Agency says Canadians should not get involved in schemes claiming tax-free withdrawals
Canadians who have self-directed RRSPs are being warned about claims made by promoters of schemes that claim to offer tax-free withdrawals.
The Canada Revenue Agency (CRA) says that these schemes are being promoted by various entities including some tax representatives and tax preparers.
The schemes claim that those Canadians who chose to take control of the assets of their Registered Retirement Savings Plan (RRSP) can, for example, make withdrawals from the plan and invest in private company shares or an interest in mortgages – “usually at highly-inflated values” - with the purchase funds then loaned back to the RRSP owner at low or no interest.
These and other tax schemes contravene the Income Tax Act and those who participate in them face serious consequences including penalties, court fines, and even jail time.
CRA checklist
The CRA says there are several questions that should be answered if a self-directed RRSP owner is considering making a withdrawal from their fund:
- Does the promoter's fee you are paying appear to be more than what is normally paid?
- Do you understand the service being offered to you and why a fee is being charged?
- Are you getting the funds back immediately, seemingly tax free?
- Are you getting the funds back by debit/credit cards, offshore bank accounts or ownership in time-shares or any other type of benefit?
- Are you promised unrealistic returns based on the current investment rates? Do some research of average returns to see if what you are being promised is reasonable.
- Are you re-investing the original funds removed from your RRSP in order to get a new RRSP tax deduction receipt?
The agency says that answering yes to any of these questions could indicate a tax scheme and Canadians should be wary where any of these conditions are present in ads, word of mouth, or seminars. It advises investors to consult an independent tax professional.
Reporting tax evasion
Those who suspect tax evasion can report it online at Canada.ca/taxes-leads or by contacting the Informant Leads Centre line at 1-866-809-6841. Steps will be taken to protect their identity, although information can be provided anonymously.
In addition, the CRA continues to encourage taxpayers to come forward and correct their tax affairs through the Voluntary Disclosures Program (VDP): Canada.ca/taxes-voluntary-disclosures.
