Tax evasion occurs when an individual or business ignores tax laws to avoid paying taxes.
In Canada it is legislated that people must file their annual tax return reflecting the true amount that they earn and only take deductions and credits made available by the Income Tax Act and the Excise Tax Act.
Tax evasion typically occurs when individuals or businesses report less income than they actually earn or state that their deduction amounts are higher than allowed.
As well, if an individual is required to file a tax return, and fails to do so, that also may be considered tax evasion.
Individuals and businesses that do no comply are considered taxes evaders. For committing tax evasion individuals may be charged under the Income Tax Act with tax evasion or under the Criminal Code of Canada with fraud.
It is possible for a taxpayer to commit tax evasion out of negligence or a lack of knowledge.
Not understanding tax laws, and/or filing a return that contains mistakes, could be cause for individuals or businesses to be investigated for evasion.
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380(1) Every one who, by deceit, falsehood or other fraudulent means, whether or not it is a false pretence within the meaning of this Act, defrauds the public or any person, whether ascertained or not, of any property, money or valuable security or any service,
(a) is guilty of an indictable offence and liable to a term of imprisonment not exceeding fourteen years, where the subject-matter of the offence is a testamentary instrument or the value of the subject-matter of the offence exceeds five thousand dollars; or
(b) is guilty
(i) of an indictable offence and is liable to imprisonment for a term not exceeding two years, or
(ii) of an offence punishable on summary conviction,
where the value of the subject-matter of the offence does not exceed five thousand dollars.
Marginal note:Minimum punishment
(1.1) When a person is prosecuted on indictment and convicted of one or more offences referred to in subsection (1), the court that imposes the sentence shall impose a minimum punishment of imprisonment for a term of two years if the total value of the subject-matter of the offences exceeds one million dollars.
Marginal note:Affecting public market
(2) Every one who, by deceit, falsehood or other fraudulent means, whether or not it is a false pretence within the meaning of this Act, with intent to defraud, affects the public market price of stocks, shares, merchandise or anything that is offered for sale to the public is guilty of an indictable offence and liable to imprisonment for a term not exceeding fourteen years.
Income Tax Act
Section 238 of the Income Tax Act states the penalties for failing to file a tax return:
Tax evasion results in a fine of anywhere between $1,000 and $25,000 and up to one year in prison
Tax evasion and other offences under the Income Tax Act are not criminal offences, and such will not result in a criminal record for the accused.
However a tax evasion conviction still carries harsh penalties.
Section 239 states that if found guilty of tax evasion the accused can face penalties including up to two years in prison and fines up from half to 200 percent of the amount that the offender is found to have been trying to avoid.
The Criminal Investigations Program investigates instances of tax evasion and refers
Typically offenders under the Income Tax Act are made to repay the withheld amount as well as pay fines and interest by the Canada Revenue Agency (CRA). It is rare that offenders are sentenced to time in custody.
Typically the CRA tax evasion is settled through civil proceedings in Tax Court without laying criminal charges. It is possible under the Income Tax Act to lay criminal charges of fraud but the CRA typically only does this in especially egregious cases or against tax protesters, who dispute that the government’s right to collect their taxes.
The CRA has broad investigative boundaries when conducting civil audits to determine how much tax an individual or business owes. The CRA can access bank records, freeze accounts, compel the release of business, payroll and other records, and search through land registries and other government data.
However the CRA is typically prohibited from using this information to pursue criminal charges as they must stay within the limits of the Charter of Rights and Freedoms, that gives the the alleged tax evader protection against self-incrimination.
In criminal investigations into criminal fraud chargers the CRA must often go back and get a warrant to obtain the very information it had already uncovered in the course of an audit.
Historically, courts have tended to come down in favour of the accused individual's right against self-incrimination and upheld the distinction between the CRA's evidence-gathering powers in audits vs. criminal investigations.
Typically police forces are not motivated to pursue tax evasion cases or use tax law in their own criminal investigations
If you have been charged with fraud or any other criminal offence contact Kostman and Pyzer, Barristers today for a free consultation!
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