acceptable interest expense on investments?

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scorpionman
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Re: acceptable interest expense on investments?

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And is CRA doing anything about this kind of stuff? Or are those doing it right the bigger fools?
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AltaRed
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Re: acceptable interest expense on investments?

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scorpionman wrote:And is CRA doing anything about this kind of stuff? Or are those doing it right the bigger fools?
The answer likely depends on whether CRA audiits one or not. We do know from case studies (what accounting firms sometimes publiish online aka tax court decisions) that CRA does pursue individuals. My very sloppy anecdotal observation from past research/readings is it may be more focused on returning ex-pats and HNW individuals, BUT clearly CRA algorithms will (should) zero in on tax returns where an individual has disproportionate investment income vs employment income. If you could tell me what that computer algorithm is, I could then speculate on how to stay under the radar.

That said, just because some attempt (and likely sometimes get away) with tax evasion/fraud doesn't make it all right for everyone to do it. I'd whistleblow on anyone I knew who actually was doing that.
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ghariton
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Re: acceptable interest expense on investments?

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AltaRed wrote:If you could tell me what that computer algorithm is, I could then speculate on how to stay under the radar.
Which is why it is a closely guarded secret.

We do suspect that self-employed, employees with large deductions, and so on, have higher than average probabilities of being targeted. Nevertheless, it doesn't have to happen. For example, I've been self-employed for eighteen years now. While CRA have asked for paper receipts from time to time (I file electronically) and have disallowed one claim for $500, they have never audited me. (The $500 was an above-board difference in interpretation of one of their rules; nothing sneaky about what I did.)

However, if CRA does catch you in any form of dishonesty, things can get uncomfortable. Apart from the penalties for the current year, they have been known to audit previous years as well, and also keep a special eye on you for several years to come. The administrative burden can be a worse punishment than the monetary penalty.

Right now, I'm in an interesting situation. I filed my 2016 return on Thursday. On Friday I got an additional, unexpected tax slip from TD in the amount of $0.77. Do I file an amendment or just let it go as de minimis? I think I'll file an amendment, sometime near the end of April, once any other surprises have been sprung. (I really don't want to raise any flags at CRA.)

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scorpionman
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Re: acceptable interest expense on investments?

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I think they make a mistake to go after big fish, multiply a small fish by 15 years x 5 million people x a modest amount. The math suggests this is where to monitor .
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AltaRed
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Re: acceptable interest expense on investments?

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CRA has been beefing up their investigative unit... mostly likely to go after more offshore tax haven types but they had also said a year or two ago that they were going after out-of-country folk (like dual citizens) who still collect certain benefits under a Canadian postal address when they are not even in-country (some benefits are resident dependent).

Like scorpionman suggests, I agree CRA should tweak that algorithm even more to tackle those that may be inappropriately splitting income...and publicize both the aggregated effort and results.

Really wouldn't be that hard to do. Hire about 10 folk specifically for this effort, tweak the algorithm, and start demanding the paperwork. :wink:

Added: George...George....George. Whatever were you doing filing your tax return so early? :wink: :lol:
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Arby
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Re: acceptable interest expense on investments?

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Whistleblowing on a tax cheater can be lucrative. CRA's Offshore Tax Informant Program targets international tax abuse. If federal taxes totaling $100,000 or more are recovered, then a percentage (from 5% to 15%) of these funds is paid to the person providing the information.
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Re: acceptable interest expense on investments?

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sounds a bit like the gestapo, in my old country they used priests to inform on citizens. very shady. first of all i don't think cra can be held to their word to pay you anything and secondly, this is a drop in the bucket. most people seek to be under the radar who do that and most likely succeed, the world is globalized and the game is not fair. those who do the right thing are frequently penalized and foolish for doing so - look at the Panama Papers.
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Re: acceptable interest expense on investments?

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AltaRed wrote:George...George....George. Whatever were you doing filing your tax return so early? :wink: :lol:
CRA owes me a fairly large refund. (A large project that I thought would materialize, didn't. But by then I had paid my installments as if it would.)

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AltaRed
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Re: acceptable interest expense on investments?

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Okay, we will let you have that one. :wink:
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AltaRed
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Re: acceptable interest expense on investments?

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I don't lose any sleep over being 100% honest (I even declare circa $3 of USD interest from my Wells Fargo account in Texas). It's primarily a matter of one's ethics and values. I will turn in cheaters if I see them in front of my eyes, whether that is tax fraud or insurance* fraud, or whatever. It is a slippery slope if everyone says they are going to cheat just because everyone else does. Look at Greece for a good example.

* ICBC reckons it costs each and every BC purchaser of auto insurance $100/yr just for auto insurance fraud. They've beefed up their investigative system and are finding more fraudsters and taking them down. It's not only the principle of the thing, but the more they catch, the more likely some individuals will hesitate before going down that path, i.e. a deterrent.
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Re: acceptable interest expense on investments?

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I sympathize with employees, really there is very few ways to cheat, pretty much the government knows exactly what you make and it's deducted at source if you work in this or any country. But that means those who earn their own income or business usually the wealthy or the self-employed have much higher opportunity to play the code like a fiddle. How many of the Panama Paper members do you think were employees? self employed? controlled a business? Businesses are great lifestyle vehicles but they also seem to offer those who have the most to also cheat the most.
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