Tag Archives: Canada Revenue Agency

Tax deductible mortgages

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Any one in the US or the UK will wonder why such a post is necessary. They all automatically have their mortgage interest payments tax deductible. Not so in Canada. However with a little work, even in Canada you may find that Tax deductible mortgages are worth the hassle. According to Jonathan Chevreau, Financial Post, the Canada Revenue Agency is unlikely to challenge if they are done properly.

Why it should take such effort is unclear. It is accomplished by applying the so-called Smith Manoeuvre, popularized first in British Columbia by Fraser Smith in a book of the same name. It has now spread across the country, apart from Quebec. Smith developed and packaged a variation on the standard tax-permissible strategy of selling off non-registered securities; using the proceeds to pay off the mortgage; then reborrowing to repurchase the securities, thereby creating legally sanctioned tax-deductible debt.

A major competitor to Smith, TDMP or Tax Deductible Mortgage Plan, has been named one of Canada’s fastest-growing companies by Profit magazine. It ranked 88th on the 21st annual Profit 100 ranking.

TDMP has a $39 per month fee charged to homeowners, a fee which is itself tax deductible. For this, TDMP takes on all the back-office work and saves the homeowner the bother of having to move the money around every month in order to make their mortgage payments and purchase securities. The fee is considered a carrying charge for administration of income from investments.

Why Canada does not follow the lead of the UK and the US on tax deductible mortgages is unclear. Such an approach does help the residential housing construction market, which can create large numbers of jobs. However until it does, the TDMP approach seems a good way to proceed.

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Canada Revenue Agency Checks Funny Income Tax Numbers

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Taxman puts mathematical quirk to work in spotting fudged returns was the way the Vancouver Sun more eloquently described it.

The Canada Revenue Agency is using a little-known statistical phenomenon named after the late American physicist, Frank Benford, to help identify which tax returns to examine more closely.  Benford’s “law” holds that in a series of naturally occurring numbers, the number 1 will appear as the first digit more often than other numbers. Whether the figures are street addresses, expense reports or tax deductions, the “loneliest number” leads off about 30 per cent of the time.

This is how Frank Benford stumbled on his law.

Frank Benford was a research physicist at General Electric in the 1930s when he noticed something unusual about a book of logarithmic tables. The first pages showed more wear than the last pages, indicating that numbers beginning with the digit 1 were being looked up more often than numbers beginning with 2 through 9. Benford seized upon this idea and spent years collecting data to show that this pattern was widespread in nature. In 1938, Benford published his results, citing more than 20,000 values such as atomic weights, numbers in magazine articles, baseball statistics, and the areas of rivers.

In recent years the value of this and similar patterns as an auditing tool has been recognized by forensic accountants, in part because faster and cheaper computers allow first-digit analysis to be performed easily on large amounts of data.  The CRA says it is now using the first-digit rule in certain circumstances to combat what it politely calls “non-compliance” in tax returns.  The agency has shown particular interest in using it to analyze corporate tax returns. 

Perhaps Benford’s law could become even more useful as more Canadians file their tax returns electronically.  Make sure that your numbers do not look too funny if you are rushing to complete your tax return online before the deadline.

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Canada Revenue Agency E-mail Scam

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Given the difficult economic conditions, everyone is eager to get any income tax refund they may be due from the Canada Revenue Agency as quickly as possible.  Knowing that, the scam artists try to phish, or in other words get unwary people to give personal information that will allow them to be defrauded.  That is why last August, the Canada Revenue Agency warned Canadians of a mail scam.


The Canada Revenue Agency (CRA) is warning taxpayers to beware of a recent scam where some Canadians are receiving a letter fraudulently identified as coming from the CRA and asking for personal information. The letter is not from the CRA. A PDF version of the letter is available on the CRA Web site at www.cra.gc.ca/alert.

The letter claims that there is “insufficient information” for the individual’s tax return and that in order to receive any “claims,” they will have to update their records. The letter attaches a form specifically requesting the individual’s personal information in writing, via fax or email, including information on bank accounts and passports. This letter is not from the CRA and Canadians should not provide their personal information to the sender.

All taxpayers should be vigilant when divulging any confidential information to third parties. The CRA has well established practices to protect the confidentiality of taxpayers’ information.

It appears that the scammers have moved online according to a former CRA employee, who warns all to beware of online tax scams.

Robert Day says taxpayers should be wary of the information they’re willing to give up online during tax season. Even though he worked for the Canada Revenue Agency for 30 years, he fell for the scam.

When Day clicked on a link inside an official looking email that appeared to be from the Canada Revenue Agency, it took him to an official looking website that asked for some personal information.  “I don’t know whether I had a short circuit between the earlobes or something,” said Day. “But, I went into this darn site and it had you type in your social insurance number to get into the site.”

If someone with such experience can fall for it, everyone should be doubly cautious when they receive e-mail messages that appear to come from the Canada Revenue Agency.

Today I received the following e-mail message, that purports to come from the Canada Revenue Agency.  However unless some staff members at the CRA have inferior spelling skills, this should not fool too many people.

Canada Revenue Agency scam

Worm Regards, indeed.  It is so ludicrous that one wonders if it is a deliberate spoof.  Nevertheless it can serve to warn all that more insidious e-mail scam messages from the Canada Revenue Agency are making the rounds.  Remember the CRA will not be contacting you this way and nor will the security departments of your bank or your credit card company.

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Seniors Filing Taxes – Help From Canada Revenue Agency

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The Vancouver Sun gives some useful Help for income-tax filers discussing software programs for those filing their taxes online and listing volunteer services by phone for the paper filers.

The Canada Revenue Agency has a web page specifically for Canadian seniors. This lists the numerous credits and benefits on the income tax and benefit return to which seniors may be entitled. Various resources are available to help file the income tax return accurately and on time. This is the surest way to get all the tax savings and benefits to which you are entitled.

The article does point out that 2008 is a year in which not too much has changed so the completion of the tax return should not be too difficult. The biggest challenge this year may be dealing with investment losses, given what has happened in the stock market. 

Tax relief is available, as losses can be offset against capital gains earned in other years, including three years in the past and forward indefinitely.  There is no need to refile for prior years to claim losses against past gains. A loss carry-back form (T1-A) can be completed and sent in with this year’s income tax return.

The sooner you complete your income tax return, the sooner you will benefit from any refund due to you.  Electronic returns can be processed in two weeks,  so your income tax refund will be in your bank account sooner.

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Seniors And Identity Theft

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In these tough economic times, there are even more wrongdoers who will try to take your money.  If someone can steal your identity, then they have open access to all your resources.

The Vancouver Sun describes an online scheme that offers refunds to taxpayers.  The website looks extremely authentic but it does not belong to the Canada Revenue Agency.

The Canada Revenue Agency and security experts are warning consumers not to fall for an online scheme that is tricking taxpayers into divulging critical financial information.  The phishing scheme, using the promise of a tax refund as a lure, is gaining momentum as Canada’s tax season approaches.

It’s even scamming in Canada’s two official languages.  Prompted by the refund promise in an e-mail, people are directed to a website where they are supposed to fill in their social insurance number, date of birth, their full name and a line from their tax refund.

Armed with that information, someone could contact the CRA and authorize such measures as the redirecting of refunds to another bank account or the redirecting of all tax-related documents.

Avoiding such phishing schemes is essential but not always easy.  In the US they are now moving to the issuance of a secure Social Security card.  This would be part of H.R. 50, The Social Security Identity Theft Prevention Act.  H.R. 50 is intended to protect seniors from identity theft and strengthen national security by providing for the issuance of a secure Social Security card.

Social Security Identity Theft Prevention Act – Amends title II (Old Age, Survivors and Disability Insurance) (OASDI) of the Social Security Act to require Social Security cards to be made of tamperproof and wear-resistant material (currently, of banknote paper), and include a digital image of the cardholder as well as an encrypted, machine-readable electronic record containing biometric identifiers

It is now being studied by the House Committee on Ways and Means.

In Canada there are a variety of online resources to guide you on how best to avoid your identity being stolen.  SafeCanada in its information for seniors has a section on Seniors Safety and Security. 

Other useful resources are:

The last of these covers the following elements:

  • Protect your computer by using a firewall, anti-virus software and other security measures.
  • Always be suspicious of e-mails from financial institutions, Internet service providers and other organizations asking you to provide personal information online.
  • Protect your mail – place outgoing mail in post office collection boxes or at your local post office. Promptly remove incoming mail from your mail box. Get into the habit of shredding or destroying pre-approved credit card, insurance or loan applications, bills, credit card receipts and anything that contains your personal information
  • Get into the habit of checking your credit report on an annual basis — the major credit reporting bureaus will provide one free report each year.
  • Do not give out personal information over the phone, unless you know the person to whom you are speaking, or you initiated the call yourself.
  • If you believe or suspect that your personal information may have been compromised, contact the proper authorities (i.e., your bank, credit card issuer, credit reporting bureaus, utility provider, and so on) as soon as possible.

Be extremely cautious and make sure you are not the victim of some phishing scheme.  Identity theft is one of the fastest growing crimes and it can affect everyone, including you. Protect your personal information from being at risk. It is better to be safe than sorry.

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