Spousal spat uncovers business's sketchy tax history

Spousal spat uncovers business's sketchy tax history

Spousal spat uncovers business

A couple in BC could be exposed to the Canada Revenue Agency’s (CRA) scrutiny after the judge presiding over their divorce felt compelled to note facts about their landscaping business that the agency might want to know.

Landscapers Yuk Mui Wong and Guo Can Li married in 2005 and separated 10 years later, according to CBC News. Wong’s two children from a previous marriage own two thirds of their matrimonial home, while Li is listed as the owner of the other third. Li was ordered to pay his ex-wife $500 a month for spousal support last August, but has paid her nothing so far.

“Neither Ms Wong nor Mr Li has properly paid income tax over the last many years,” said BC Supreme Court Justice Loryl Russell. She noted that the divorcing couple ran their business on “very simple lines”: no deductions for GST or income tax; no employee deductions; and the parties kept the cash they received without depositing any in the bank.

Based on a 13-page reckoning of their finances, Li refused to cooperate with an expert who was brought in to value their business. According to Russell, there was no evidence that Wong supplied any of her records to the expert either.

To calculate the amount of spousal support Li had to pay his ex-wife, Russell relied on evidence provided by Wong, as well as Li’s testimony for discovery. Wong claimed that before they met, Li owned the landscaping business, but worked only two days a week. She eventually took part in the business, pushing Li out of bed in the morning and working with him 12-14 hours a day, seven days a week, during the season.

Wong said they hired help as the business expanded from 28 clients to around 1,000, leading to earnings of up to $200,000 a year. The judgment noted that the net amount received from the business added up to nearly $380,000 from 2012 to 2014, but Wong declared no income for those years as “she said she did not receive wages for her work.” Meanwhile, Li declared around $21,000 income for each of the two years the court was privy to.

Russell said Wong also had rental income amounting to some $21,600, though it wasn’t reflected in her taxes and there was no evidence to show where the property was. “No deductions were taken and remitted to Revenue Canada from wages of the seven to eight workers employed at the height of the [landscaping] business,” Russell added; Wong reportedly claimed that she would have been unable to find workers if she made deductions from their pay.

Russell awarded Li around $177,500 from the division of real-estate assets. However, she concluded that he is currently intentionally under-employed, and has calculated a debt of $180,000 for spousal support.

“If by some possibility, the Canada Revenue Agency decides to pursue these parties for income tax and GST owing, that debt will be joint," she wrote.

 

Related stories:
Contentious tax changes may be pushed back over 'severe uncertainty'
Slash Ontario tax rate to 8% suggests study


More market talk: