Canada Revenue Agency “detax” update

In or about 1995, the “detax” or “untax” movement has been moving through Canada. Since that time, detax organizations have been gaining profit holding seminars that spread the detax philosophy. Generally speaking, detaxers believe that the they are “natural persons” (as oppose to government created “artificial personages”) and that “natural persons working in their own capacity, under a private contract, for their own benefit” can structure their affairs in a tax exempt manner i.e., detaxers believe they don’t have to pay tax.

Our firm has long held that detax philosophy/argument is wrong in law. The Courts have confirmed our interpretation of the law. The CRA has successfully charged and prosecuted some of the detax promoters under paragraph 239(1)(d) of the Income Tax Act (“ITA”) for tax evasion and under subsection 464(a) of the Criminal Code for counselling others to commit fraud by evading income taxes.

Consider: R. v. Porisky, 2012 D.T.C. 5037, R. v. Sydel, 2006 BCPC, CA Magazine Article, March 2002, Detax man cometh, CTV.ca, January 19, 2012, Tax-dodging guru convicted on evasion charges

We believe that the CRA’s decision to charge detax promoters for tax evasion and counselling others to commit fraud was fair and reasonable. However, we are disappointed and concerned that the CRA has recently sent notices of reassessments to unsuspecting detax participants imposing 50% gross negligence penalties under subsection 163(2) of the ITA. It appears that the detax promoters misled these taxpayers and that these taxpayers were under the innocent mistaken belief that the detax philosophy was correct. In these circumstances, we believe that the CRA’s decision to impose 50% gross negligence penalties is wrong in law and that these taxpayers should dispute the imposition of this penalty.

We encourage detax participants who have recently received notices of reassessments or notices of confirmation that impose gross negligence penalties to call our firm to discuss their tax matter.