direct taxes within a province” to raise revenue for provincial purposes. As a result, while federal and provincial taxing powers overlap, the federal government can levy both indirect and direct taxes, including income tax.

The courts have confirmed the power of the federal government to levy direct taxes including income tax. No court in Canada has ever agreed with the idea that the federal government cannot levy income taxes. The often-cited 1950 Supreme Court decision concerning the Lord Nelson Hotel in Nova Scotia dealt with the issue of whether the federal government and a provincial government could delegate authority to each other on specific issues of labour and taxation. The Court did not address the issue of imposing direct taxes or their constitutionality.

In Canada, if citizens feel a law is unconstitutional, they may ask the courts to declare it so. Until that happens, the law applies.
A number of individuals and groups are actively promoting claims that there are lawful ways to declare oneself exempt from tax. Relying on such “advice” could result in action from late-filing penalties and interest imposed by the CRA to fines and imprisonment imposed by the courts — in addition to having to pay your taxes.

Before paying for such information or participating in such groups, seek advice from a trusted and knowledgeable tax professional or the CRA.

Myth #3
Some individuals claim to be exempt from GST/HST. Some carry a card to “prove” their claim.

The Facts
GST/HST legislation does not provide tax exemptions for any individuals, and any card claiming such an exemption is a fraud. However, individuals with Indian status under the Indian Act may not be required to pay GST/HST on the purchase of goods and services under certain conditions. (For details, see Publication B-039 GST/HST administrative policy – Application of the GST/HST to Indians.)

Some consumers think that falsely claiming an “exemption” is an effective protest against taxes or a government. In fact, any resulting discount they receive is at the expense of the vendor. Vendors must remit tax on all taxable transactions, even if they have mistakenly failed to collect the GST/HST from an individual falsely claiming an exemption.

You may sometimes be led to believe that you are not paying GST/HST because a vendor may promote a sale by advertising “Pay no GST” or other similar claims. The vendor in these cases discounts the price so that the final, tax-inclusive cost is the same as the advertised, pre-tax price. 

Myth #4
Winners of sweepstakes and lotteries in Canada have to pay fees and taxes to the CRA before claiming their prize.

The Facts
You do not have to pay the CRA any taxes or fees of any kind on lottery and sweepstakes winnings in Canada. Any unsolicited email, letter, or phone call telling you otherwise is a scam. Do not, under any circumstances, send money to someone making such a pitch to you. Instead, immediately contact your local police department or the Royal Canadian Mounted Police.

You should never respond to a request for funds or confidential information without first confirming the identity of the requestor and assuring yourself that the requestor is legally permitted to make such a request.

The CRA is committed to safeguarding the confidentiality of all taxpayer information. Because of certain security concerns, the CRA does not use the Internet to communicate with clients unless you have first provided permission to do so.

Visit the CRA’s Taxpayer Alert pages for more information and tips on how to recognize such scams, or contact your tax services office.

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