OTTAWA, ON, June 1, 2021 /CNW/ - The Canada Revenue Agency (CRA) is warning Canadians about getting involved in tax schemes. Promoters, including some representatives, tax preparers and investment professionals, are encouraging their clients to participate in "straddle" schemes to reduce the amount of income tax they owe.
What are tax schemes?
Tax schemes are plans and arrangements that recruit participants by promising to reduce the taxes they owe, for example, through large deductions or promises of tax-free income. Schemes can include other creative ways to convince people they could pay less tax.
What is a straddle scheme?
A straddle scheme often involves the trading of foreign currency and the purchase of "forward contracts". A forward contract is a contractual agreement to buy or sell an asset, for example, foreign currency, at a future date for a predetermined price. A straddle loss typically involves a combination of two similar forward contracts that move in opposite directions, so that a loss on one is offset by a gain on the other. The contracts that generate a loss are closed out in one year, while the gain contracts are closed out in the following year. The net effect is to push taxes back one year and take advantage of the deferral. Some taxpayers enter into such contracts every year, so that the gain is always offset by a new loss.
Some schemes involve an exit strategy to permanently avoid tax on the gain of a straddle. We view these types of transactions as offensive; because with them taxpayers create artificial losses to reduce the amount of tax payable.
Exit strategies are usually a complex series of investments, typically organized by the individual or group running the scheme.
Be careful before becoming involved in a straddle investment
The CRA is committed to protecting taxpayers and strongly suggests that taxpayers seek advice from an independent tax professional before participating in any aggressive or high-risk activity. Independent advice should be from a tax professional who is not connected to the scheme or promoter. Individuals or groups who organize straddle schemes and exit strategies typically charge a fee based on the size of the loss the taxpayer would like to display on their tax returns.
Your actions may have serious consequences
Organizers and facilitators of tax schemes, as well as those who participate may face serious consequences, including penalties, court fines, and even jail time.
People who avoid or evade taxes take resources away from social programs that benefit all Canadians.
All taxpayers, including those who pay tax experts to prepare their income tax and benefit return, are legally responsible for the accuracy of their return.
Remember: It's your responsibility to keep proof to support any claim you make.
What can you do?
The CRA encourages all Canadians to seek an independent second opinion from a reputable tax professional on important tax matters.
If you suspect tax evasion, you can report it online by visiting canada.ca/taxes-leads or by contacting the Informant Leads Centre at 1-866-809-6841. The CRA will act to protect your identity. Also, you can give information anonymously.
You are welcome to correct your tax affairs through the Voluntary Disclosures Program at: canada.ca/taxes-voluntary-disclosures.
For more information on tax schemes, please visit canada.ca/tax-schemes.
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SOURCE Canada Revenue Agency
Media Relations, Canada Revenue Agency, 613-948-8366, [email protected]
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