Devry Smith Frank LLP

February 24, 2015 10:00 ET

Tax Fraud Alert: Profiling Plays a Major Role in Choice of Victims

Toronto Tax Lawyer Identifies Five Tax Victim Traits

TORONTO, ONTARIO--(Marketwired - Feb. 24, 2015) - According to Toronto Tax Lawyer, Eldad Gerb, tax fraud promoters are very specific in choosing their prey. With many Canadians preparing and filing tax returns over the next few months, promoters know that potential victims are looking for big deductions to ease their tax burden.

"With only one week until the RRSP deadline, it's the prime time for promoters to reel in victims promoting big tax refunds or deductions. They do this through claiming to invest in research, tax shelters, or tax free withdrawals from RRSPs or RRIFs," said Gerb, a tax lawyer with Devry Smith Frank LLP (DSF.) "In time, the investments turn out to be false and victims end up losing the amount invested, having to repay tax refunds and facing up to 50% penalties plus interest because of their participation in the fraudulent tax schemes."

In an effort to save Canadians from falling prey to these tax frauds, Gerb has identified five common traits of a typical victim based on his experience helping people through the CRA's top 5 tax frauds. If you or a loved one falls into one or more of these categories, Gerb recommends additional caution with any investments, business arrangements or tax deductions.

Typical Traits of Tax Fraud Victims

  1. Union environments and technical individuals
    Overwhelmingly, the victims are unskilled in tax but technically-savvy individuals in their own right, which run the gamut from: nurses, doctors, teachers, fire fighters, police officers, bus drivers, mechanics, administrative staff and retirees. Union environments are especially dangerous because of how quickly word of the investment or business arrangement can spread.
  1. Employees (as opposed to independent contractors or self-employed) earning $50,000+ per year
    Employees pay tax all throughout the year, from every paycheck. Self-employed individuals do not typically pay tax until April 30. At the end of the year, employees have already paid their fair share of taxes … a fact not lost on the tax fraud promoters. The promoters try to extract as much of the paid taxes from the CRA as possible, typically charging a handsome fee (often a percentage of the tax refund) to do so.
  1. Individuals who are in the same job or company for 10, 20 or more years
    Individuals who consider their jobs to be stable typically have the following two traits, which, taken together, make them more attractive to tax fraud promoters. First, they are financially able to take on a little more risk or try something different in their investment portfolios. Second, they tend to be less up-to-date or "insulated" on financial products. This allows tax fraud promoters to rely on "newness" to promote whatever tax fraud scheme is trending.
  1. Consistent RRSP contributors
    Every year employees who make regular contributions to their RRSPs do so with the expectation of receiving a tax refund. This has 2 consequences. First, the fact that legitimate financial tools such as RRSPs or RRIFs generate tax refunds makes it easier to believe that new seemingly legitimate financial instruments or business arrangements will do the same. Second, over time, individuals become desensitized to receiving tax refunds believing it is to be expected.
  1. Individuals and families that self-identify as "middle class"
    The middle class generally feel as though the "top 1%" class of Canadians have access to a network of professionals and advisors (such as bankers, financial planners, tax lawyers and accountants etc.) that have insider information and know something they don't.

"Despite how quickly positive word spreads about the investment, information about consequences and fraud travels slowly. This is simply because victims are embarrassed to come forward and the tax fraud promoters count on that to make a clean getaway," added Gerb.

If you or someone you know fits into the typical tax fraud victim profile, Gerb recommends extreme caution in any of your investment dealings and adds when an investment gives you significant up-front tax refunds or the tax savings create above average consistent or guaranteed returns, it's probably too good to be true.

About Devry Smith Frank LLP (

Devry Smith Frank LLP (DSF) is Toronto's largest law firm outside of the downtown core. Since 1964, DSF has been a trusted advisor and advocate for corporations, individuals and small businesses. DSF is a dedicated group of over 50 lawyers, offering a broad range of legal services to our individual, business and corporate clients. We are driven by delivering value to our clients in all that we do. DSF's clients are corporations, institutions and individuals who come from all industries and walks of life including: insurance companies, banks, amusement park designers, printers, doctors, dentists, plumbers, lawyers, assembly line workers, photographers, and many, many more.

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