CRA warns against wages to loan tax scheme

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The Canada Revenue Agency has issued a warning about schemes where promoters are telling participants they don’t have to pay tax if they turn their wages or salaries into non-taxable loans.

In the warning, issued Aug. 15, the CRA states that popular target groups for the scheme promoters “may include new-Canadians, seniors and students. Students because the scheme is often promoted as a way to pay down debt by freeing up cash.”

Promoters lease participants’ services

In such schemes, the promoter will lease participants’ services to an employer and will keep a percentage of their pay in exchange for this ‘service’. The promoter then gives the participants the balance of their pay as a loan, explains the CRA.

The employee is told they are not legally obligated to pay taxes because they are being paid in the form of a non-taxable loan. “This is false! Since employees do not pay back the loan, it is considered employment income and is taxable and subject to all payroll deductions,” says the CRA.

Serious consequences

Scheme participants and promoters face serious consequences, including penalties, court fines and even jail time, underlines the CRA. “Also, as a participant, you could end up being assessed additional taxes in addition to paying a fee to the promoter.”

The CRA encourages Canadians who have participated in a tax scheme to come forward and correct their tax affairs through the Voluntary Disclosures Program.

As published in The Insurance & Investment Journal by The IIJ Staff Aug. 15, 2017 01:30 p.m.

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