Warning: Don't be fooled by the working income tax benefit tax scheme
June 25, 2018
The Canada Revenue Agency (CRA) is warning Canadians about getting involved in schemes where promoters, usually tax representatives or tax preparers, are claiming they can get a tax refund for participants from the working income tax benefit (WITB) even if they have no work income.
Setting the record straight: What is the working income tax benefit?
The working income tax benefit (WITB) is a refundable tax credit intended to give tax relief for eligible low-income individuals and families who are currently in the workforce. It also encourages Canadians to enter the workforce. You can only claim the WITB if you are earning income from working in Canada.
Be careful—here's how the scheme works:
Here is what to watch for in the WITB scheme:
The promoter, who is usually a tax preparer or tax professional, will tell you they can increase your tax refund.
They will tell you that they will prepare a T4 (a T4 is a slip that shows your work earnings, or employment income) in your name and they will list an income amount in box 14 of the slip that will maximize your tax refund.
If you have not worked as an employee in Canada then you should not have a T4 slip with your name on it. Reporting this amount may result in serious consequences to you.
By law, when preparing a T4, an employer must subtract certain amounts from your work earnings. These include deductions such as: income tax and mandatory employee contributions to certain programs (Employment Insurance (EI), the Canadian Pension Plan (CPP) and the Quebec Pension Plan (QPP)). The promoter will tell you that you must pay them the tax deductions they noted on the T4 slip as well as a fee for them completing your tax return. A legitimate tax preparer will never ask you to pay back deductions and will not prepare a T4 for you when you did not earn income in Canada.
A good rule of thumb – If something sounds too good to be true, it most likely is.
What are the consequences to you if you participate in these schemes and what can you do?
The WITB is not intended for individuals who have no work income. If someone claims it is, they are misleading you and there may be serious consequences.
Those who choose to participate in these schemes and those who promote them face serious consequences, including penalties, court fines, and even jail time.
People who avoid or evade taxes take resources away from social programs that all Canadians benefit from.
All taxpayers, including those who pay tax experts to prepare their taxes, are legally responsible for the accuracy of their tax returns.
The CRA encourages all Canadians to seek an independent second opinion from a reputable tax or legal professional on important tax and legal matters.
If you suspect someone of promoting or participating in an abusive tax scheme, you can report it at Canada.ca/taxes-leads or by calling the Leads program at 1-866-809-6841. You may give information anonymously.
For more information on tax schemes, please visit Canada.ca/tax-schemes
Canada Revenue Agency