Tax Fraud: The crime of tax fraud is dealt with under the Criminal Code, the Income Tax Act and the Excise Tax Act. It involves using deceit and other fraudulent means to defraud a person or the public of money, valuable security or any service. That can include filing a false tax return, destroying financial records or falsely claiming to live in a certain province. The penalties can be harsh, reaching up to 200 percent of the amount defrauded and 14 years in jail.
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What is Tax Fraud?
Like tax evasion, tax fraud involves using deceit and other fraudulent means to defraud a person or the public of money, service or a security. It is an offence under s.380 of the Criminal Code, with government documents noting that “the quality of life that all Canadians enjoy is supported by the taxes we pay.”
If you knowingly provide false information on your tax return, you may be found guilty of tax fraud. Examples would include:
overstating your expenditures;
neglecting to list an income source;
failing to file a tax return; or
claiming to reside in one province while actually living somewhere else.
You can also be prosecuted under the Income Tax Act or the Excise Tax Act.
What Is the Penalty for Tax Fraud?
If the value of the tax fraud is more than $5,000, the charge will be treated as an indictable offence under the Criminal Code, with a maximum sentence of 14 years in prison. Tax frauds valued at less than $5,000 are handled as summary convictions, with a maximum penalty of two years in jail.
If you file a false tax return and are charged with tax fraud under S.238 of the Income Tax Act or S.326(1) of the Excise Tax Act, you face a maximum fine of $25,000, 12 months in jail, or both.
If you participated in making false or deceptive statements, evading a tax payment or destroying or altering financial records, you could be charged under S.239 of the Income Tax Act.
If the charge is treated as a summary conviction, the maximum penalty is a fine of up to 200 percent of the amount of the tax that was sought to be evaded, two years in jail or both.
If the charge is prosecuted as an indictable offence, the maximum fine is 200 percent of the value of the fraud and/or a five-year prison term.
Audits vs. Criminal Investigations
An audit is considered a civil matter, verifying that information provided by a taxpayer to the Canadian Revenue Agency (CRA) is correct. You may be ordered to pay more money if discrepancies are found.
Criminal investigations typically involve a search warrant. These warrants are executed by the CRA with assistance from police officers. They can search both home and business premises and the offices of the accountant, seizing paper records as well as any computers and digital storage devices. Accountant records are not subject to privilege, unlike lawyer’s files.
What are my Defences to the Charge of Tax Fraud?
During the prosecution stage, the Crown must show the accused wilfully contravened Canadian laws to evade taxes. The best defence against a charge of tax fraud depends on the circumstances, but here are two common defence strategies.
It was an honest mistake. To be convicted of tax fraud, the Crown prosecutor must prove that you committed a criminal action (actus reus) and that you knew (mens rea) that what was being done was illegal. If you did not mean to commit tax fraud but instead made an honest mistake in filing a return, that is not considered an offence.
Your Charter rights were violated. The Charter of Rights and Freedoms protects the privacy of individuals and businesses, including the right to be secure against unreasonable search or seizure. In 2002, the Supreme Court of Canada ruled that "there must be some measure of separation between the audit and investigative functions" of the CRA. The judgment added, "all Charter protections that are relevant in the criminal context must apply."