Davan Enterprises Limited of Concord, Ontario faced one count of tax evasion in the Ontario Court of Justice in Kitchener this past July. As a result of claiming false commission expenses in the amount of $613,875 in its 2001 to 2003 corporate tax returns, federal income tax and GST in the amount of $80,540 were evaded. The Court imposed a fine of $116,270. In addition to the Court fine, Davan is obligated to pay all taxes and interest owed as well as civil penalties determined by the Canada Revenue Agency (CRA).
Trican Management Services, owned and operated by Michael Witen, provided accounting and bookkeeping services to Davan. Mr. Witen invoiced clients for various goods or services that were never provided through several non-operating corporations that he controlled. The shell corporations charged GST which was itemized on the invoices. Witen’s clients would pay the invoices in full and expense the amounts against their taxable income. The funds received by Witen were funneled through various bank accounts back to the shell corporations. The monies originally paid by clients were returned to them after Mr. Witen had deducted a commission for himself and withheld the GST portion. The clients in question did not report the funds Witen returned to them as income on their tax returns. As a participant in the “false invoice/circle of payments” scheme, Davan was subjected to a separate criminal investigation by the Canada Revenue Agency.
Davan’s principal signed blank cheques, drawn on the corporate bank account, which were then sent to Mr. Witen. Mr. Witen would fill in the blank portions of these cheques. In this manner Witen recorded a total of $510,428 (net of GST) as commission expenses in Davan’s financial records. These fraudulent sums were claimed as expenses on Davan’s 2001 and 2002 corporate tax returns. The returns were prepared by Witen. Additional fraudulent entries were made in Davan’s financial records, including $103,447 in non-deductible personal expenses related to home renovations made at the residence of Davan’s principal.