What are the Penalties for Tax Evasion?
What is CRA Tax Evasion?
The Canada Revenue Agency states that an individual or business engages in tax evasion when they intentionally ignore Canada’s tax laws. More specifically, it is the willful decision to suppress or avoid disclosing income required to be reported, inflating expenses, or falsifying records and claims.
What Qualifies as CRA Tax Evasion?
Does Owing Money Qualify as CRA Tax Evasion?
The short answer is no. Given that tax evasion is defined as the willful attempt to suppress or not disclose information required to be reported, simply owing money to the CRA would not fall under this category. Instead, this might require a payment arrangement with the CRA for tax arrears, objecting to the assessment or reassessment provided, or finding an alternative route to repay the debt.
Is Filing a Late Tax Return Considered Tax Evasion?
The short answer is maybe. Engaging in tax evasion is inherently reliant on a subjective analysis. What is key to its determination is whether the decision to file a late tax return was based on the willful decision to ignore Canada’s tax laws. Since the CRA is incapable of determining the subjective intention of another individual remotely, there may be times where the late filing of a tax return can be characterized by the CRA as an attempt to evade taxes.
Is Making a Mistake on a Tax Return Seen as Tax Evasion?
The short answer, once again, is maybe. Just like with filing a late tax return, the CRA is unable to determine remotely the intention of the taxpayer. Therefore, the CRA may characterize the mistake as an attempt to engage in tax evasion. This does not mean, however, that one is without recourse if such a situation were to arise.
CRA Tax Evasion Scenarios:
- Not filing tax returns;
- Filing tax returns, but willfully excluding income;
- Filing tax returns, but willfully misrepresenting the purpose of amount of income;
- Attempting to receive income in a way that would allow the willful exclusion of that income from a tax return; and / or
- Categorizing a transaction in a way that disguises the real purpose or benefit of the transaction.
Can CRA Tax Evasion Lead to Criminal Prosecution?
By law, tax evasion is a crime. To combat significant cases of tax evasions, the CRA makes use of its Criminal Investigations Program (CIP) to investigate and, where appropriate, refer the case to the Public Prosecution Service of Canada for criminal prosecution.
Most often, the CIP would investigate cases that meet one or more of the following criteria:
- Tax evasion cases of a serious nature with an international element
- Promoting complex tax scamming schemes intended to deceive the government
- Cases which involve commercial fraud investigated by the RCMP and other law enforcement agencies
- Income, GST or HST tax evasion cases of a serious or material nature, such as operating within the underground economy
What are the Consequences of being Convicted for CRA Tax Evasion?
Taxpayers convicted of tax evasion must repay the full amount that was owed, in addition to any interest and civil penalties assessed during this period by the CRA. Furthermore, the court may then fine the taxpayer between 50% to 200% of the taxes evaded and potentially up to two years imprisonment. If convicted under an indictment, one can face a fine between 100% to 200% of the evaded taxes and a jail term up to five years. Finally, if convicted of fraud under Section 380 of the Criminal Code of Canada, the sentence may lead to a term of imprisonment up to 14 years.
If you think you have a CRA tax evasion issue, give us a call today. CRA tax evasion could result in fines, penalties, and even jail time. Hiring an experienced tax lawyer to navigate these issues for you is your best way of minimizing potential issues with the CRA.
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.
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