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What Is A Tax Shelter
What is a Tax Shelter?
Everyone likes to pay as less tax as possible. Canadians are no different than anyone else, regarding paying as little in taxes as possible as both a duty and an obsession. We all hate to give up huge chunks of our hard earned money to the government in taxes.
There is a very distinct difference between tax avoidance and tax evasion. One is a way to minimize your taxes as much as possible and is legal. The other is trying to fool the taxman by not reporting your income fully and is illegal. For this purpose of reducing your tax bill your best recourse is a tax shelter. Using your tax shelter to minimize your tax bill is perfectly legal and is used by smart people everywhere.
There are two ways of saving taxes – by saving in government’s tax assisted savings, where you get tax breaks for putting your money in the fund the government wants to promote, or by utilizing the loopholes in the taxation regulations found by smart accountants and lawyers. But though these options look very good on paper, there are hidden risks. So experts urge that one should invest in such tax assisted savings only after doing their homework and then ask themselves if they would be investing in them if not for the tax break? People often do not look beyond the tax break and end up getting involved in bad investments. As the government tries to attract investors to tax assisted savings, it is supporting this form of tax avoidance. But it frowns upon a tax shelter as it avoids tax on a technicality, usually. The Canada Revenue Agency which is the authority in Canada for collecting taxes views these brilliant and technical arguments for tax avoidance with suspicion. The tussle between the CRA and the tax accountants is never-ending. They each try to outwit the other all the time. The CRA is forever auditing and raiding tax shelters.
The CRA requires the tax shelter promoters and operators to register with the government and for people claiming tax reduction with tax shelters to quote such registration numbers in their tax forms, to keep track of both the shelters and the taxpayers. As soon as the CRA shuts down one door, clever minds come up with another. Recently the Canadian government has started to crack down on tax shelters by dragging them to court and shutting them down, say tax litigation specialists. The federal government and the CRA have the authority to audit any tax benefits claimed through a tax shelter. They have upto 3 years to assess and audit a tax claims filed. So if you claim benefits under tax shelters, it would be prudent to preserve all relevant data till you hear from the CRA or until 3 years have passed. One should be especially wary of claiming tax benefits under gift schemes where the gift is hyped in value many times than the actual gift. Such schemes are like a beacon to the tax man.
Everyone likes to pay as less tax as possible. Canadians are no different than anyone else, regarding paying as little in taxes as possible as both a duty and an obsession. We all hate to give up huge chunks of our hard earned money to the government in taxes.
There is a very distinct difference between tax avoidance and tax evasion. One is a way to minimize your taxes as much as possible and is legal. The other is trying to fool the taxman by not reporting your income fully and is illegal. For this purpose of reducing your tax bill your best recourse is a tax shelter. Using your tax shelter to minimize your tax bill is perfectly legal and is used by smart people everywhere.
There are two ways of saving taxes – by saving in government’s tax assisted savings, where you get tax breaks for putting your money in the fund the government wants to promote, or by utilizing the loopholes in the taxation regulations found by smart accountants and lawyers. But though these options look very good on paper, there are hidden risks. So experts urge that one should invest in such tax assisted savings only after doing their homework and then ask themselves if they would be investing in them if not for the tax break? People often do not look beyond the tax break and end up getting involved in bad investments. As the government tries to attract investors to tax assisted savings, it is supporting this form of tax avoidance. But it frowns upon a tax shelter as it avoids tax on a technicality, usually. The Canada Revenue Agency which is the authority in Canada for collecting taxes views these brilliant and technical arguments for tax avoidance with suspicion. The tussle between the CRA and the tax accountants is never-ending. They each try to outwit the other all the time. The CRA is forever auditing and raiding tax shelters.
The CRA requires the tax shelter promoters and operators to register with the government and for people claiming tax reduction with tax shelters to quote such registration numbers in their tax forms, to keep track of both the shelters and the taxpayers. As soon as the CRA shuts down one door, clever minds come up with another. Recently the Canadian government has started to crack down on tax shelters by dragging them to court and shutting them down, say tax litigation specialists. The federal government and the CRA have the authority to audit any tax benefits claimed through a tax shelter. They have upto 3 years to assess and audit a tax claims filed. So if you claim benefits under tax shelters, it would be prudent to preserve all relevant data till you hear from the CRA or until 3 years have passed. One should be especially wary of claiming tax benefits under gift schemes where the gift is hyped in value many times than the actual gift. Such schemes are like a beacon to the tax man.
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