Civil or law enforcement by the CRA
In 2020, only 21 taxpayers received criminal convictions for tax evasion, notes David J. Rotfleisch, CPA, CA, JD, incorporation tax attorney for Rotfleisch & Samulovitch P.C., a Toronto-based boutique tax law firm.
While the Canada Revenue Agency under the Income Tax Act In order to conduct both criminal and civil investigations against Canadian taxpayers for potential violations, the rating agency conducts a relatively small number of criminal investigations against Canadian taxpayers, unlike civil enforcement actions.
According to CRA's own publication of their law enforcement actions, only 21 taxpayers were convicted of tax evasion in 2020.
In December 2020, a Brampton business owner, a Mr. Tran, was fined $ 364,000 and eight months in prison for tax evasion Excise Tax Act. Given the severity of tax evasion, it is important for Canadian taxpayers to understand the nature and potential consequences of tax evasion.
Not all tax non-compliance constitutes tax evasion. Because the Canadian tax administration relies on individual taxpayers to evaluate and report their amount owed Due to the amount of tax owed, it is often the case that a taxpayer reports their taxes in good faith but incorrectly.
In order for a case of tax violations to constitute tax evasion, the rating agency must demonstrate the necessary mental element (mens rea) for the offense of tax evasion. For example under the Income Tax Act, The mental element for tax evasion is defined as:
239 (1) (d) willfully in any way evaded or attempted to circumvent compliance with this Act or the payment of taxes imposed by this Act
The mental element can either be proven directly by relevant statements by the taxpayer about his intention to avoid taxes, or it can be proven cumbersome when the totality of the facts is considered.
Penalties according to the law
Both Income Tax Act and the Excise Tax Act Establish criminal law provisions for tax evasion. Section 239 (1) of the Income Tax Act sets the penalty for criminal tax evasion under the Income Tax Act as a fine between 50% and 200% of the tax amount owed as well as a prison sentence not exceeding two years.
Section 327 (1) of the Excise Tax Act sets the penalty for criminal tax evasion under the Excise Tax Act either as a fine between 50% and 200% of the tax due or in cases where the after Excise Tax Act cannot be determined a fine between $ 1,000 and $ 25,000. The Excise Tax Act Possible imprisonment of up to two years for tax evasion.
In addition to the penalties under the Income Tax Act and the Consumption tax law, The credit rating agency may fraud or other applicable criminal offenses under the taxpayers Criminal code.
Tax evasion in the Tran case
In the Tran case, the taxpayer was the sole owner of an Ontario company, 2346011 Ontario Ltd. The CRA investigation found that 2346011 Ontario Ltd failed to remit $ 726,723 GST / HST in the period from January 1, 2014 to December 31, 2015.
Mr. Tran was charged and found guilty of tax evasion under the Excise Tax Act.
It emerges from the Tran case that while individuals in control of a company are segregated from the company's tax liability from the liability of the company's directors and shareholders, they may be indicted for intentionally evading tax obligations of the corporation.
While the penalties associated with criminal tax evasion convictions are severe, Canadian taxpayers receive procedural rights under it The Canadian Charter of Rights and Freedoms. In the context of a CRA investigation, the line between a civil tax compliance investigation and a tax evasion investigation can often be blurred.
This means that it can often be unclear for both the rating agency and the investigated taxpayer when a proper civil tax audit has been completed and when an investigation into tax evasion has been initiated. Common procedures used by the credit rating agency for proper audits are often a violation of those of the taxpayer Charter rights in criminal investigations. During one During the tax audit, the rating agency can compel evidence from a taxpayer if there is a risk of an unfavorable revaluation against the taxpayer. This technique, if used during a criminal investigation, would likely be in violation of that of the taxpayer Charter rights.
David J Rotfleisch, CPA, CA, JD, is the incorporation tax attorney of Rotfleisch & Samulovitch P.C., a Toronto-based boutique tax law firm. With over 30 years of experience as a lawyer and accountant, he has assisted start-ups, resident and non-resident entrepreneurs and corporations in their tax planning, including will and estate planning, voluntary disclosure and tax dispute resolution. visit www.Taxpage.com and send an email to David at [email protected].