Don’t sign any agreement that says your wages are a loan.
Tax Ninja Tax Law is warning Canadians about getting involved in schemes where promoters are telling participants they don’t have to pay tax if they turn their wages/salaries into non-taxable loans.
Popular target groups may include new-Canadians, seniors and students.
In a wages to loan scheme you’re paid in the form of a loan instead of regular wages. The promoter will “lease” your services to an employer and will keep a percentage of your pay as their “cut”. The promoter then gives you the balance of your pay as an “loan”.
The employee is wrongly informed they are not legally obligated to pay any taxes because they are being paid in the form of a non-taxable loan. THIS IS FALSE! Since employees do not pay back the loan, it is considered employment income and is taxable and subject to all payroll deductions.
Further, employers are at risk because they are still responsible for making all payroll deductions, including the Canada Pension Plan (CPP); employment insurance (EI); income tax or other types of income, and then, reporting and remitting these slips to the CRA.
Those who choose to participate in these schemes, as well as those who promote these schemes, face serious consequences, including penalties, court fines and even jail time. Also, as a participant, you could end up being assessed additional tax penalties in addition to paying a fee to the promoter. In the end, it will likely cost you more than if you simply paid the tax in the first place.
This scheme is a method of illegal tax avoidance. If you are thinking about participating in one, seek an independent second opinion from a reputable tax lawyer.
Did you willingly participate in one? Come forward and correct your tax affairs through the Voluntary Disclosures Program. If you make a full disclosure before any compliance or enforcement action is started, you may only have to pay the taxes owing plus interest and may avoid penalties and prosecution.
If you are a participant, contact us today for a free and confidential evaluation of your situation.