Electronic filing of tax returns continues to gain in popularity, according to preliminary tax filing season statistics released by the Canada Revenue Agency this week.
According to the CRA, of the 24.5 million personal tax returns received as of May 31, 64% were filed electronically, either through individuals filing at home via the web-based NETFILE program or through a professional tax preparer using EFILE. Paper returns constituted 35% with the remaining 1% of returns being filed over the telephone using TELEFILE.
For some unscrupulous tax preparers, however, the ability to file clients’ returns electronically, without necessarily having valid supporting receipts, has led to nasty consequences, including the CRA’s revocation of a tax preparer’s ability to EFILE client tax returns.
Consider the case of Christopher Paterson, who was informed that his EFILE privileges were being revoked and he would no longer be able to file his clients’ income tax returns electronically.
About a year ago, Mr. Paterson went to Federal Court requesting a review of the CRA’s decision to suspend his EFILE privileges.
Under the Tax Act, there is no automatic right to file a tax return electronically. Rather, the Act says that “a person who meets the criteria in writing by the (CRA) may file a return of income for a taxation year by way of electronic filing.” The CRA publishes a Suitability Screening Form listing the relevant factors that are used by the CRA to determine a tax preparer’s eligibility to EFILE clients’ returns.
Among the relevant factors are that the tax preparer must not have been engaged “in fraud, dishonesty, breach of trust, or other conduct of a disreputable nature.”
The evidence in the case showed that Mr. Paterson, with the assistance of one his clients, Mr. Mohammed Gaye, accepted money from taxpayers who wished to “donate” to various charitable organizations in exchange for an “enhanced receipt” for tax purposes. For example, a client would pay $500 to Mr. Paterson, who would, in turn, send the money to Mr. Gaye. The client would then receive a receipt for $7,500 and Mr. Paterson was to receive $25 from Mr. Gaye for each client so referred.
While Mr. Paterson never denied his involvement in the scheme, he did “not believe he has done anything wrong…(and) he had no reason to suspect that the enhanced returns were in any way fraudulent.”
The CRA found his conduct to be “disreputable in nature” and that it “does not reflect positively on the integrity of the EFILE program.” The Court agreed that the CRA’s decision to revoke his e-filing privileges was reasonable, which was affirmed by the Federal Court of Appeal earlier this year.
In a similar story, this past week tax preparer Eric Armah of Brampton, Ont., was sentenced to three years imprisonment for submitting more than $34-million in false charitable donation claims on clients’ returns from 2004 to 2006, generating more than $9-million in fraudulent income tax refunds.
Financial Post
Jamie.Golombek@cibc.com
- Jamie Golombek, CA, CPA, CFP, CLU, TEP, is the managing director, tax abd estate planning with CIBC Private Wealth Management in Toronto.
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