From: AlanBaggett@volcanomail.com   
      
   Senator linked to overseas tax haven pursued by CRA in past for unreported   
   income : CRA SOTW   
      
   By Elizabeth Thompson | Apr 9, 2013   
      
   Liberal Senator Pana Merchant has been embroiled in disputes with the Canada   
   Revenue Agency for much of her time in the Senate over hundreds of thousands   
   of dollars worth of unreported income, iPolitics has learned.   
      
   Records show that Merchant appealed to the Tax Court of Canada after the CRA   
   audited her taxes from 1995 to 2002 – in some cases stretching back beyond the   
   usual reassessment period. For each year it audited, the agency found   
   unreported income – ranging    
   from $51,335 in 1996 to $485,203 in 2002.   
      
   The agency also disallowed several expenses Merchant claimed during that   
   period, ranging from interest on an investment loan to a donation of artwork.   
      
   For each of the eight tax years involved in the dispute, the agency also   
   levied penalties under article 163(2) of the income tax act which provides for   
   penalties in cases where “gross negligence” results in making “a false   
   statement or omission in a    
   return.”    
      
   While the CRA began issuing reassessments of her Merchant’s tax returns in   
   2000, an aide to former Prime Minister Jean Chrétien said the agency did not   
   send up any red flags when it was consulted about her being named to the   
   Senate in 2002.   
      
   In 2005, Merchant took the battle to the Tax Court of Canada where it raged   
   for five years along with two other cases until all three were settled in 2010.   
      
   The terms of the settlement are not revealed in the court file. Efforts to   
   reach to Pana Merchant and her husband, Tony Merchant, for comment have gone   
   unanswered and unreturned.   
      
   In her notices of appeal, Merchant maintained that any errors in her tax   
   returns were the fault of her account, brokerage reports and her “complex”   
   investment portfolio.   
      
   “I was not grossly negligent,” she wrote. “At no time did I knowingly attempt   
   to underestimate my income or overestimate expenses.”   
      
   In its reply filed in Tax Court in one of the cases, however, CRA did not   
   appear to be convinced, pointing out that she had two university degrees and   
   the same kind of under reporting of income appeared each year.   
   “In reassessing the appellant for the 1995, 1996, 1997, 1998, 1999 and 2000   
   taxation years, the Minister determined that the Appellant had knowingly, or   
   in circumstances amounting to gross negligence, made or participated in,   
   assented to or acquiesced in    
   the making of false statements or omissions in a return filed in respect of   
   the six taxation years.”   
      
   Merchant was plunged into the spotlight last week following the revelation by   
   the CBC and the International Consortium of Investigative Journalists (ICIJ)   
   that she was listed as a beneficiary of a secret $1.7 million offshore account   
   set up by her    
   husband, lawyer Tony Merchant, in 1998 in the tax haven of the Cook Islands.   
      
   While it is not illegal for Canadians to have offshore bank accounts, it is   
   illegal not to report the proceeds of any such accounts on your income tax   
   return.   
      
   Documents obtained by the ICIJ show that Tony Merchant was very discreet about   
   the account from the very start.   
      
   “Keep correspondence to a minimum,” reads one note in his Cook Islands   
   account. “Do not fax to client. He will have a stroke.”   
      
   When it came time to pay the fees for the account, Merchant sent cash or   
   traveler’s cheques, despite a warning from the bank that it could not   
   guarantee the safety of cash sent by mail.   
      
   According to the CBC report, Merchant is one of 450 Canadians with offshore   
   accounts mentioned in a massive leak of millions of pages of offshore bank   
   files to the Washington, D.C-based ICIJ, which worked on the story over months   
   with top investigative    
   journalists in 40 countries. Reports on the contents of the files and the   
   130,000 names they contain have been rolling out throughout the world.   
      
   The revelation comes less than a month after Finance Minister Jim Flaherty   
   tabled his latest budget, a budget that contained measures to crack down on   
   offshore tax evasion by Canadians including measures to encourage Canadians to   
   inform CRA of suspected    
   tax evasion.   
      
   Following the reports about Merchant’s offshore bank account, Revenue Minister   
   Gail Shea called on CRA officials “to review any information they receive and   
   aggressively pursue all suspected cases of tax evasion.”   
      
   Shea also called on the ICIJ and the CBC to turn its documents over to the   
   CRA. Both the CBC and the ICIJ have refused.   
      
   However, even if the media outlets turned over the files, the agency could   
   have difficulty using them in court. Because the information came from a hard   
   drive leaked to a reporter, prosecutors could have difficulty proving the   
   origin of the documents to    
   a judge’s satisfaction.   
      
   Canada has not yet negotiated a tax information exchange agreement with the   
   Cook Islands which would allow the government to ask directly for the files.   
      
   News of the existence the offshore Merchant 2000 U.S. Trust account came as a   
   surprise to Calgary tax lawyer Curtis Stewart, who represented Pana Merchant   
   before the Tax Court.   
      
   “I read the newspaper the same as you did. It was total news to me.”   
      
   The Tax Court files show a complicated web of more than a dozen cases   
   involving Merchant, her husband, the company Merchant 2000 and their son Evatt   
   Merchant.   
      
   They also show what appears to be a high degree of scrutiny of their tax   
   returns by CRA officials.   
      
   “The appellant, her spouse, her children and the various related corporations   
   have been audited continually since the early 1990’s,” wrote Justice   
   Department lawyer George F. Body in his 2006 reply to Merchant’s challenge of   
   her 2001 reassessment.   
      
   Stewart said it is not uncommon for CRA to reassess shareholders of an   
   owner-managed company if it reassesses the company’s return.   
      
   “I would say 90 per cent of the owner manager businesses that get audited and   
   reassessed, it includes the shareholders being reassessed at the same time so   
   I wouldn’t read too much into that.”   
      
   Stewart could not reveal the terms of the settlement.   
      
   He said in general, not all reassessments hold up.   
      
   “The CRA can raise any reassessment it wants, that doesn’t mean it is   
   correct…I would be out of business if they were right as often as they think   
   they are.”   
      
   —–   
   elizabeththompson@ipolitics.ca   
   © 2013 iPolitics Inc.   
      
      
      
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