Tax Evasion and the CRA
Tax evasion includes intentionally reporting income inaccurately, underpaying or completely ignoring tax debt, claiming tax credits to which you are not rightfully entitled, and falsifying records or supporting documents. Importantly, tax evasion is a crime and the consequences can be severe.
An Audit Vs. A Criminal Investigation
The Canada Revenue Agency (CRA) conducts audits to ensure that Taxpayers are not abusing the self-reporting system. CRA powers of investigation for an audit are far reaching and broad, including the ability to inspect and examine documents and property of the Taxpayer, enter any premises and require the production of documents and information.
Criminal investigations must be pursued within the limits of the Charter of Rights and Freedoms, specifically section &, which is the right to life, liberty, and security of the person. If an audit turns into a criminal investigation the Taxpayer is entitled to additional protections. This is why it is important to know when an audit becomes a criminal investigation.
Tax Evasion – What are My Rights?
According to the Supreme Court of Canada (SCC) in R v. Jarvis, “there must be some measure of separation between the audit and investigative functions” of the CRA. When the purpose of an investigation is to determine criminal liability, an “adversarial relationship”. When a tax official exercises his or her investigative function, the parties are in an adversarial relationship because of the liberty interest that is at stake. When the predominant purpose of an inquiry is the determination of criminal liability, the Charter of Rights and Freedoms is applicable and all of the protections in the criminal context apply and prohibit tax officials from relying on their “powerful inspection and requirement tools.” Unlike an audit that is based on cooperation, the CRA is required to get a warrant to view the Taxpayer’s information and documents.
Tax Evasion – What Normally Triggers a Criminal Investigation?
According to the CRA, the following are sources of information that may result in the opening of a criminal investigation:
- Internal referrals within the CRA, including audit programs;
- Tips from individuals through the CRA informant leads program;
- Information from various law enforcement agencies; and
- Publicly available sources of information such as media articles.
Tax Evasion – Am I at Risk of Investigation?
However, not all files trigger a criminal investigation. For instance, a file is typically selected for examination based on the extent of the alleged offence, as well as the likelihood of securing a conviction and the availability of evidence.
The CRA’s Criminal Investigations Program (CIP) places priority on the following types of cases:
- Individuals or businesses that not only fail to report their own income, but also promote others to participate in organized tax schemes aimed at defrauding the government;
- Joint investigations with other enforcement agencies, including cases of tax evasion involving money laundering and terrorist financing;
- Major cases involving income tax and/or GST/HST tax evasion, including the underground economy; and
- Substantial cases of tax evasion with an international element.
Hiding money in foreign jurisdictions is also classified as tax evasion. Canadians are required to report their worldwide income to the CRA and hiding offshore assets may be considered a crime. As such, if you have any foreign assets, you may want to complete a Form T1135, Foreign Income Verification Statement, by the filing due date of your income tax return. Or, if you have failed to include foreign assets in previous years, you may consider applying through the Voluntary Disclosures Program.
Tax Evasion, the CRA, and the Consequences
If you are convicted, there can be serious penalties and fines associated with the conviction. The Income Tax Act and the Excise Tax Act both have court fines ranging from 50% to 200% of the taxes evaded and up for five years in prison. The penalty for fraud falls under the Criminal Code and goes up to 14 years. In 2013, the CRA convicted 128 people of tax evasion or tax fraud, and 23 percent of these people served jail time, with the average sentence being 22 months. That being said, the CRA’s main objective is collecting the outstanding debts.
If you are being criminally investigated for tax evasion, please contact Rosen Kirshen Tax Law to ensure you have an experienced team of tax professionals to review your case. We are here to help!
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.