Under-reporting Rental Income - Help!

[landlordie]

Help! I have a fellow landlord and relative who will soon be submitting SEVEN years of past-due tax returns! He is self employed and has rental income from part of his home. Since he has not left a paper trail to half the rental income, he`s thinking about declaring only the half that`s gone into his bank.

My big fear for him is that he`s a prime candidate for audit (self employed, rental, late filer) and the CRA will verify his rents by cross referencing the tenant tax returns who have lived there over those years. The tenants included the rent they paid on their tax returns.

Does anyone know if the CRA actually goes as far as checking tenant tax returns to verify the landlord`s declared rental income? thanks all!

 

[GarthChapman]

So if I understand this correctly, you`re asking for information/advice to determine if your relative can attempt to under-report his income and not pay his share of taxes due on income...really?

 

[landlordie]

No, I`m trying to gather more information so I can present it to him and hopefully he`ll reconsider what he is doing.

 

[GarthChapman]

I guess I would simply say to him "would you tell you child what you are planning to do?" I find that`s a very powerful guide for my behaviour (although in my case it`s "would I tell my grand-children?"

 

[RebeccaBryan]

I would say his actions aren`t your problem so don`t make them your problem. As well, you can`t will someone else to do the right thing. About all you can do is suggest the consequences and let it go.

 

[invst4profit]

You may not find what you are looking for on here beyond moral advice. Probably not many have been audited and if they were may not care to admit something that would shine a negative light on themselves.

Personally I believe what ever your relative does is his decision and your involvement/advice could backfire on you. Probably best to let him make his own decision based on his own standards and you simply stay neutral. He knows he is taking a risk and does not need to be told.

I am not suggesting he be less than candid on his taxes simply that it really is no one else`s business but his.

 

[bizaro86]

QUOTE (landlordie @ Sep 21 2010, 09:52 PM) has rental income from part of his home.

If its his personal residence, and he isn`t making a profit after considering his costs, I believe that may be non-reportable anyway. I think there`s an exemption for "roommates" mainly because the CRA doesn`t want people deducting losses for properties that they live in. This is my recollection, not tax advice, and it sounds like this is someone who could use a good accountant (or maybe a good tax lawyer!)

I`d also like to add that you should always report all of your income. I know I always do, since I value being able to sleep at night. The legal and ethical consequences just aren`t worth it.

Michael

 

[ChrisDavies]

You might mention that CRA has an agressive tax planning division, who will stop at nothing to figure out what`s going on. There have been cases where CRA has discovered fraud by adding up values of assets, and seeing if the income vs assets is reasonable. He`ll get nailed eventually.

 

[HeatherBrandt]

I`m of the opinion that your relative is prime for an audit, period. Enough flags to warrant further attention.

An interesting read is "The Taxman is Watching" by Paul and Phillipe Dioguardi. They are tax lawyers who seem to be featured (and advertise) in the National Post on a semi-regular basis. The take away message for me was to pay attention to your paperwork, get advice before any creative moves, and most of the time, a tax lawyer may get the interest on the amount owed decreased or taken away, but the principal will still be owed. Oh, and the services of a tax lawyer is expensive!

Lots of good stories in the book plus the authors` opinion about how CRA operates. They also have a few websites, one being dioguardi.ca

 

[invst4profit]

Creative accounting can play a role in business.
Some business owners just may not be comfortable with the word "creative".
Personally I have always been creative even before I engaged the services of an accountant.
I have always believed that stretching of rules is a common business practice but stand by
my opinion I have broken no laws.
I pass no judgement on the practices of others.

In the case of this OP he may be contemplating crossing the line but to each there own.

 

[bizaro86]

QUOTE (invst4profit @ Sep 22 2010, 04:21 PM) Creative accounting can play a role in business.
Some business owners just may not be comfortable with the word "creative".
Personally I have always been creative even before I engaged the services of an accountant.
I have always believed that stretching of rules is a common business practice but stand by
my opinion I have broken no laws.
I pass no judgement on the practices of others.

In the case of this OP he may be contemplating crossing the line but to each there own.

Creativity is always good, but just not reporting income isn`t creativity, its illegal.

Michael

 

[GarthChapman]

QUOTE (invst4profit @ Sep 22 2010, 05:57 AM) You may not find what you are looking for on here beyond moral advice. Probably not many have been audited and if they were may not care to admit something that would shine a negative light on themselves.

Personally I believe what ever your relative does is his decision and your involvement/advice could backfire on you. Probably best to let him make his own decision based on his own standards and you simply stay neutral. He knows he is taking a risk and does not need to be told.

I am not suggesting he be less than candid on his taxes simply that it really is no one else`s business but his.

Good advice Greg. I allowed my moral indignation to form the basis of my post, wheras your advice was more constructive on both points.

btw- My audit was a complete success (for us) with no changes to our filings...so maybe we we not being aggressive enough...