TAXMAN GOES AFTER ILLEGAL GROWERS

So let's say you get caught with a basement full of marijuana plants.
Unpleasant, but no big deal - this is B.C., where the courts are known
for their gentle drug-crime sentences.

But the real nightmare has just begun. Because if you're like most
growers, you haven't been filing income tax returns. And the tax man
cometh.

Canada Customs and Revenue Agency has caught the scent of a
billion-dollar industry, almost all of it operating outside the tax
system. The fact that it's an illegal industry makes no difference;
federal law states that if you earn income, you file an income tax
return regardless of the source.

Using media reports of busts as indicators of where to start looking,
local CCRA investigator Brad Anderson has begun checking if growers
who are caught have been declaring earnings that match up with the
size of operation they were running.

If they did, no problem. If they didn't, the bill they'll get for back
taxes, late penalties and accumulated interest just may be the
harshest punishment they'll face. CCRA communications manager Dan
McGrath remembers one guy who ended up owing $120,000 on $96,000 of
undeclared income.

In its previous incarnation as Revenue Canada, the CCRA spent 28 years
trying to get a cut of the criminal economy and make good on Ottawa's
1972 plans to make life miserable for organized crime. But collecting
unpaid taxes from the black market is a tricky proposition, as the
lack of a paper trail makes it tough to estimate income that has gone
unreported.

What's different this time out is a working relationship with B.C.
Hydro and police, both in ferreting out lucrative grow operations and
providing expert evidence on the likely amount of earnings that
weren't reported.

"Hydroponics are ideal things to do income projections on," says
Anderson. "Police grow their own dope, so they know how many pounds
of marijuana you can get per grow-light. And we can use hydro records
to figure out the number of crops somebody got off."

Growers who don't agree with CCRA's estimates will have to produce
their own evidence as to why their tax burden should be less - maybe a
failed crop that the calculations didn't take into account, or
unexpected expenses. Anderson says the CCRA will do its best to help
anyone who co-operates.

And like any other business owner, all growers are entitled to deduct
regular expenses, such as the cost of fertilizer, lights, space to run
the operation and even hydro.

Some growers may opt to avoid at least one future hassle by filing
annual tax returns just like everyone else. If so, the information
remains confidential. "You can put on your tax form `Marijuana grower
and proud of it,' and we can't report you," says McGrath.

Police can, however, ask for the release of a tax return if it's
relevant to a crime someone has been charged with. But it's up to CCRA
to decide relevancy, and the agency doesn't automatically assume that
a "hydroponics grower" is doing anything illegal. Police may want
growers jailed, but CCRA just wants them to pay their taxes.

The new vigilance also means more scrutiny for employees of large grow
operations. Wages are good because of the risks of the job, and CCRA
wants to see that reflected in workers' tax returns.

Some people doubtlessly wish the CCRA would take a more active role in
flagging illegal activity, but the agency prides itself on its neutrality.

"Police like what we're doing because the fines in court aren't much
these days and they see this as an extension of what they're trying to
do. But for our purposes, if people file, that's all we care about,"
says Anderson.

"We view this strictly as business - people are in the business of
selling drugs and we're in the business of administering the Income
Tax Act. And the bottom line is that if you're earning income, you
have to pay taxes."