Tony Melman, an ex-managing director of a well-known Canadian private equity firm, has been found guilty in tax court for omitting $18.9 million of taxable dividend income in 2007 taxation year. Gross negligence penalties has been imposed due to such huge omission.
How could this happen?
The Court has reviewed and analyzed the facts about the transaction and parties involved. It comes to a conclusion that “the warning signs of the omitted dividends were sufficient to strongly suggest that he initiate a specific inquiry and review of the actual 2007 tax return he signed.” Mr. Melman admitted he did not read or review his tax return before signing. Justice Randall Bocock also pointed the sole issue is whether “Mr. Melman willfully blind to indications, alerts or precautions which would have disclosed this admitted dividend income reporting error.” There may be some arguments about this case but the key is what we can learn from the case.There is no doubt that, when it comes to tax season, everyone is in a rush,
What can taxpayers do to ensure the tax returns are accurate or just making sense? Here are a few guiding principles:
1-Understand your situations
Change in your personal/family/business situations like changing jobs, having a new-born baby, purchase of a rental property will definitely affect your tax position. Do you have a few investment accounts with different Chartered banks? Make sure those information are collected for your accountants. Another piece of advice is to chat with your accountant before the tax filing period on tax saving opportunities. It is all about planning. The earlier, the better.
2-Always bring questions to your accountants
Similarly, you may be curious to know the tax treatment on certain transactions (overheard from others),do some homework, write them down and bring them to your accountants and let them clarify for you. As you visit your accountant only once a year, take advantage of this opportunity to ask and make sure you understand the tax impact.
3-There is always a solution
In case you find any missing credits/deductions or forget to tell your accountant, there is a solution. You can have your accountant to file an adjustment to get back the money that you are entitled to.
4-Do a quick check
There is no doubt that you rely on your accountant to prepare the tax return and explain the changes and impact. You can do a quick check by comparing prior year to current year tax changes line by line based on the materiality. If there is no surprise, you should walk out of your accountant’s office confidently.
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