Here’s a serious warning for people who play fast and loose with the truth when reporting their income on a tax return. No matter how smart you think you are, there is no way in today’s world you can avoid your spending habits being registered somewhere. Every time you use a credit card, debit card or even a discount card, the information is finding its way to a data base. These records of your spending habits can be linked to form a single file regarding your financial history such as where you travel, what restaurants you dine in, or the car(s) you drive—basically everything you buy and everyone with whom you deal. If it doesn’t reasonably match another database regarding, let’s say, income earned per annum, a flag is raised. Know anybody who might be interested in comparing life style expenses to income reported or not in Canada? You guessed it, the Canada Revenue Agency.
This information in their hands could be used as tips to begin investigating individuals who have failed to file or evaded taxes. In effect electronic life style audits could be conducted by obtaining financial information already in circulation and collected by non-Government entities. Any new information and privacy concerns are likely to have been traded off by individuals to merchants for some monetary advantage such as a discount on purchases.
Data mining multi-nationals in the USA conduct dredge net operations on a regular basis, tracking transactions not only in the United States but also on a worldwide basis. Software can be adapted to be used as tip off devices to flag individuals for Government. The ramifications of such software are enormous. As referenced in an article from the Globe and Mail on March 18, 2006:
“…this software would store information from magnetic stripe cards, such as bank cards and video-store memberships. The possibilities for storing data were enormous; every time someone swiped a driver’s licence, a gym membership or even a credit card through a reader, the software would store the data on a computer.”
But we have privacy laws, you say, that protect our personal transactions from being shared by the retailer, etc. Daily, most people trade away their privacy for discounts on purchases. Further our American neighbours have helped make it all too easy for the CRA. Homeland Security permits the IRS, the FBI, and other government agencies to demand records of any individual’s financial transactions in and out of the United States. They exchange information with the CRA. Once in a data base, it’s accessible.
So next time you swipe a card, your spending will go on record and can expose your tax evasion or failure to file. Whether you like it or not.
Remember, all the CRA needs is a tip to conduct a life style audit in the field. Once you’re flagged and there are questions, it’s not hard to figure out who the tax police will be talking to next.
Update: Data mining and taxation are beginning to create discussion in the U.S. See this April 17th, 2006 Business Week article that discusses what we identified earlier this month as a potential tax collection tool.
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