Saturday, April 4, 2015

Canadian Taxes A to Z (2015): F is for Fraud

Today's instalment of Taxes A to Z brings us to the letter F. F is for Fraud. Six letters down, 20 to go!

You occasionally hear the words "tax" and "fraud" used together, but more common is "tax evasion." Fraud is a very broad term, encompassing any deception intended to result in financial or other gain. It's probably the best umbrella term covering everything and anything intentionally intended to cheat the tax system. 

The reason you don't see the F word all the time in the tax context is because it's already used in the Criminal Code (CC) for the big C criminal offence of fraud. According to s. 380 of the Code, fraud over $5000 dollars can net you 14 years in prison! That's a lot of heavy time by criminal offence standards. By comparison, tax evasion under s. 239 of the Income Tax Act (ITA) can only net you 5 years imprisonment at most. 

What most people don't know is that tax fraud can be prosecuted under s. 380 of the Code, instead of s. 239 of the Income Tax Act, exposing accused to almost three times the penal jeopardy! I spent the first few years of my legal career as a Federal Crown with the Revenue Prosecutions Unit of the Department of Justice, and worked on hybridized cases where sometimes we'd proceed jointly under the CC and ITA if investors were also defrauded, lots of money was at stake, or we needed to make a mutual legal assistance request work in a foreign state like Switzerland who would share information with us if the allegations were criminal fraud, but not tax evasion. 

Fortunately for those worried about getting a little too creative in preparing their taxes, both fraud (under the CC) and tax evasion (under the ITA) are mens rea offences, meaning to convict a court needs to find the accused actually intended to defraud or evade, and wasn't just careless with his taxes. This can get a bit nuanced, since intent can be implied from all the circumstances, but mere tax avoidance isn't a crime - even if the CRA later rules that what you believed to be legitimate avoidance isn't permissible. 

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