Felony Tax Evasion: Toronto Tax Litigation Lawyer’s Information – Tax

Introduction – Civil and criminal prosecution by the rating agency

While the credit rating agency has the power to conduct both criminal and civil investigations against Canadian taxpayers for potential violations under the Income Tax Act, the credit rating agency conducts a relatively small number of criminal investigations against Canadian taxpayers, unlike civil actions.

According to CRA’s own publication of their law enforcement actions, only 21 taxpayers were convicted of tax evasion in 2020.

Recently, a Brampton business owner, Mr Tran, was fined $ 364,000 and sentenced to 8 months in prison for tax evasion under the 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.

tax evasion

Not all tax non-compliance constitutes tax evasion. Since the Canadian tax administration relies on individual taxpayers to self-assess their amount owed and report their tax owed, it is often the case that a taxpayer will pay his taxes in good faith, but incorrectly, reports.

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 criminal tax evasion is defined as:

239 (1) (d) willfully in any way evaded or attempted to evade compliance with this Act or the payment of taxes imposed by this Act, or

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 for tax evasion under the Income Tax Act and the Consumption Tax Act

Both the Income Tax Act and the Consumption Tax Act contain criminal provisions for tax evasion. According to Section 239 (1) EStG, the penalty for tax evasion under the Income Tax Act provides for a fine between 50% and 200% of the tax amount owed and a prison sentence of a maximum of 2 years.

Section 327 (1) of the Excise Duty Act sets the penalty for criminal tax evasion under the Excise Duty Act either as a fine of between 50% and 200% of the tax amount owed or in cases where the tax is owed after the excise duty Act cannot be determined a fine of between $ 1,000 and $ 25,000. The consumption tax law also provides for a possible prison sentence of up to 2 years for tax evasion.

In addition to the penalties under the Income Tax Act and the Excise Tax Act, the rating agency can accuse taxpayers of fraud or other criminal offenses applicable under the 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 did not send a GST / HST of $ 726,723 from January 1, 2014 to December 31, 2015.

Mr. Tran has been charged and found guilty of tax evasion under the Excise Duty Act.

The Tran case shows that while the company’s tax liability is segregated from the liability of the company’s directors and shareholders, individuals in control of a company can be charged with tax evasion if they deliberately try to evade the company’s tax obligations.

Pro Tax Tips – Know Your Charter Rights

While the penalties associated with tax evasion convictions are severe, Canadian taxpayers are granted procedural rights under 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 during due audits are often a violation of the taxpayer’s charter rights when used in criminal investigations. During a tax audit, the rating agency may coerce evidence from a taxpayer if there is a risk of an unfavorable revaluation being made against the taxpayer. This technique, if used during a criminal investigation, would likely constitute a violation of the taxpayer’s charter rights.

Hence, it is important to retain the best Toronto tax attorneys when you are under review by the rating agency to ensure that the possibility of criminal tax evasion investigations is considered and prepared. Our skilled Toronto tax attorneys can guide you through the tax audit process to achieve a satisfactory outcome for you and to ensure that your rights are protected when a tax evasion investigation is a realistic option. Call us today to find out about your tax needs. Your conversation with us will be treated confidentially.

The content of this article is intended to provide general guidance on the subject. A professional should be obtained about your particular circumstances.