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Q: Several years ago, I led in a multi-marketing program. Revenue Canada reassessed my tax returns for three years and included more than $150,000 in my income for those years. The cash I received was freely given by individuals and not income that should be subject to tax. I am a businessman. Can I fight this?
A: You may have gotten off pretty light, under the circumstances. CRAs audit must have been very complete including your personal bank accounts, lifestyle and assets. Income earned from activities, irregardless if it is legal or illegal must be reported by an individual.
Legal activities such as waitperson’s tips, cash paid to subcontractors at a construction site, hair salon professional’s gratuities, etc., must be reported on filing your tax return. Illegal activities such as drug trade, prostitution, forms of pyramids schemes, etc., although illegal, the Canada Revenue Agency (CRA) expects you to report the income and pay tax. Remember, an infamous “businessman” called Al Capone. He was eventually caught on tax evasion. Another agency will deal with the criminal aspects. You may need a good lawyer, not just an accountant.
Certain types of income need not be reported on your income tax return and therefore not subject to tax:
- Gifts and inheritances
- Lottery winnings (unlike our Southern neighbour, this is not taxable in Canada, However, the interest will be)
- Proceeds from accident, disability, sickness or income maintenance insurance policies (provided employer pays no part of premiums)
- Capital elements of annuities
- Non-taxable dividends paid by a Canadian corporations (such as capital dividends)
- Profits from betting or gambling for pleasure or enjoyment (Yes, Casino Rama, or Woodbine winners should not be concerned with hiding winnings. Unfortunately, there are not that many that do)
- Civil and military service pensions
For a complete list of income that need not be reported, please visit CRAs website.
As a Canadian, we all use and benefit from the services provided by our tax dollars. Maybe if all forms of illegal income were reported, the legal taxpayer would pay less.