Canada Revenue Agency - Toronto Tax Services Office

Canada Revenue Agency - Toronto Tax Services Office

October 25, 2005 16:58 ET

Canada Revenue Agency: Insurance agents fined for tax evasion in RRSP scheme

ST. CATHARINES, ONTARIO--(CCNMatthews - Oct. 25, 2005) -

Two St. Catharines insurance agents were fined a total of $61, 617 in the Ontario Court of Justice on October 24, 2005 after pleading guilty to tax evasion. Richard Garbacz pleaded guilty to one count of tax evasion and was fined $45,825. George Gadula pleaded guilty to three counts and was fined $12,792. In both cases the fines represent 75% of the tax evaded, and both parties have nine months to pay the fine.

A Canada Revenue Agency (CRA) investigation revealed that the pair acted as associates in a scheme of collapsing RRSPs without the normal income tax deductions and without the mandatory income tax documentation. The two men withdrew funds from their own RRSPs, but represented the withdrawals as transfers to another RRSP account. The offences were committed between 1995 and 1998.

Mr. Gadula was an agent for the insurance company that held the RRSP accounts of the two men. He completed the paperwork necessary to transfer funds from one RRSP account to another held by a different financial institution. These types of transfers usually have no tax consequences. However, the receiving account was a local credit union that did not handle RRSPs. The manager of the credit union was unfamiliar with the paperwork and was misled by Mr. Gadula. Mr. Gadula used his expertise and position to control the flow of funds. The money was deposited into ordinary term deposits that were closed several months later.

In 1995, Mr. Gadula collapsed a RRSP of $31, 384 and he repeated the process in two subsequent years, liquidating $9,596 in 1996 and $20,000 in 1997.

Using the same method and the help of Mr. Gadula, Mr. Richard Garbacz liquidated an RRSP valued at $207,853 in 1995.

When individuals or corporations are convicted of tax evasion, they still have to pay the full amount of tax owing, plus interest, and any penalties the CRA assesses. In addition, the court may fine them up to 200% of the tax evaded and sentence them to a two-year jail term. The CRA may also assess a penalty of up to 50% of the tax evaded or the benefit improperly claimed.

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