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November 15, 2017 | The Evaders

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

Bandit went into the gulag last week. Actually it was home boarding and the family taking him in for a few days in Toronto has a very fetching bitch. Bandit looked far too happy when we went to get him.

Notable was the proprietor’s insistence that the fee to look after our pampered canine be paid in cash. No cheque. Certainly no plastic – even though this is a professional operation, advertising widely and in business a decade or two.

“You do understand I used to be the federal minister of national revenue?” I asked. “Are you tax evaders? If so, we have a problem.” That was awkward. Of course he evades. “I’d just have to ask you for HST if you wrote a cheque,” he said. So I wrote a cheque.

Paying cash is endemic, in some places ubiquitous. Consumers think they’re smart or saving something when they give it to renovators, gardeners, cleaning ladies or dog boarders. The act allows these enterprises to have unreported revenue so they can flow money into personal use and escape paying corporate or income tax. Lower reported sales also means the guy fixing your taps or cleaning your gutters doesn’t remit as much HST, while still claiming all of the input tax credits on his supplies. It’s sometimes hard to see why a homeowner – paying everything out of after-tax dollars – would assist someone else in making income without paying their share. But, hey, sticking it to the man is cool, right?

So all this cash-for-services thing has resulted in a so-called underground economy now worth between $45 and $50 billion. Most of the cheating is carried on in just three industries – home renovations (the biggie), retail and hospitality. In restaurants, for example, workers often make more in tips than in wages, and declare nothing. That’s evasion. It’s illegal. Also against the law is paying any regular employee in cash. You must report the income along with the employee’s SIN, even if nothing is withheld for tax.

A major new source of evasion: collecting rent in cash from your residential suite. With an estimated 54% of homeowners in the Lower Mainland leasing out basements, laneway houses or bedrooms – plus playing the AirBnB game – breaking the law is mainstream.

In the past I owned four restaurants with over a hundred servers, bartends and chefs. It was a nightmare. Every single employee wanted to walk out at the end of the shift with pockets of cash, and recoiled at my plan to record all tips, distribute them evenly then issue everyone with a tax slip. Never again will I employ wait staff. Or touchy, temperamental chefs who think they’re food artistes, above taxation. Hundreds of thousands, perhaps millions, of working people in Canada believe they can cheat, game and rob the system. The clever ones justify it as revenge for the government wasting their money. The rest call it greed.

So now the country is short about $20 billion a year in tax revenues and has $600 billion in accumulated the debt. Most provinces are in even worse shape. Politicians have spent the money people demand – sending them cheques for having babies, for example, or just because they get old – without being able to cover that spending with tax revenues.

You can see the result.

Ottawa has raised taxes by more than $2 billion on wealthy income-earners through the creation of a new tax bracket. It’s in the midst of launching an assault on small businesses, doctors, self-employed professionals like lawyers, vets and IT guys. This week the CRA told PayPal it has to cough up data on every dollar that’s gone through the system in the last three years. That potentially affects 6.4 million customers, including about a quarter-million retailers. It comes on the heels of similar CRA fishing expeditions when it forced eBay and Square Canada to give up customer transaction records.

The revenue cops are also chasing condo-flippers who recorded profits as capital gains instead of heavily-taxed income. And now, with evidence in the Paradise Papers of corporations using offshore accounts in a completely legal fashion to harbour after-tax income – public pressure has the CRA chasing its tale across the Caribbean.

Meanwhile in the House of Commons, when confronted with the news his own party fundraiser was named as a Pardiser, the prime minister shot back: “we are fully committed to fighting tax evasion and tax avoidance,”

Great. Except tax avoidance is legal. Every time someone puts a dollar into an RRSP or a TFSA, opens a spousal plan, loans money to their adult children to invest or structures their portfolio to make capital gains instead of interest, they’re avoiding tax. On purpose. Legal and deliberate. Just like the rich guys parking money in a jurisdiction where taxes are lower.

This pathetic blog has detailed a host of methods to avoid tax, from getting funds out of a RRIF without penalty, to leveraging an RRSP homebuyer’s loan into a bigger down payment, to splitting income with your kids or simply using the dividend tax credit or capital gains tax exemption. This will continue. You have an obligation to your family not to pay more than your share. Just as we all have an obligation to pony up what we owe.

Bandit included.

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November 15th, 2017

Posted In: The Greater Fool

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