Welcome to the Mad Hatterís Ball
by Elvena Slump
†††† If you are an employee in an ordinary business when income tax time rolls around, you likely donít give it much thought. You might grumble a bit about taxes, but itís fairly painless and straightforward.
†††† Seventy-five percent of all employees work for small business. Small business spends many hours satisfying the requirements of different government tax departments with myriad complicated regulations.
†††† Regular audits are conducted. This would not be a problem if the company keeps good records and the civil servant is professional and objective.
Or would it?
Unfortunately we are living in a tax dream world with 90 percent of taxpayers lulled into thinking all is well.
But what if CRA uses different standards across the country or even different within one province? How would you know or find out? How could you protect your financial interests from unfair taxation?
†††† One case brought to my attention, involves a rogue auditor disallowing legitimate business expenses. This auditor preferred to use personal preferences as a guideline. If she didnít like it you couldnít have it. It had nothing to do with validity. An example out of many is when the taxpayer bought an expensive specialized saw. The following year he purchased another saw. The auditor disallowed the deduction because he didnít prove why he needed two saws for his business. The taxpayer bought wrapping material for mail orders. Disallowed. Auditor opinion: for personal use. The auditorís mishandling of the audit has cost this taxpayer many years of grief. CRA could have disciplined the auditor treated the taxpayer fairly redone their audit. Instead the taxpayersí found themselves on an expensive five-year odyssey through the courts. This has taken a toll on their health and their business aside from the deleterious effect on needed cash flow. CRA subsequently tried to persuade them to declare bankruptcy. This ploy is regularly used by income tax officials in contested cases. They claim they are doing you a favor because you shouldnít be in business. Civil servants should not have the power to decide whether you should be in business. That decision is best left to the marketplace.
†††† Our government has to take responsibility when the actions of their employees bludgeon helpless taxpayers so unfairly.
†††† How do you know if CRA taxes you differently than others in a similar situation? We have a taxpayer Bill of Rights and if you survive all the court battles heavily slanted in favor of the Crown and are still capable of demanding your rights you can complain to the Ombudsman. But before you know you are treated unfairly, you need to be able to compare your situation to that of other taxpayers. The Privacy Act will not allow this. So that leaves the will and ability of government to enforce rules of appropriate behavior upon a compliant civil service.
Is CRA compliant; does government have the will?
If you live and work in the transportation industry in Ontario and Quebec and were audited this year for your 2004, 05 and 06 tax years you were allowed the full civil service rate, though sometimes it meant contesting the audit. Expectations are the practice will continue for the 2007 tax year, whether you are an owner operator, a sole proprietor or a trucking company employee. The income tax departments in those two provinces should be commended for realizing that contrary to court rulings in the Class Action on Meal Allowances, all taxpayers should receive comparable tax-free allowances. ($79.30 vs. the transportation a percentage of $51)††
†††† In March 2007 the federal government set out a new graduated system of meal allowances for the transportation industry, increasing the daily meal and incidental rate over the next few years from 60-to-75 percent of $51 per day.
†††† Those government changes in deductibility for meals for transportation employees left a loophole. CRA began to back audit for three years denying sole proprietorsí deductions allowed for the past decade. Receipts were demanded claims were denied.
†††† The civil service rate for meals and incidentals effective October 1, 2007 is: Breakfast $13.45; Lunch $12.65; Dinner $35.90; Incidentals $17.30, totaling $79.30. Currently truckers in every province except Ontario and Quebec are allowed only 60 percent of $51 which is $30.60 for their daily meals and expenses, sole proprietors need receipts.
Welcome to the Mad Hatterís Ball. Alice in Wonderland would feel quite at home. There is a reality-disconnect between our elected representatives and CRA. Who is running this country; CRA or the federal government? Does it not matter that lives are ruined; people and businesses forced into bankruptcy at the whims of CRA employees?
High standards of work behavior for government employees hired in agencies such as CRA must be set and rigorously enforced. All taxpayers should be treated in a fair, equitable sane manner.
We are overdue for a drastic overhaul of the present tax regime to a simple fair system. It will take a determined government to make that change.
CRA operations in Canada are predatory; rogue auditors too often unchecked; federal tax departments operate independently provincially, with a fiefdom mentality; cohesive control on a federal level is lacking.
If you think this doesnít affect you consider this. No one is safe and secure when a government department sets its own rules; arbitrarily changes rules at will; is generally unaccountable; further complicates a too complex tax act; fails to automatically overrule and correct audit abuses; further complicates the issue by pursuing unfair audits through the courts.
†††† The onus on the taxpayer to prove his case leaves him with few options: hire a lawyer; spend $20,000; cave in to CRA unilateral demands even if unfair or stumble through a five-year-long fight through the courts, on their own. Too many choose to just pay up.
†††† Until taxpayers begin to understand the injustices perpetrated against their fellow taxpayers, nothing will change. CRA is busy chasing the transportation industry so you likely wonít be next. However, be wary eventually CRA will need to find new targets. In fact you might just look around one day and find you are the last person left standing.
The long arm of CRA reaches its tentacles into every aspect of a taxpayerís life.
If you run a business, especially a small business in Canada today you should know that it is only a matter of time before CRA will audit you.
The auditor, likely has never run a business. Probably has little understanding of the sweat, toil, and long hours of unpaid labour involved in making that business run. Will be quick to disallow legitimate expenses as he or she as little understanding of what is involved in running that business. And she will likely get away with it, unless you are prepared to spend the next five years going through an on-going process designed to fill your time defending your interests instead of pursuing your business.
An example of this is a trip taken by an artist to a week-long show in Washington DC. Despite the fact this was a successful show where the artist sold more of his product then ever before, this week long trip was deemed by CRA to be a family vacation and all the expenses were disallowed.
The artist and his wife lived in a small town in the interior of BC. There was no market for his product locally. His market depended on his ability to show, and attend events which would make him known. This involved a lot of vehicle travel. If he went alone, CRA would allow the trip. If he travelled with his wife, 50 percent of the time the trip and all of its expenses would be disallowed.
The running of a small business is generally a family enterprise. It requires hard work, mostly unpaid. Yet auditors that had never run a business and have no conception of the communal sweat, inspiration or worry involved in small family enterprises with one slash of the pen deny legitimate expenses.
The worst is yet to come. Not only do they slash these expenses but in this particular case the auditor allegedly made derogatory comments on their working papers. These comments once they become a part of your permanent file become impossible to erase. Worst of all you donít even know they are there. An example that came to my attention was comments on the breastfeeding habits of the artistís wife in a CRA court case I attended in 2007. Such breastfeeding according to the auditor was cut off early so that the wife could resume drinking.
The artist is an Inuit from Greenland that immigrated to Canada many years ago. His business is the creation of beautiful works of art hand carved out of stone.
He bought two saws in two separate years. This was arbitrarily disallowed. Because no notation was on the bill to explain why he needed two saws. He bought a knife. This was disallowed because he hunts.
So how did the auditor know he hunts? How did the auditor know the wife breast fed? How did the auditor know the wife drank?
The horrified wife tells me she did not breast feed. The wife apparently does not drink. Yet this auditor was quite comfortable adding this information to a taxpayerís files.
The racial aspect is now before a human rights tribunal. What is in your file? Maybe you should find out.
Delay in Human Rights Tribunal Hearing held in Penticton in September 2009
Despite the fact that CRA pursued a local case before the Tax Courts for five years government lawyers were apparently unprepared for the hearing that the taxpayer was granted before the Human Rights Tribunal. The case was put off until a later date. A subsequent request to delay this case again has been denied. It is set to be heard on September 8th at 9:30 am at the Penticton Lakeside Resort Convention Centre.
David fighting Goliath caused emotional and financial expense to an artist and his wife owning a small business in the Okanagan and fighting for fair treatment.
When do government practices turn from prosecution into persecution of the taxpayer?
It all started as a simple dispute between CRA and an Inuit artist and his wife over what is an acceptable business expense. The waters became muddy when racist comments were allegedly made regarding the various lifestyle aspects of the couple while denying generally accepted business expenses.
According to statements the auditor made in tax court she is no longer in the employ of CRA. However, when CRA employees bring their racial biases into a tax case, is getting rid of that employee enough? Should the onus have been on CRA to rectify a possible injustice with an independent tax reassessment of the case?
Apparently not as this couple spent five years of hell and misery fighting for their rights as CRA used unlimited amounts of your tax dollars pursuing them through the courts.
Where does responsibility lie? Why did the CRA supervisors let this case continue for five years? Who made the decision to pursue this case through the courts? Did CRA hope to bury knowledge of their discriminatory practices by breaking the will of these taxpayers?
The artist and his wife faced financial hardship, lost jobs and opportunity; plus thousands of hours were spent defending themselves in tax court where they are automatically presumed guilty and must prove themselves innocent.
I think these taxpayers are entitled to a speedy hearing and full public accountability for any untoward actions of this powerful arm of government. And appropriate recompense if warranted.
Has hiding behind the Privacy Act allowed this powerful arm of the government to treat individual taxpayers unfairly? The Privacy Act works to CRA advantage when injustice is hidden.
This case has been resolved with an out-of-court settlement. The government† settled this matter out of court. The injured party is required to maintain secrecy of the amount of the payment. Canada Revenue Agency, a crown corporation responsible for collection taxes on behalf of the Canadian government is off the hook,