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Busted: Scam Hid Money From CRA - And Ex-Spouses - For Over A Decade

Commissioner Andrew Treusch stepped down last week, leaving behind both his post as head of the Canada Revenue Agency and a controversial mess over the CRA's handling of a sophisticated tax-avoidance scheme that sheltered millions of dollars from taxation - and from ex-spouses. It's a headlining case that illustrates the lengths that some divorcés among the country's upper echelons took to avoid an equitable division of family property.

The Isle Of Man Scheme

Offered by renowned accounting firm KPMG, the off-shore scheme helped high-asset clients open shell companies in the Isle Of Man - the self-governing island nestled between England and Ireland. Entry to the elite club started at $5 million a pop. Clients hid their millions while KPMG scooped up 15% of the taxes the firm saved for them. Twenty-six clients bought in, funneling over $130 million into the investment vehicle.

After over a decade of operation, the scheme was uncovered by CRA auditors in 2012. Among the documents now being reviewed by a House of Commons committee are talking points contained in KPMG materials for the product's sales reps. One section about asset protection stated that "no eligible person should be considered to have an enforceable interest that could be subject to the claims of creditors, including spouses or ex-spouses under community of property type laws."

More damning evidence includes private emails sent to KPMG by an outside legal advisor discussing the "possibility of avoiding the Divorce Act (Canada) and similar provincial legislation" through the scheme.

The kicker in the case came when documents leaked to the CBC in a brown envelope in March revealed that the CRA offered a secret deal to the 26 investors: repay the taxes and modest interest on the unfiled investments and walk away without criminal prosecution, fines or penalties. Meanwhile, investigations into the matter continue.

The amounts involved in the Isle Of Man Scheme are breathtaking, but the possibility of spouses cheating on property division is a real possibility at any income level.

Getting divorced?

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