Explaining Tax Evasion in Canada

Tax evasion is when you do not file tax returns as you should, do not fully and accurately declare your income, when you hide income, or if you claim expenses and tax credits you are not entitled to.

Canada Revenue Agency (CRA) auditors are required to bring tax evaders to account, collect the taxes interest and penalties, and make an example of them to make taxpayers comply with the rules.

More than anything, the CRA wants the money that is owed to it.

After all, tax evasion is a crime in Canada.

However, it is important to note that it is not a crime to owe money to the CRA. This means that if you filed your taxes correctly, the CRA will only want the money that is owed to it. The agency will not seek any sort of criminal charges as long as you pay what is owed.

However, if have undeclared income, for instance, you could be penalized or prosecuted for tax evasion. For example, if you earned $45,000 in declared income from your employer, but also collected $20,000 in cash from undocumented activities, you are guilty of tax evasion if you do not declare this income.

In addition, if you are required to file a tax return and do not do so, this could be considered tax evasion.

Penalties for Tax Evasion in Canada

Section 239 of the Canadian Income Tax Act addresses the penalties for committing tax evasion. According to the act, “Every person who has failed to file or make a return as and when required by or under this Act is guilty of an offence and, in addition to any penalty otherwise provided, is liable on summary conviction to:

  1. A fine of not less than $1,000 and not more than $25,000; or
  2. Both the fine described in paragraph 238(1)(a) and imprisonment for a term not exceeding 12 months.”

The Canadian Income Tax Act also defines who is guilty of tax evasion. Individuals who:

  • “Made, or participated in, assented to or acquiesced in the making of, false or deceptive statements in a return, certificate, statement or answer filed or made as required by or under this Act or a regulation,”
    • This means that you were not fully truthful when you completed your income tax returns.
  • “To evade payment of a tax imposed by this Act, destroyed, altered, mutilated, secreted or otherwise disposed of the records or books of account of a taxpayer”
    • This means that you created fraudulent documents or destroyed documents relating to your income tax situation
  • “Made, or assented to or acquiesced in the making of, false or deceptive entries, or omitted, or assented to or acquiesced in the omission, to enter a material particular, in records or books of account of a taxpayer”
    • This means that you kept “false books” or knowingly incorrect records in order to be deceptive when you filed your taxes.
  • “Willfully, in any manner, evaded or attempted to evade compliance with this Act or payment of taxes imposed by this Act”
    • This means that you did any other activities in an attempt to evade taxes.
  • “Conspired with any person to commit an offence described in paragraphs 239(1)(a) to 239(1)(d)”
    • If you worked with another person to evade taxes, even if they were not your tax returns, you have committed tax evasion.

If you are found guilty of tax evasion, you will be subject to a fine of up to double the amount of the tax that was sought to be evaded and/or imprisonment for a term not exceeding 2 years.  

As you can see, income tax evasion is very serious and can and must be avoided. Even if you are currently behind filing returns or know you have undeclared income – you need to come clean and put an end to your tax problem. The CRA will find out sooner and later and the potential penalties for tax evasion are very severe.

In most cases, the CRA is more interested in collecting the money owed to it than seeing people end up in jail. That said, the CRA charges very high penalties and interest charges on outstanding tax debt.

The sooner you come forward, the less you will owe as the CRA charges interest and penalties on your tax debt. An option for those who have made mistakes on prior year returns is the CRA Voluntary Disclosure Program (VDP). This program allows you to come forward before the CRA contacts you and make adjustments to prior year returns or file prior year returns that have not yet been filed.

If you use the VDP to submit prior year information, the CRA may not charge penalties and you will only be expected to pay the amount owing plus interest. However, this program only applies to those who have not yet been contacted by the CRA.

If the CRA has already contacted you regarding income tax evasion or prior year tax returns, you will want to speak with a professional right away.  Please contact us online or call 888-868-1400 for assistance.