Afghan vet getting screwed by CRA, help pls
Back around 2008 I was injured in a roadside bomb attack while serving in Afghanistan. Veterans Affairs had just switched from a lifetime pension to a lump sum for wounded vets, so I found myself in receipt of a fairly large chunk of money. I started a small business, paid some bills, and also started trading in the markets. Not too wise, considering I had no idea wtf I was doing. Anyways, long story short, I ended up losing about $90,000. Shitty, for sure, but it was what it was, I took it on the chin and moved on.
Fast forward to about a year ago and I get a notice that my taxes for 2008 and 2009 have been reassessed and I now owe CRA close to $700,000. Pretty f'ing crazy I thought, because that's probably about the totality of my lifetime income. No way could I owe that much, I thought. So I asked for an appeal and figured it would be a pretty easy fix, surely a case of mistaken identity. Anyways, months passed and I kind of forgot about it. I wasn't worried in the least because I knew it had to be a mistake. Turns out, it wasn't totally. They had the right person.
Apparently what happened is that TD Waterhouse had sent CRA something called a T5008 slip, something I never knew existed. These are slips for every single transaction I made from my account. All told, there was probably close to 800-900 slips sent to CRA. The problem for me is, the T5008 ONLY says the name of the security, and the proceeds from the transaction. So, for example, a slip might show that you bought (or sold, the slip doesn't specify) 1000 shares of Uranium One (hypothetically) for $8,000. So we can glean from that that the purchase (or sale) of U1 was done at $8/share. That's the only information. It doesn't say whether the transaction was a sale, or a purchase, and it doesn't say if the transaction resulted in a profit (which is taxable) or a loss (which is not). So what CRA is apparently doing is assuming that EVERY SINGLE SLIP was a sale, with proceeds going to me, and taxing that as capital gains. So they have me as making cap gains of several million dollars over that time period, with the end result being a tax bill of the aforementioned $700,000.
Obviously, this is a giant kick in the balls. It was bad enough to lose almost $100,000. But now I'm being forced into certain bankruptcy if I can't vacate this judgment. To make matters worse, I've since wised up with my personal finances and have amassed a little nest egg that I'm saving for my future. It's not much, but it's in the tens of thousands and has taken me close to 10 years to save, and after the pain of squandering my initial disability payment, I'm proud of it. If I declare bankruptcy, that's gone too.
The rep I'm working with at CRA is very nice and helpful. She seems to want to help me out, but apparently the onus is on me to prove that I DIDN'T make millions of dollars in the stock market. I've called TD and TD Waterhouse and they apparently only keep account records for 7 years, so nothing there to help me. I've heard that banks and brokerages keep hard copies in a basement somewhere, but I can't seem to find anybody at the bank who knows about this. I've tried to connect the dots myself. I had CRA send me every single T5008 slip, and I went thorught every one and tried to match them up. So, for example, if I have one transaction on Feb 15 for 8000 in a specific security, and another one on Feb 18 for 8000 shares, and those are the only two transactions for that security, it's a reasonable assumption that the transaction on Feb 15 was a purchase, and the one on Feb 18 was a sale, and it's easy enough to figure out the price/share on those dates, figure out your total cost, and then from that subtract your total proceeds, and from THAT, figure out your tax liability. The problem with this is, TD Waterhouse clearly didn't send all the slips. Many of the securities didn't match up (for example, I had one transaction for 16,000 shares, and the only other transaction for that security was for 2,000. So how would one get a picture of what was going on based only on that information?). Also, there were many T5008's that had only one transaction for a given security. That's it. So clearly, something is off: Every complete trade requires at least TWO transactions, a buy and a sell.
So here are my questions, and I would appreciate any answers:
1. Is it appropriate for CRA to just assume that everything was a profitable trade? Is the burden of proof squarely on me?
2. Can they just take documents that are CLEARLY incomplete (i.e. only one transaction sheet for a specific security) and extrapolate from there in a way as to assume the worse possible scenario for me?
3. Should I hire a tax lawyer? Can they do anything?
4. Does anybody know how baking records work, and who specifically I should seek out for help in finding these old records?
The thing that really burns me is that any objective reading of the hundreds of T5008's they DID send paint a pretty obvious picture. Yes, the numbers don't always add up because the records are incomplete. But there are many trades that DO line up perfectly (i.e. the share totals for a specific security match up perfectly, and we can paint a picture of the transaction flow. In other words, it's obvious what was a buy and what was a sale). But when an objective person who knows the financial industry looks at the complete stack of T5008's in totality, it paints an obvious picture of a crappy trader who had no clue what they're doing and in no way could EVER earn that kind of profits in the market. I'm talking about share purchases one day, then a sale the next day because the stock went down 0.5% or something. Then another purchase a week later, followed by a quick sale because it went UP 0.5%. My point is, when you look at the totality of the trades we DO have, it's obvious that the person directing these trades was exactly what it was: a total amateur who had no idea what they're doing and with more money then brains. I mean, there is no way in hell that any CRA professional can look at the T5008's they have and ACTUALLY think that this person made millions in profits. So they KNOW I don't actually owe them that money. In addition, if these actually WERE profits, then surely there would be evidence of that somewhere. For example, I would have had to move the cash from my TD Waterhouse account back to my TD Bank account in order to access the money. Or send it to another Canadian bank or whatever. The point is, there would be a pretty significant paper trail of that money that just doesn't exist. But until I can prove in conclusively, they're pretty determined to take everything I've worked for in the past 10 years.
I'm aware that everyone owes taxes on any capital gains they may have earned. But it never crossed my mind to keep records of losing trades. I didn't even know T5008's existed until this nightmare.
Anyways, any help would be appreciated.