Tax evasion typically involves deliberately ignoring a specific part of the law. For example, those participating in tax evasion may under-report taxable receipts or claim expenses that are non-deductible or overstated. They might also attempt to evade taxes by willfully refusing to comply with legislated reporting requirements.
Tax evasion, unlike tax avoidance, has criminal consequences. Tax evaders face prosecution in criminal court.
How does CRA find out who is evading and what do they do if someone is suspected? A number of methods may be used, but one of the strongest is the CIP.
Someone you know could be ratting you out! CRA whistleblower CRA will pay for taxes uncovered exceeding $100,000 (program http://www.cra-arc.gc.ca/leads/).
CRA finds out about tax evasion when:
- They audit one taxpayer who is claiming a deduction for amounts paid to you and you have no tax return (or are not showing enough income).
- They perform a net worth audit leading to an assessment. This means they look at houses in a particular area and where the average income is, say, $100,000 per year for that neighbourhood and yours has been much less for many years the CRA will audit. If the audit shows you have accumulated wealth that is far more than your earnings and you cannot show how then you will likely face a significant assessment + interest + penalties.
- Whistleblower program – think ex-spouses, business partners and unhappy suppliers/customers as well as disgruntled former sub-contractors and employees.
- They obtain disclosure of offshore assets (particularly bank accounts where the foreign financial institution is reporting to their tax agency who now shares with CRA for Canadian citizens).
- They audit your tax return and find that the income is repeatedly understated or the expenses are overstated.
The CRA’s Criminal Investigations Program: While all evidence of tax evasion is pursued, the CRA’s Criminal Investigations Program (CIP) is specifically dedicated to ensuring that significant cases of tax evasion are investigated and, where appropriate, referred to the Public Prosecution Service of Canada for criminal prosecution.
The Criminal Investigations Program focusses on the most egregious cases that meet one or more of the following priorities:
- Significant and/or material cases of tax evasion with an international element;
- Promoters of sophisticated tax schemes aimed at defrauding the government;
- Financial crime cases investigated jointly with the Royal Canadian Mounted Police and other domestic or international law enforcement partners; and
- Significant and/or material cases involving income tax and/or GST/HST tax evasion, including the underground economy.
Consequences if convicted: Under the Income Tax Act and the Excise Tax Act, persons convicted of tax evasion can face fines ranging from 50% to 200% of the taxes evaded and up to two years imprisonment. Furthermore, upon conviction, a fine ranging from 100% to 200% of evaded taxes and up to five years in imprisonment may be imposed. These are by no means just a simple slap on the wrist.
If convicted of fraud under Section 380 of the Criminal Code of Canada, an individual can face up to 14 years in jail.
Court convictions are publicized in local, regional and national media to communicate the consequences of fraud committed against the Canadian public and to maximize the deterrent effect of these convictions. The CRA may also seek publicity at different stages of an investigation, for example when information relating to the laying of criminal charges becomes available to the public through court records, to warn Canadians of potential fraud schemes.
Average people are prosecuted too – here are just a few examples:
- Hamilton resident fined for tax evasion http://www.cra-arc.gc.ca/nwsrm/cnvctns/on/on141119-eng.html.
- Toronto dentist fined more than $175,000 for tax evasion http://www.cra-arc.gc.ca/nwsrm/cnvctns/on/on140904-eng.html.
A criminal record has consequences well beyond paying the taxes and the interest + penalties. There may be fines or prison time. These other impacts include issues when:
- crossing international borders
- applying for mortgages or other forms of credit
- facing a background check in business deals or even employment applications
Avoid prosecution. Act before you get caught and with the help of a professional organization specializing in these matters reduce or eliminate the impact of the interest and penalties. Call Tax Solutions Canada today at 1-888-868-1400.