False or exaggerated business claims
Charles has been an accountant for 25 years. He operates a tax services business and prepares tax returns. Charles has a pattern of being aggressive when preparing returns for his clients in order to create the biggest tax refunds possible.
Charles promised his clients larger refunds if they paid him between $50 and $500 in addition to his normal fees. In order to generate more refunds, Charles reported fictitious business and rental losses on his clients’ tax returns. Charles was notified by the Canada Revenue Agency (CRA) that reporting losses on behalf of his clients without sufficient supporting documentation was in contravention of the Income Tax Act.
Despite the CRA’s notifications, Charles continued to file losses without supporting expense documents. In some cases, Charles would complete a return for a client without any explanation of what he had done, thereby making false claims without the client’s knowledge. Charles repeatedly made false statements on his clients’ returns to generate unwarranted tax refunds.
What happened next
Due to Charles’ experience and the notifications he received, he knew or would reasonably be expected to know that the statements he was making on his clients’ returns were false. As a result, his actions represent culpable conduct and a disregard for the Income Tax Act.
The CRA assessed third-party penalties against Charles for knowingly and repeatedly misrepresenting information on his clients’ returns. The penalties assessed in this case totalled about $500,000.
The consequences for participants
As a result of Charles providing false information, many of his clients have been audited and reassessed for business or rental losses. The CRA disallowed the false or exaggerated claims. And interest and penalties were applied appropriately to each claim.
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