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Tax Evasion in Canada: What It Is & What You Should Know

June 12, 2019

What is Tax Evasion Canada?

Tax evasion is a very serious situation. This term refers to a situation where an individual or business does not file tax returns as they should, when income is not accurately or completely declared, or when incorrect or fraudulent expenses are claimed on a tax return. The potential penalties for tax evasion Canada can be very severe. If you are found guilty, you could face a large fine and even potential criminal charges that could result in jail time.

Since tax evasion Canada is a very serious charge, it is important that you file your taxes correctly. If you do not, the Canada Revenue Agency (CRA) could potentially charge you with a crime, which could mean a criminal record. If you have been accused of tax evasion, it is critical that you handle the situation correctly. Otherwise, you could find yourself in serious trouble.

Common Tax Evasion Situations

There are a number of scenarios that the CRA could consider to be tax evasion. A common issue is an undeclared income. If you do not declare all of your income, the CRA will likely consider this to be tax evasion. The agency has many tools at its disposal to determine if an individual correctly declared all income. It can match the information you provided with details it received from other organizations (such as an employer). If it finds that an organization claims to have paid you money but you did not declare this income, you may be audited, and the agency may pursue tax evasion charges against you.

Another situation that the CRA could consider to be tax evasion is if you do not file a tax return that you are required to file.

However, it’s important to know that while tax evasion Canada is a crime, owning tax debt is not. If you have filed your taxes correctly, but owe money, the agency will not file tax evasion charges against you. It will be more interesting in getting the money that is owed to it.

Avoiding Tax Evasion Charges

If you have incorrectly filed your taxes in prior years, if you have not declared income or expenses as you should have, or if you did not file returns that should have been filed, there is an option that may be applicable to you. The Voluntary Disclosure Program (VDP) is designed to give a second chance to get your returns right. If you file a VDP application and are accepted, you could be eligible for relief from prosecution and potentially from penalties and interest as well.

However, to apply for this program, you will need to provide the CRA will all missing or incorrect information before the agency contacts you regarding your taxes. This means that you will have to give the CRA with information that it does not already have. This can be a potentially risky situation. If you give the CRA new information about your finances but then are not accepted into the program, you could be in potential trouble. Working with an experienced professional can increase your chances of a successful application. If you are considering applying to the Voluntary Disclosure Program to avoid a potential tax evasion situation, contact us today.

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.

Handling CRA Tax Evasion Charges

If the CRA has contacted you regarding unfiled returns, undeclared income, or other situations that could potentially result in tax evasion Canada charges, then you should speak with a professional right away. If this situation is not handled properly, you could find yourself in serious trouble. Contact our team today. Our team of ex-CRA professionals, working in affiliation with tax lawyers from Farber Tax Law can communicate with the CRA on your behalf, negotiate with the agency, and represent you in audits or in court as needed.