You may have heard some individuals claim that the government doesn't really have the right to collect taxes from its citizens. They argue that, for income tax purposes, each one of us is, in fact, two people: the natural person, or the individual that performs the labour required to earn income; and the legal person, the legal entity that the federal government creates by issuing a social insurance number (SIN). And, according to them, income received as a natural person is not subject to Canadian income tax.
It's an intriguing story. Often, it will be accompanied by an invitation to an information session where you can learn more. Once you get there, other services may be promoted, including seminars, consulting services, and additional products to help you apply the "natural person" theory to your personal tax situation. All very tempting.
Don't fall for it, says the Canada Revenue Agency (CRA). There is no such thing as a natural person. People who promote this theory are known as tax protestors, and they are selling a scheme to evade taxes that every responsible taxpayer should walk away from.
1. It's against the law. The courts have totally rejected the natural person vs. legal person argument, and 100% of cases brought before the courts have resulted in convictions for tax evasion, counselling others to evade taxes, or both.
2. It's costly. When taxpayers are convicted of income tax evasion, they must repay the full amount of taxes owing, plus interest and any civil penalties that may be assessed by the CRA. In addition, the court may fine them up to 200% of the taxes evaded and impose a jail term of up to five years.
3. It's a con. Tax protesters who promote illegal tax schemes are lining their own pockets at the expense of the taxpayers they target, as well as all taxpayers who pay their fair share.
Think twice. If it sounds too good to be true, it probably is. Always seek independent advice from a reputable tax professional or contact the CRA if you have doubts about certain tax arrangements.
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