Brian Mulroney and His Tax Returns

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.

It’s old news now, but just to refresh out 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 from income in respect of services not yet rendered.

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.

[Via http://thetaxissue.com]