CRA Warns About Tax Fraud

Apr 30, 2021

 The Canada Revenue Agency (CRA) is warning Canadian taxpayers and their representatives about creating or ignoring fake documents, fake loans, and fake business agreements in order to get around the Income Tax Act or the Excise Tax Act. These actions, even if passive, may qualify as culpable conduct and may be subject to civil third-party penalties in conjunction with any criminal charges that may apply.

 

Culpable conduct

 

Culpable conduct in tax matters is the type of conduct which courts have applied a civil penalty in the past. More precisely, culpable conduct was defined by the Canadian court as conduct, whether an act or a failure to act, that is:

 

  • tantamount to intentional conduct,
  • or that shows an indifference as to whether the Act is complied with,
  • or that shows a wilful, reckless or wanton disregard of the law.

 

In essence, intentionally misrepresenting tax liability, overlooking or being wilfully blind when examining a client’s income tax affairs, even if in previous years matters were handled by a different tax preparer, could result in third-party penalties.

 

The law

 

Under the Income Tax Act, there are two third-party penalties: the planner penalty and the preparer penalty. Although they address different issues about involvement in tax schemes, both penalties address culpable conduct. The planner and preparer penalties can carry substantial financial consequences for a tax preparer or third-party associated with a false or misleading statement.

 

Planner penalty

 

The planner penalty applies to those who create false statements, help another person make, or cause someone to make, a false statement about their taxes that they know is false or misleading or would be reasonably expected to know is false or misleading if they had not acted with culpable conduct.

 

Preparer penalty

 

The preparer penalty applies to those who make or assent to making a false statement for another person that they know is false or misleading, or would reasonably be expected to know is false or misleading if they had not acted with culpable conduct.

 

Your actions may have serious consequences

 

If you have been involved in making fake or exaggerated documents to avoid or evade tax, you may face serious consequences, including penalties, court fines, and even jail time. The same goes for people who promote tax schemes, even if they are not involved in the scheme planning.

 

People who avoid or evade tax take resources away from the social programs that benefit Canadians.

What can you do?

 

For important tax matters, the CRA encourages all Canadians to seek an independent second opinion from a reputable tax professional.

 

If you suspect someone of promoting or participating in an abusive tax scheme, you can report it online at canada.ca/taxes-leads or by calling the Informant Leads Centre at 1-866-809-6841. The CRA will take steps to protect your identity. Also, you may give information anonymously.

 

The CRA continues to encourage taxpayers to come forward and correct their tax affairs through the Voluntary Disclosures Program: canada.ca/taxes-voluntary-disclosures.

 

For more information on tax schemes, go to canada.ca/tax-schemes.

 

Stay connected

 

To receive updates on what is new at the Canada Revenue Agency (CRA), you can:

 

·           Like the CRA on Facebook

·           Follow the CRA on Twitter – @CanRevAgency.

·           Subscribe to a CRA electronic mailing list.

·           Add our RSS feeds to your feed reader.

·           Watch our tax-related videos on YouTube.