What is Tax Evasion in Canada?

What is tax evasion in Canada? Tax evasion is when you are not filing tax returns, not declaring income, hiding income or claiming expenses and tax credits you are not entitled to. The CRA (Canada Revenue Agency) attacks evaders without sympathy – auditors are required to bring tax evaders to account, collect the taxes interest and penalties and make an example of them to make taxpayers comply with the rules.

Tax evasion is a crime in Canada. It is not a crime to owe money to the CRA. As long as you have undeclared income you could be penalized or prosecuted for tax evasion. The Canadian Income Tax Act sets out the penalties for tax evasion in Canada.

Section 238 of the Canadian Income Tax Act addresses the penalties for failing to file a tax return: “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.”

Section 239 of the Canadian Income Tax Act addresses the penalties for committing tax evasion.

If you want to know who is guilty of tax evasion under the Canadian Income Tax Act, we can tell you. Every person who has:

1.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, (which means “lied in dealing with taxes”),
2.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, (which means “created fraudulent documents”),
3.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, (which means “kept false books”),
4.Willfully, in any manner, evaded or attempted to evade compliance with this Act or payment of taxes imposed by this Act, or
5.Conspired with any person to commit an offence described in paragraphs 239(1)(a) to 239(1)(d).

 

Those who are guilty of an offence under section 239 of the Canadian Income Tax Act 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.  You can do so safely and the sooner the more likely you can avoid the fines and prison.

Will you come out of it with a tax debt? Likely… but by working with a professional organization that helps people who have tax problems, you can come up with a plan to deal with the tax debt and move forward on fresh footing.

For more information about income tax evasion please visit www.taxsolutionscanada.com or call 888-868-1400.

How a Single Business Tax Audit Causes a Chain Reaction

Tax audits are very common in Canada and many wonder how they get triggered. Well, the CBC looked into it last year and reported some very interesting information. 

According to Canada’s top auditor, Michael Ferguson, the CRA tends to investigate those files which have a higher probability of a return for the government (that is, tax recovery + interest + penalties). “In the two fiscal years the auditor general examined, the sleuthing of those 700 employees uncovered $2.8 billion in additional taxes, interest and penalties each year.” That's an average of $4 million in tax revenue for each CRA auditor every year. 

The CRA has a department with 700 auditors charged with the task of finding you, forcing you to file and then either forcing you to pay or go bankrupt. However, there is one thing this CBC article left out and that is that the Auditor General for Canada measures the CRA’s success based on files closed - not dollars collected. For the $2.8 billion in additional taxes the CRA collection team uncovered, probably close to as much was lost because of the CRA demanding payment in full on tax debts and deploying heavy handed tactics to get the money or force you into bankruptcy. Bad things happen to good people. Many taxpayers want to pay their tax debt and could honour a monthly repayment plan based on all or some of their tax debt – if the CRA would be fair. If you have a professional familiar with CRA negotiation tactics, policies and procedures working on your side, it becomes even easier. Sadly, your good intentions and naivety will likely get overrun by the CRA giant bureaucracy. 

The tax audit chain re-action can occur if one of your suppliers or clients was audited. If the CRA sees something in their books that causes the CRA to question you or to follow the money trail through your company– they can decide to take a look at your company’s books next. The same is true if the CRA audits you and sees something in your books as it relates to another company that may not be tax compliant - the CRA may take a look at them.

The CBC article revealed that filing late and filing improperly can trigger a tax audit. A tax audit is a detailed investigation into your tax returns. If they find any discrepancies between your return and the information they review during the audit then can penalize you severely! Penalties for late filing for first time offenders is 5% of the amount of the tax debt, plus 1% per month for each month that the return remains unfiled to a maximum of 60%, plus daily compound interest. Penalties for failing to declare income or not being able to support expenses the way CRA likes (which generally occurs during a tax audit) will usually involve even larger penalties.

In addition, if a tax audit results in a tax debt that you don’t pay, the article re-iterates what we tell our clients all the time – there are consequences. Consequences of a tax debt can include: 

·         Criminal convictions for tax offences are posted online which can have devastating effects to your business and reputation.

·         You can have your receivables garnisheed – again very embarrassing.

·         You can have your bank account frozen which is extremely disruptive to cash flow and may cause your bank to panic.

·         If successfully prosecuted for tax evasion you could face jail time. A tax audit can lead to a charge of tax evasion. http://www.cra-arc.gc.ca/nwsrm/cnvctns/bc/bc121017-eng.html  

According to a Toronto law firm, during the 2008/2009 tax year, 164 cases were sent to the Public Prosecution Service of Canada and 58 GST audits to the Ministere de la Justice du Quebec for criminal prosecution. A total of 257 cases resulted in criminal convictions for tax evasion or tax fraud, as a result of previous years. 

The smart approach to avoiding a CRA audit is, if you think that there is something wrong in your books or the CRA has started asking you questions or for information about a particular tax year – do not stick your head in the sand. Have a professional review of your books performed and tackle the problem head-on because with the CRA the best offence is a good defense.

For more information about tax audits, or if you think that you are about to be audited or have been notified of an upcoming tax audit, contact Tax Solutions Canada for help. Call 888-868-1400 or visit www.taxsolutionscanada.com.

Failed to Declare an RRSP Withdrawal on a Past Tax Return?

Hundreds of thousands of Canadians have RRSPs. When life is good and people’s finances are stable, they will generally invest in RRSPs. RRSPs are attractive because they enable you to plan for retirement and offer excellent tax incentives. 

If you make an RRSP withdrawal from the financial institution holding your plan, before it is paid to you they will deduct income tax and may also take an administration charge and/or penalty. When you do your taxes at year-end it is common to find you owe yet more tax because the RRSP withdrawal pushed you into a higher tax bracket.

It is very common for people to make an RRSP withdrawal but not declare, either because: 

1.      They are unaware that there will be a tax implication, or 

2.      They really need the money and hope that the CRA won't find out about it. 

The problem is that, not only is there a tax implication, but failing to declare income is an offence under the Canadian Income Tax Act. Failing to declare income will result in penalties and interest and may even result in prosecution in severe cases. 

When you make an RRSP withdrawal the financial institution withholds the tax. The rates vary depending on the amount of the RRSP. In Canada the rates are as follows: 

·         10% (5% in Quebec) on amounts up to $5,000;

·         20% (10% in Quebec) on amounts from $5,000 to $15,000; and

·         30% (15% in Quebec) on amounts over $15,000.  

You see, when you make an RRSP withdrawal the institution that holds your RRSP will send a tax slip (called a T5) to the CRA. What will usually happen is, many years after the RRSP withdrawal was made and the non-disclosure occurred, the CRA will re-assess you. At the bare minimum penalties and interest can QUICKLY double the size of your tax debt. 

If you decide to declare the RRSP withdrawal to the CRA before they catch you under reporting, you can avoid penalties and interest under the Voluntary Disclosure Program.

 

If the CRA is not aware and has not contacted you (including not having requested information from you) about any tax problems, if the RRSP withdrawal occurred more than one year ago, and if, when you disclose the RRSP withdrawal, your disclosure is complete, you may qualify for the Voluntary Disclosure Program.

If you have made an RRSP withdrawal or have cashed in your RRSP entirely and didn’t declare it on a return or were about to omit it on a return, seek professional guidance on the matter. There are solutions and programs that enable you to declare the income, minimize/mitigate penalties and interest and put your tax problem behind you – you just have to make the commitment to do it.

If you would like to deal with taxes triggered by an RRSP withdrawal or would like to see if you qualify under the Voluntary Disclosure Program, please call Tax Solutions Canada at 888-868-1400 or visit us online at www.taxsolutionscanada.com.

How to Combat a CRA Garnishment

Thousands of Canadians have their wages garnisheed by the CRA (Canada Revenue Agency) each year. A CRA garnishment usually occurs when you owe a tax debt and do not have a payment plan with the CRA or if you are behind filing and the CRA has good reason to believe that you will owe them money and have even assessed it through a notional assessment. 

Unlike other creditors, the CRA can impose a garnishment on your wages without even having to get a court order. So the garnishment can happen without any warning.  A CRA garnishment can cause financial devastation. A CRA garnishment can be applied at up to 50% of your earnings if you are employed and have taxes deducted at the source. Other income, like subcontractor income, can be garnisheed by the CRA up to 100%. 

Another type of CRA garnishment that is imposed on self-employed individuals is when the CRA sends notice to a business’s clients to re-direct all payments for invoices to the CRA. The CRA can garnishee up to 100% of your invoices.

Losing all of that income makes it impossible for most people to be able to put food on the table, let alone run their business and pay their bills.

In addition to financial devastation, a CRA garnishment can cause disruption and personal humiliation in your personal and professional life. If you are employed or work in a field where you are trusted with financial information or where you have a responsibility to demonstrate that you are financially responsible, having your employer or client served with a CRA garnishment is not only embarrassing but can even cause your employer to question your reliability and trustworthiness.

If your spouse was unaware of your tax problem, they won’t be now! The mere existence of a tax problem can cause financial strain on a marriage. A CRA garnishment that renders you incapable of paying bills will be the source of additional strain.

Here is the good news: you can combat a CRA garnishment.

You don’t have to continue having your wages garnisheed by the CRA. Specialists, like our organization, are experienced in helping taxpayers get CRA garnishments reduced or removed entirely.

Getting the garnishment reduced or removed is only one part of a tax solution. Once you have combatted the CRA garnishment your next step is to get serious about dealing with your tax problem. There are many programs available that, especially when administered by a professional, can result in significant relief from tax debt. These programs don’t involve debt schemes or bankruptcy – just good old-fashioned knowhow and understanding of CRA rules, policies and procedures.

If you would like help dealing with a CRA garnishment please call Tax Solutions Canada at 888-868-1400 or visit us online at www.taxsolutionscanada.com.