The filing deadline for income taxes is looming, and that means one thing: it’s scam season.
Nearly 20 per cent of Canadians have been victims of cons at tax time or know someone who has, a survey by the Certified General Accountants Association of Canada (CGA-Canada) found. Of those, 18 per cent lost or know someone who lost more than $1,200.
According to the Canadian Anti-Fraud Centre, there was an increase in phishing scams occurring at tax time in 2011 and 2012. In March 2011, Canadians lost more than $125,000 to phishing scams alone.
Greed and fear are key factors that can sway otherwise clear-thinking Canadians, says licensed public accountant Blake Mercer of Mercer & Mercer Certified General Accountants Professional Corporation.
“A scheme that purports to offer a quick or larger deduction, credit or refund will appeal to taxpayers who are in a financial situation which would be assisted by a larger refund, who view the notion of paying taxes as a necessary evil and are looking for any way possible to reduce that tax payment, or who are generally are swayed by a good pitch and something that sounds like a reasonable idea,” says Mercer, a CGA Fellow.
“Most taxpayers would rather not deal with the government if possible and really are not aware of what ways in which CRA [the Canada Revenue Agency] communicates, or what powers CRA has or doesn’t have to get information from them,” he adds. “If they’re presented with a credible-looking document or telephone communication that might be threatening to a degree, people may tend to the path of least resistance to make things go away.”
Even though several scams have been around for a while despite a lot of publicity, they’re still going strong.
These are email and phone scams in which someone is “phishing” for your personal and financial information. You might get an email or call purportedly from the CRA asking to verify your personal tax or financial information or offering a direct deposit on your recent tax return.
“Phishing communications via email and telephone … are really not much different than the Nigerian letter scams,” Mercer says. “Tax payers get caught in these because they don’t know how CRA communicates -- it rarely if ever uses external email as a form of communicating with tax payers -- and what their rights are if contacted by CRA, legitimately or otherwise. Further, they’re not normally used to receiving communication from CRA and therefore don’t know what is official and what looks sort of official.”
The Canadian Anti-Fraud Centre reported a spike in charity scam fraud during tax time in 2012. Over $25,000 was lost by victims of charity scam abuse that April, the highest reported loss in the year.
Charity scams can take on a few forms. There are false charities: You may receive a letter or email thanking you for and asking you for follow-up information about a donation you don’t remember making, or you get an email from an organization you’ve never dealt with asking for an online donation.
Then there’s the “inflated charitable donation” scam. Here, taxpayers are presented with the ability to contribute a certain amount — say $1,000 — yet receive a charitable receipt for a much higher amount.
“We’ve had clients who unfortunately participated in these schemes who have had their charitable donation either reduced down to their actual cash contribution or even reduced down to an amount less than what they actually paid out,” Mercer says.
“We’ve seen instances of schemes like this offering what effectively amounted to audit insurance to ‘protect’ the contributor in the event that CRA re-assessed. The adage ‘if it sounds too good to be true, it probably is’ really applies here.”
This one occurs when a supposed tax preparer alters return information without the client’s knowledge or consent in an effort to obtain inflated refunds or divert refunds.
It might show up via a flyer in the mail advertising a high return for your money at a reduced rate, or a preparer may offer to base their fee on a percentage of the amount of the refund.
Tax time is a prime opportunity for identity thieves, since your tax return contains enough personal information for someone to easily steal your identity.
Signs of identity theft include your credit card statement showing purchases you don’t recognize, or you might get a phone call, email, or letter informing you that you’ve been approved or denied by a creditor you never applied to.
Tax-free RRSP withdrawals
This scheme appears as a promotion offering a tax-free withdrawal to access your Registered Retirement Savings Program (RRSP) funds directly or indirectly.
Promoters often promise to return part of the taxpayer’s investment using offshore debit or credit cards, offshore bank accounts or loan-back arrangements. Or they may offer immediate access to assets in locked-in RRSPs or RRIFs, income-tax receipts providing deductions of three or more times the amount contributed to an RRSP; and unrealistic returns on investments.
- Be wary of return preparers who suggest inflating deductions such as charitable donations, child care expense claims, or business expenses or losses as a way to get a larger tax refund.
- Never sign a blank tax-return form.
- Distrust emails or phone calls that threaten a consequence for not responding, such as additional taxes or blocking access to your funds.
- If you take photos of documents via tax apps, be sure to delete images after use, according to Experian’s ProtectMyID.
The U.S. provider of identity theft detection and protection solutions also suggests:
- Use password protection on your smartphone
- Never click on links in emails or text messages to supposedly official websites; rather, type the link directly into your browser
- Place tax documents in a secure location such as a safe or locking file cabinet (never leave them in your car)
- Never use a public computer to e-file taxes
- Monitor your credit reports regularly
- Wipe the hard drive before disposing of or donating an old computer
- phishing scams