When Cheaters Go Straight
It's gotten much harder to hide money
KATHERINE MACKLEM | Apr 12, 2004
Fourteen years ago, a Canadian businessman socked away some money in a secret Swiss investment account. Through the years, he put it in the market, and his holdings grew to almost $1 million. Canada Revenue Agency probably still wouldn't know about this stash had the gentleman, now elderly, not wanted to pass his wealth on to his family. To do that, he had to bring the money home, and pay tax on it. So he contacted Paul DioGuardi. The Ottawa-based tax lawyer negotiated a deal with the CRA that saw his client pay only six years' worth of taxes, with a reduction on the interest and no civil or criminal penalties. "He still paid a considerable amount of taxes," DioGuardi says. "But less than had he not been honest."
The sneaky businessman is part of a small army of Canadians who, whether by working in the underground economy or hiding money offshore, deprive the taxman of hundreds of millions, if not billions, of tax dollars. For those who get caught, the penalties can be severe. Cheating on taxes is a criminal offence punishable by fines equal to several times the amount of tax owing, plus the tax, plus interest.
DioGuardi's specialty in helping tax cheats come clean may not be unique, but he has a particularly useful background -- he spent four years working as a tax cop for the CRA. And while his clients typically are big-time tax evaders who have failed to declare $100,000 or more in income, these days he's aiming at a new market: the little guys. One recent client is a cab driver who over the years had under-reported his income by roughly $15,000. Now in the midst of a divorce, he is worried his soon-to-be ex-wife will snitch on him. For a fee of $199, DioGuardi offers to assess the tax problem on-line and then quotes a new fee, usually based on the amount of tax he thinks he can save the client.
Fessing up to tax debt is certainly on the rise. Last year, 5,097 Canadians admitted to cheating the taxman under Ottawa's voluntary disclosure program, and ended up paying a combined $277 million in back taxes -- the highest annual amount to date. Taxpayers who come forward on their own get a break, says Dawna Labonté, a CRA spokesperson: all fines and penalties are waived and the individuals are not criminally prosecuted, as long as they provide all required financial data and pay their taxes in full. "The amount of taxes is not negotiable," she says. Labonté notes that waiving the penalties -- and the revenue they would bring to federal coffers -- is worth it. "We're not necessarily losing money. If it means we don't have to audit 5,000 people, we're saving money."
DioGuardi says that since 9/11, it's gotten a lot tougher to hide money. "It used to be that chances were you wouldn't get caught. But it's getting more and more likely, as the tax authorities get more sophisticated, that you will get caught," he says. "It's foolish to wait for that because you're going to end up in criminal court, with all the humiliation that brings you."