TAX TIP Watch out for offshore disability insurance plan schemes
Friday, 28 August 2020 05:14.PM
The Canada Revenue Agency (CRA) is warning Canadians about getting involved in tax schemes including purported offshore disability insurance plans. Promoters, including tax representatives and tax preparers, are claiming that taxpayers can get tax-free amounts from a corporation and the corporation can get a tax write-off using employer disability insurance plans provided by supposed offshore insurer.
What are tax schemes?
Tax schemes are plans and arrangements that go against the Income Tax Act. They deceive taxpayers by promising to reduce the taxes they owe. Schemes may promise large deductions or tax-free income.
What types of disability insurance plans are of concern?
A genuine disability insurance plan is a financial product that typically provides a monthly income, if you cannot work due to unexpected illness or injury. These insurance products are normally legitimate ways for employers to insure against risks associated with the health of their employees.
A disability insurance plan should outline the details of an insurance policy, along with the payment details, liabilities and stipulations of the insurance and insurer.
However, certain schemes that purport to provide disability insurance are not providing insurance. In general terms, these schemes are financed with no-risk loans from an offshore lender with a participant (usually an employer) being required to pay the net proceeds of the supposed insurance to an offshore entity under a separate side agreement. Although this communication piece highlights offshore arrangements, similar concerns can arise with respect to domestic arrangements with the same or similar characteristics.
How does an offshore disability insurance plan scheme work?
An offshore disability insurance plan is an arrangement under which a promoter sells a corporate taxpayer disability insurance. The corporate taxpayer makes a deposit (directly or indirectly, through a health and welfare trust) with a foreign corporation. Through a series of transactions, the foreign corporation allegedly loans the funds to the corporate taxpayer's shareholder / employees or related parties on a limited-recourse basis (i.e., without risk). The shareholders/employees or related parties then loan the same amount of funds to the corporate taxpayer.
The corporate taxpayer paying the so-called insurance premiums is assured most of its deposit will be loaned back to the corporate taxpayer's shareholders/employees or related parties and then returned to the corporate taxpayer. All of these transactions are done under the guise of a disability insurance plan.
The promoter of these offshore money transfers claim they are a legal way to avoid tax. For example, the promoter may claim:
- one or more non-arm's length individuals including employees can receive tax-free amounts from a corporate taxpayer
- the corporate taxpayer may deduct an insurance premium expense
Why is this a scheme?
Funds circle into and out of Canada in amounts that are claimed as large insurance expenses in order to avoid Canadian income tax.
These deductions are a multiple of the actual funds that the participants paid under the schemes out of their pre-existing wealth with a substantial portion of those actual funds being used to pay the promoters' fees (commissions).
The products would not have otherwise been issued in the absence of other interdependent contracts. The CRA has, to date, found that the amounts individuals are receiving are taxable and the premiums are not deductible in-part because the so-called insurance is not insurance.
Your actions may have serious consequences
Through increased audits of promoters, improved intelligence gathering and strengthened communication with taxpayers, the CRA continues to identify and shut down tax schemes.
The CRA reviews leveraged insurance products to determine whether they are valid or just a vehicle to obtain a specific tax advantage.
In the event the CRA finds these purported insurance products to be invalid, participants in these schemes, as well as those who promote and sell them, face serious consequences, including third-party civil penalties for promoters and gross negligence penalties for participants.
What can you do?
The CRA encourages all Canadians to seek an independent second opinion from a reputable tax professional on important tax matters.
If you suspect tax evasion, you can report it online at Canada.ca/taxes-leads or by contacting the Informant Leads Centre at 1-866-809-6841. The CRA will act to protect your identity. Also, you can give information anonymously.
You are welcome to correct your tax affairs through the Voluntary Disclosures Program: Canada.ca/taxes-voluntary-disclosures.
For more information on tax schemes, please go to Canada.ca/tax-schemes.
SOURCE: Canada Revenue Agency
-
Related materials:
- 18-Sep-2024 10:23 AM ππ¨π¦π Using an App or Website to Earn Income? Here's What You Need to Know About the Reporting Rules for Digital Platform Operators π΅
- 16-Sep-2024 12:00 PM ππ¨π¦π Making Changes to Your Business? The Canada Revenue Agency is Here to Help! π΅
- 18-Jul-2024 04:58 PM πποΈπ΅ City Of Toronto's Tax & Utility Relief Programs Provide Support for Low-Income Seniors and Low-Income People Living with Disabilities
- 21-Jun-2024 06:40 PM ππ¨π¦π Budget 2024 Government of Canada Launches the First Clean Economy Investment Tax Credits ππ΅
- 16-Jun-2024 10:27 AM ππ¨π¦π You've Got Questions and We've Got Answers! Here are Answers To Seven of the Top Business Tax Information Questions
- 10-May-2024 04:33 PM ππ¨π¦π Looking for the Fastest and Easiest Way to View and Manage Your Business Taxes Online? Use Our Digital Services!
- 02-May-2024 06:23 PM ππ¨π¦π Need to Change Your Tax Return? You Can Do it Online!
- 24-Apr-2024 10:21 AM βοΈπ΅π¬ Canadian Cancer Society Commends Tobacco Tax And E-Cigarette Tax Increases In Federal Budget π
- 23-Apr-2024 04:28 PM π΅ New Canada Carbon Rebate Estimator Tells You How Much You May Get Back in Payments Starting April 15
- 20-Apr-2024 02:33 PM ππ¨π¦π The Canada Revenue Agency Has Options for You if You Owe Us Money or Have a Debt That We Collect for Another Government Department
- 19-Apr-2024 06:33 PM ππ¨π¦π Top 10 Tips for Your Platform Economy Tax Obligations
- 19-Apr-2024 04:24 PM ππ¨π¦π Reporting Your Capital Gains as a Crypto-Asset User
- 19-Apr-2024 02:34 PM ππ¨π¦π Are You Self-Employed? The Canada Revenue Agency Can Help You Understand Your Tax Obligations
- 18-Apr-2024 10:19 AM ππ¨π¦π NEW - Bare Trusts are Exempt from Trust Reporting Requirements for 2023
- 16-Apr-2024 02:27 PM ππ¨π¦π You Still Have Time - Last-Minute Tips to Help You File Before the Deadline!
- 01-Apr-2024 08:00 AM π΅ Keep The Cash, Care for Climate: Canada Carbon Rebates Being Paid Next Month
- 28-Mar-2024 10:33 AM ππ¨π¦π Vast Majority of Canadian Businesses Want Fast-Tracking of Clean Energy Tax Credits π€π°π€
- 21-Dec-2023 02:37 PM ππ¨π¦π Businesses: Here Are the Top Changes this Year that Will Affect Business Taxes in 2024
- 19-Oct-2023 12:00 PM ππ¨π¦π Did You Know that there are Business Services that Can Make it Faster and Easier for You to Meet Your Tax Obligations?
- 14-Oct-2023 06:33 PM πβ οΈ Warning: Watch Out for Tax Schemes Involving Multilevel Marketing Businesses!
- 20-Jul-2023 10:21 AM Taxpayers' Ombudsperson Requests That the Canada Revenue Agency Make Improvements to Respect Canadians' Right to Be Represented by a Person of Their Choice
- 05-Jul-2023 02:34 PM TAX TIP Get ready: the CRA is in its summertime benefit period!
- 19-Jun-2023 02:23 PM TAX TIP Applying for the Disability Tax Credit is Easy With Our New Digital Form
- 13-Jun-2023 02:46 PM TAX TIP June 15, 2023, is the Deadline for Self-Employed Individuals to File Their 2022 Income Tax and Benefit Return
- 18-May-2023 12:00 PM ONTARIO JOBS π΅ Moving Forward with Building a Strong Ontario
- 03-Apr-2023 04:33 PM TAX TIP CRA Debt Recovery Activities May Impact Upcoming Benefit, Credit, and Refund Payments
- 27-Mar-2023 10:21 AM TAX TIP Voices Prepares Voice Actors for Tax Season With Tax Education Campaign
- 26-Mar-2023 02:23 PM TAX TIP Valuing Your Cryptocurrency
- 23-Mar-2023 10:21 AM TAX TIP The CRA Would Like to Remind You That it Has Resumed Debt Recovery Activities; Here's How it May Impact Your Benefit, Credit, and Refund Payments
- 21-Mar-2023 02:33 PM TAX TIP π΅π Less Than Two Weeks to Apply For $500 One-Time Top-Up
- 21-Mar-2023 12:00 PM TAX TIP Do You Work in the Sharing Economy? Here's What You Need to Know
- 18-Mar-2023 10:15 AM TAX TIP Confirm My Representative is Now Available for Business Owners
- 14-Mar-2023 08:20 PM TAX TIP Thinking of Calling Us? Before You Do, Find The Answers You Need for Tax-Filing Season!
- 12-Mar-2023 08:29 PM TAX TIP Ready to File Your Taxes? Here's Why You Should Go Digital
- 13-Feb-2023 02:22 PM TAX TIP Were You Invited to File Your Taxes Over the Phone?
- 09-Feb-2023 08:00 AM TAX TIP Electronic Filing Of Special Elections And Returns Is Now Available
- 30-Jan-2023 06:40 PM ππ¨π¦πTaxpayers' Ombudsperson Recommends Ways To Improve Communication From The Canada Revenue Agency
- 24-Jan-2023 04:18 PM TAX TIP Seniors: We've Got Tips To Help You This Tax Season!
- 19-Jan-2023 04:28 PM TAX TIP Here's what you need to know if you're filing your taxes by paper
- 16-Dec-2022 02:39 PM Budget 2021 The Government Of Canada Launches Formal Consultations To Streamline Reporting Of Payroll Information
- 04-Nov-2022 10:43 AM TAX TIP Six month doubling of GST credit payment starts November 4, 2022
- 03-Sep-2022 10:22 AM Government of Canada Strengthens Access to Sexual and Reproductive Health Services for Youth
- 25-Aug-2022 02:20 PM TAX TIP Do You Have Questions About Filing As A Business For The First Time? The CRA Is Here To Help
- 05-Aug-2022 08:00 AM TAX TIP Here Are Answers To Five Of The Top Business Tax Information Questions
- 16-Jul-2022 08:00 AM TAX TIP Do you have questions about filing as a business for the first time? The CRA is here to help
- 21-Jun-2022 11:14 AM City of Toronto issues 2022 final property tax bills
- 03-Jun-2022 08:00 AM TAX TIP June 15, 2022, is the deadline for self-employed individuals to file their 2021 income tax and benefit return
- 17-Apr-2022 08:00 AM TAX TIP Businesses: Protect yourself from scams and fraud - know what to expect from the CRA
- 15-Apr-2022 02:22 PM TAX TIP Are you self-employed? The Canada Revenue Agency can help you understand your tax obligations
- 13-Apr-2022 12:00 PM TAX TIP How to find help if you can't pay your taxes
- 01-Apr-2022 10:22 AM TAX TIP Did you buy, build, sell or renovate a home in 2021? Here's what you need to know
- 28-Mar-2022 02:02 PM TAX TIP Make sure you maximize the benefits you are entitled to if you are First Nations, Inuit, or MΓ©tis
- 27-Mar-2022 12:00 PM TAX TIP It's tax time! You've got questions? We've got answers
- 26-Mar-2022 10:59 AM TAX TIP Do you work in the gig economy? Here's what you need to know
- 23-Mar-2022 04:22 PM TAX TIP How to verify the CRA has contacted you
- 21-Mar-2022 04:33 PM TAX TIP Do you work in the sharing economy? Here's what you need to know
- 20-Mar-2022 04:46 PM TAX TIP Making changes to your business? The Canada Revenue Agency is here to help!
- 19-Mar-2022 10:23 AM TAX TIP Are you a peer-to-peer seller? Here's what you need to know
- 17-Mar-2022 08:38 PM TAX TIP Are you a social media influencer? Here's what you need to know
- 15-Mar-2022 12:00 PM TAX TIP Before you call: Find the answers you need for the 2022 tax-filing season
- 10-Mar-2022 10:22 AM TAX TIP Small and medium business audits: What you need to know
- 11-Feb-2022 12:00 PM TAX TIP Avoid last minute delays at tax time by setting up My Account
- 07-Feb-2022 02:27 PM TAX TIP Investing in cryptocurrency
- 27-Jan-2022 06:33 PM TAX TIP What is cryptocurrency?
- 25-Jan-2022 12:00 PM TAX TIP Running a business is difficult; understanding your tax obligations
- 30-Nov-2021 08:00 AM TAX TIP Avoid last minute delays at tax time by setting up My Account
- 17-Nov-2021 02:14 PM TAX TIP Understanding the tax-free savings account (TFSA)
- 04-Nov-2021 04:33 PM TAX TIP Canada Revenue Agency announces maximum pensionable earnings for 2022
- 20-Jun-2021 05:33 PM TAX TIP Businesses: Watch out for Canada Emergency Wage Subsidy tax schemes
- 02-Dec-2020 12:00 PM TAX TIP What you should know during times of financial uncertainty
- 01-Sep-2020 02:03 PM TAX TIP Warning to Ontarians: Don't be fooled by the senior homeowners' property tax grant
- 30-Aug-2020 09:07 AM TAX TIP Last call! File your 2019 tax return to keep getting your benefit payments
- 29-Aug-2020 12:02 PM TAX TIP Watch out for offshore leveraged insured annuity schemes
- 13-Mar-2020 10:23 AM TAX TIP New online feature helps you see your uncashed tax cheques