What is Tax Evasion in Canada?

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Tax evasion is a serious crime in Canada and offenders can go to prison. While most people are diligent in filing their annual returns and only take deductions and credits provisions by the Income Tax Act, others have no regard for tax laws.

There are severe legal consequences for people and companies who evade tax in Canada. Tax evasion is a serious crime in Canada. Let’s go over what tax evasion is in Canada.

Tax Evasion in Canada

Tax evasion is a term used to describe when an individual or business does not file their tax return as expected by the CRA. Evading tax in Canada is a serious crime issue that attracts severe penalties.

Once you are found guilty, you could face a huge fine, and there are chances that you might face criminal charges that could lead to jail time.

There are several situations that the CRA could deem to be tax evasion. One of the most prominent scenarios is an undeclared income. If you do not declare all your income, the CRA might consider this to be tax evasion. 

The CRA uses different tools to evaluate whether an individual reported all income correctly. These tools match the data you provide with the ones they receive from your employer(s) and financial institution(s). If there are any variations between all data received, the CRA may audit and charge you with tax evasion.

Once you are charged for evading tax, you must handle the situation correctly; else, you could land in jail. Note that owing tax is not a crime in Canada, but evading tax is a huge crime in Canada. So, if you have filed your taxes accurately, but you owe some money, the CRA will not file tax evasion charges against you. 

Forms of Tax Evasion in Canada

There are different forms of tax evasion in Canada; each is perpetrated differently. Some of them include:

  • Not declaring assets from foreign sources.

The CRA requires taxpayers who own assets outside Canada to declare their assets and pay the accurate taxes due on those assets. Bear in mind that not reporting income from foreign sources to the CRA is illegal in Canada.

Ignoring or not remitting the appropriate amount will lead to severe consequences according to the Canada tax law. These consequences include penalties, court fines, jail time, and a criminal record.

  • Tax protesters

Tax protesters refer to people who try to convince others that they do not have to pay tax on their income.

These individual do not report their earning, yet, they still conspire and convince other to promote tax evasion. Protesting against tax is a criminal offence in Canada.

  • Tax schemes promoters 

These are individuals who hide under the guise of selling tax arrangement plans or schemes. These schemes are illegal as these sets of people intentionally bias and make false statements involving tax shelter.

They claim to assist clients and make arrangements for them to evade tax for a fee. Tax schemes promoters are also illegal in Canada, do not fall prey.

Other forms include:

  • People/businesses who do not file their income at all 
  • Businesses/people who do not declare their accurate income
  • People/firms who claim incorrect or fraudulent expenses on their tax return

Penalties of Tax Evasion in Canada

Once you are charged for evading tax, you will face the penalty whether you are not reporting your income accurately or hiding assets or money in foreign jurisdictions. Some of the penalties for tax evasion will 

  • Leave a hole in your pocket – court-imposed fines
  • Fingerprinting
  • Criminal record
  • Jail time

When the CRA convicts a taxpayer(s) with tax evasion, the taxpayers must repay the whole amount of taxes owed, plus interest and any civil penalties levied by the CRA.

Also, they may be fined by the court. The court may fine all guilty taxpayers up to 200% of the taxes they evaded and impose on them a jail term of up to five years.

How to Avoid Tax Evasion

If you have not been filing your income, incorrectly filed your taxes in the previous years, if you have not declared your assets or filed income on them, there is a remedy that could save you from tax evasion.

The Voluntary Disclosure Program (VDP) aims to give taxpayers a second chance at filling their taxes appropriately. You will need to apply for this program, and once your application is evaluated and accepted, you will qualify for a waiver. This waiver is to shield you from any prosecutions, penalties and interest.

To apply for the VDP, you will need to issue the CRA with all missing or incorrect data before the agency contacts you about your taxes. That is, you must provide all information the CRA does not have.

Note that this program is quite dicey. If, after providing all data and your application is rejected, you could be at possible tax risk. 

Conclusion

If you do not file a tax return you are expected to file, the CRA can deem this to be tax evasion. It is advisable that once you are behind on your tax, contact and speak with a professional to proffer the best solution suitable for you.

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Kareena Maya

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Kareena Maya is a freelance writer focused on the personal finance and travel spaces. He frequently writes about credit cards, banking, student loans, insurance, travel rewards and more. His work has been featured in publications such as Forbes Advisor, Bankrate, Credit Karma, Finance Buzz, The Ascent and Student Loan Planner.

Kareena Maya is a freelance writer focused on the personal finance and travel spaces. He frequently writes about credit cards, banking, student loans, insurance, travel rewards and more. His work has been featured in publications such as Forbes Advisor, Bankrate, Credit Karma, Finance Buzz, The Ascent and Student Loan Planner.