All taxpayers must understand that filing taxes and reporting all income accurately is not an accounting exercise, nor the fulfilment of a social obligation. It’s the law. Failure to file every year, or concealing income on your return, is committing tax evasion and tax evaders are prosecuted in criminal court by way of summary conviction or upon indictment.
When convicted, large fines (up to 200% of the tax that should have been paid plus daily interest) are payable. If several years have passed, the daily interest can be almost as high as the tax. There will also be civil fines of up to 50% of the tax that is owed, plus, once again, daily interest. The total tax liability can be enough to ruin you financially.
Contrary to popular opinion, declaring bankruptcy won’t necessarily wipe out your full amount of tax debt. It also won’t protect you from criminal charges. If you are convicted of tax evasion, failure to pay the criminal penalty will land you in jail.
You should be concerned about the possibility of a criminal investigation if:
- You lied on your return to avoid paying taxes and now the CRA has notified you that they are reviewing it. Auditors are trained to refer cases to Investigations when they discover false or fraudulent information.
- You haven’t been filing income tax returns. If you haven’t been filing, you need to be very worried about your years of evading taxes leading to prosecution. This holds true even if you think that you have paid most or all of your personal taxes. Wilful failure to file your tax return for more than one year if tax is due, is a criminal offence.
- A third-party demand is served on your accountant, bank, employer or others seeking information related to your taxes.
- You have problems with provincial tax authorities.
The Canada Revenue Agency and provincial tax authorities have information-sharing agreements. Therefore, if you have a run-in with provincial tax authorities, the federal Agency may also be aware of the situation and could decide to look into the matter further.
Any of these situations indicate that the CRA is already on your case and appropriate legal counsel is your best protection.