August 21, 2020
Explaining the difference between tax fraud/tax evasion and tax avoidance, and what you can do about these issues.
Understanding Tax Fraud in Canada
Tax fraud is purposely failing to disclose income in order to evade taxes or qualify for government-funded social benefits. Tax fraud can come in many forms. Not declaring income from record-free cash transactions can be consider tax fraud, as can not declaring all income, not detailing all tips and gratuities you received, or claiming expenses that you are not entitled to.
It’s important to note that tax fraud, also known as tax evasion, must be purposeful. In the eyes of the Canada Revenue Agency (CRA) there is a difference between inadvertently not disclosing income (such as forgetting to include some information on your return or not realizing that something needs to be included) and purposely failing to disclose information. Simple errors, such as forgetting to report a tax slip or deducting an ineligible expense, are often caught during the CRA’s tax review program and corrected. These situations are generally not considered tax fraud.
The Difference between Tax Evasion and Tax Avoidance
Some people get confused between the terms “tax evasion” and “tax avoidance.” While they are sometimes discussed alongside one another, they are not the same thing. Tax evasion is ignoring laws in order to pay less in taxes. Tax avoidance is using loopholes that are technically legal but may “violate the overall spirit” of tax law.
Generally, there is nothing illegal about tax avoidance, however, depending on the tactics used, the CRA may not appreciate it. A recent example of tax avoidance was made public when the “Panama Papers” were leaked in 2016. These documents linked many wealthy individuals, including politicians and celebrities, to offshore business entities for the purpose of tax avoidance. These papers may have also revealed several cases of tax evasion, which are currently being investigated by the CRA.
Reporting Tax Fraud
Anyone can report tax fraud to the CRA. You can supply an anonymous tip but, even if you disclose your identity to the CRA, the agency is obligated to keep your identity a secret. As a part of the Stop International Tax Evasion Program, which targets international tax fraud, a percentage of the funds recovered from an international tax fraud case is provided to the person providing the information, if the tax owing is at least $100,000.
However, the standard CRA Informant Leads program does not include any financial rewards for reporting tips.
The Punishment for Tax Fraud
Technically, a person can receive jail time if convicted of tax fraud. However, in reality, very few Canadians are jailed for evading their taxes. In order for criminal charges to even be filed, the fraud needs to be quite obvious and especially egregious. In the vast majority of cases, the CRA simply wants the money that it is owed. While criminal charges are unlikely, the CRA will use the considerable collection powers it has at is disposal to collect unpaid tax debts. If the CRA has contacted you regarding tax debt or potential tax fraud or avoidance, you will want to speak with a professional before agreeing to anything with the CRA. Please call us at 1-844-632-9700 today.