Brian Mulroney and the CRA – Part 2

This is a continuation of my Mulroney rant from last post.

While Mr. Mulroney admits to collecting $225,000 as a retainer for services to be rendered to Karlheinz Schreiber, he claims he did not report the amounts as income for tax purposes because he didn’t feel they were earned yet.

Muroney with Reagan - happier days

Mulroney with Reagan in happier days

Fast forward to 1999, when the amount was finally reported as income. First of all, the event that triggered the reporting was not the fact that anything was earned, it was the fact that Mr. Mulroney was feeling threatened that Schreiber was going to report him to the tax authorities. So, if Mulroney was complying with the tax law as he claimed, why would he worry about such a threat?

Next, if all was above board with this amount of income, why would Mulroney not simply add  it to his tax return for 1999? Here’s a fact: the voluntary disclosures route taken by Mr. Mulroney is only available to taxpayers where negligence penalties are involved.

And why, for heaven’s sake, would he not insist on reporting the full amount when his lawyers came to him with the deal they negotiated with the CRA that allowed him to escape tax on half the cash? That’s what I would do if I were a former Prime Minister conscious of my appearance in the public view.

When asked these very questions, Mr. Mulroney simply blamed it all on his lawyers. Trust me when I say that pleading ignorance and relying on professionals never works with the CRA or the courts. Taxpayers, especially sophisticated taxpayers are always assumed to have knowledge of the contents of the tax returns as evidenced by their signatures and are held responsible for them. For someone like Mr. Mulroney to reply to a direct question concerning his taxes with the statement that he “gave it to (his) tax advisers” is the epitome of brazenness.

Mulroney was followed immediately by Wayne Adams of the CRA who tried to explain to the committee much of what I’ve just said. At the end, Commissioner Oliphant said “I listened to Mr. Mulroney for six hours and I find myself more tired listening to an hour and a half of tax law here”.

Charisma. Mulroney’s got it. Tax nerds like me, not so much.

Brian Mulroney and the CRA – Part 1

Now that I’ve got a Blog, I’ve got a platform to whine, to vent, and to set the record straight on whatever I choose.  So, even though it’s a bit late, I’d like to clear up a few of the tax issues brought up during Brian Mulroney’s testimony at the Oliphant commission last May.

Don’t get me wrong. I’ve got nothing personal against Mr. Mulroney. Apart from Pierre Elliott Trudeau, I consider him to be the most charismatic prime minister I’ve seen.

But his tax knowledge is weak, and the news reports about when and how he paid taxes on the payments he received are somewhat misleading. So it’s my job to try to clear things up.

Brian Mulroney - Charisma : Yes - Tax Expertise: NoBrian Mulroney – Charisma : Yes;  Tax Expertise: No

It’s old news now, but just to refresh our memories, Mulroney admitted to receiving cash payments totaling $225,000 from German businessman Karlheinz Schreiber. The payments were received in 1995, just after Mulroney left office.

When asked about reporting this amount on his income tax return, Mulroney suggested that he did not report the amounts because he considered them to be “retainers”, and had every intention of reporting the income at such time as he felt they were earned. This, he stated was according to the rules of the Income Tax Act, and I have yet to see any news reports that challenge this view.

Assuming the amounts received were retainers for services to be rendered in the future, the law does not allow for a taxpayer to simply report the amounts when they are earned. There’s a mechanism in place that allows the CRA to keep tabs on us.

Section 12 of the Act requires any amount on account of future services to be reported as income in the year received. Then if the services have not been rendered by year-end, section 20 allows for a reserve to be deducted.

So, if we accept that Mulroney intended to comply with the law from the start, we should have seen an income inclusion of $225,000 in his 1995  tax return, and a deduction for the same amount as a reserve. Each year thereafter, the reserve is brought into income and another reserve claimed if the services have not yet been rendered.

No, I don’t work for the CRA. It’s just that of all people, a former PM should be very careful to actually report income that he says he intends to report.  It would have set such a good example for the rest of us, wouldn’t you say?

This rant is not over. There’s even more to come next time.