Feb

Tax Prosecutions

Posted By: David M. Piccolo on February 21, 2011 at 5:13:54 in All , News

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Tax Prosecutions

According to an article in the February 16, 2011 Toronto Star, CRA has released an internal report which has highlighted deficiencies in its criminal enforcement division.  According to the report, problems include:

  • Pursuing small files over large files to generate convictions;
  • Approximately 25% of all investigations presented to Crown prosecutors are not pursued;
  • A lower conviction rate than Australia or the US; and
  • Approximately 50% of the fines levied from convictions are unpaid.

Also, according to the report, approximately 1,200 taxpayers were convicted of an offense under the Income Tax Act (the “Act”) in the four year period ending March 31, 2009.

It should be noted that there are two types of offenses under the Act: failing to file a return and ‘tax evasion’.  Failing to file a return is a strict liability offense, which means that the taxpayer’s intention is not relevant.  Instead, the taxpayer may raise a due diligence defense stating that they did everything possible to file the outstanding return.  The offense of ‘tax evasion’ encompasses a number of activities that a person may do to either artificially reduce their tax liability or increase a refund.  This offense requires the Crown to prove that the person intended to ‘evade tax’.

In my opinion, the reason why the Crown tends to pursue small files over large files is due to the fact that the offense of failing to file a return is much easier to pursue than a charge of ‘tax evasion’.  In any criminal context, the Crown has the burden of proof.  Further, the taxpayer tends to control most of the evidence, including evidence which may show intent.  Accordingly, the Crown faces a number of challenges to successfully prove a ‘tax evasion’ charge.  However, the Crown faces fewer challenges with a charge of failing to file a return.  Essentially, the Crown must prove that no return was filed and the burden of proof shifts to the taxpayer to prove that they acted with all due diligence.

Unless the CRA are given more resources to pursue larger files, it is unclear whether their enforcement patterns will change.  Accordingly, we should expect CRA to continue to pursue the failure to file returns offense in greater proportion to ‘tax evasion’ charge.  As always, the best way to prevent such a charge is to actually file a return.  Therefore, if a taxpayer has not filed a return, they should consider rectifying this via a voluntary disclosure immediately.

Originally posted on www.piccololaw.ca, used with permission.

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