OSC warns on tax-saving seminars

‘Pay less tax.’ ‘Maximize your tax flow.’ These are some of the enticing messages your clients will be peppered with over the looming tax season. They sound too good to be true, and many of them are. Even worse, they’re hard to spot according to the Ontario Securities Commission.

Investment seminars spouting tax-saving strategies are on the increase, says Perry Quinton, manager of investor communications at the OSC. Many of them look credible because they often recruit a recognizable ‘financial guru’ to speak.

“Often times the speaker at the presentation could be someone who is quite well-known, and that’s the draw for people to go,” says Quinton. Advisors should tell their clients not to rely on the presenter’s reputation. The OSC encourages anyone who is contemplating attending one of these seminars to investigate the presenter’s background, qualifications and professional record.

Also, remember these speakers are paid representatives, she adds. You have to keep in mind how these people are being compensated and why they are being paid to be there.

In some cases, speakers are paid to push a certain product or investment strategy, and often it’s closely linked to a specific product the sponsor of the seminar wants you to buy.

While it is not illegal to offer a seminar, it is important to remind your client that it is illegal to sell securities and offer advice without being registered with the securities commission.

The OSC strongly encourages investors to call 1-877-785-1555 to check the registration of the speaker and people running the seminar. Often the OSC will be able to provide the necessary information in less than five minutes.

While investors can also send online queries, that can take up to 48 hours. And the OSC prefers to address questions on the phone because it finds such conversations useful, though few people actually take advantage of the free service. Right now, the OSC only field about 25 calls a week on this topic.

Unlike other scams which pick on a specific demographic, all types of investors fall victim to these schemes each year, which in some cases can result in additional taxes being assessed, as well as penalties and interest charges years later.

“Generally there is a specific target market, but this is a case in point that can affect anyone,” says Quinton. “We’re all vulnerable to this specific activity.”

On a related note, the Canada Revenue Agency issued a warning of its own recently about the risks associated with certain tax-shelters, such as leveraged cash donations, and ‘buy-low, donate-high’ arrangements. In that release the CRA noted that “a tax shelter number is used for identification purposes only and does not guarantee that taxpayers will receive the proposed tax benefits.”

Often, these shady seminars cloak their true motives with jargon; using impressive or legitimate sounding terms that are meaningless to sell their schemes. For instance, have you ever heard of a banyan tree strategy? No. Chances are neither have most investors, but few bother to ask out of fear of looking unsophisticated. Yet, this is just one of tax-saving strategies that being promoted.

(For those who are curious, the seeds of a banyan tree are spread around the world by migratory birds in a repeating cycle.)

Quinton offers investors, and advisors, some sound advice: “If you don’t understand how the investment works, you shouldn’t be investing in it.”

Filed by Mark Brown, Advisor.ca, mark.brown@advisor.rogers.com

(12/22/05)