What does it take to be jailed for a tax offence?

National Post

2014-01-08



Slim chance you'd do time

Beanie Baby creator and billionaire H. Ty Warner, 69, faces five years of prison time for evading more than US$5.5-million in U.S. taxes on funds held in Swiss bank accounts.

He is to be sentenced in Chicago next week and has begged for probation and community service in lieu of prison time for his crimes.

So, what exactly would it take to be jailed in Canada for a tax offence?

Under our tax system, Canadians can land in jail for a variety of tax offences, but the chances of actually going to prison are very small and may become even more unlikely if the Canada Revenue Agency acts on its plan to cut the number of auditors in 2015.

Judging from the list of those imprisoned for running afoul of the CRA, your evasion must be pretty egregious to land you in the slammer.

Typically, an individual can face prison time for such offences as providing a false or deceptive statement on a tax return, destroying, altering, or disposing of books and records and willfully evading or attempting to evade taxes. You can also land in jail for tax evasion or fraud relating to claiming an inappropriate tax refund or credit, such as one larger than what you were properly entitled to receive.

Last year's federal budget expanded the list of criminal offences that could result in jail time when the government specifically targeted the underground economy and the use of electronic suppression of sales (ESS) software, which allows businesses to under-report their revenues and thus avoid paying income and sales taxes. A business or other taxpayer who is found guilty of a criminal offence involving ESS software can face jail time of up to five years.

The CRA publishes a list, sorted by province - see its website (http://www.cra-arc. gc.ca/convictions/) - of all cases in which a taxpayer was convicted in court for tax evasion or for failing to file an income tax return.

"The Canada Revenue Agency pursues tax evaders to maintain public confidence in the integrity of the tax system," Vince Pranjivan, deputy assistant commissioner of the Ontario region of the Canada Revenue Agency, says on the website. "Canadians have to trust that our self-assessment system is working and that it is fair."

While there were dozens of successful convictions in 2013, there appear to only be 15 cases in which taxpayers were actually sentenced to jail time in 2013.

For example, the most recent case involving jail time concerned a Brampton, Ont., woman who was sentenced to four years in jail and fined $1.3-million for tax fraud. According to a CRA investigation, the woman, through a complicated system of nominee directors, controlled and operated staffing companies that provided temporary workers and payroll services to various clients from 2003 to 2006.

She failed to remit to the CRA the payroll deductions (income tax, CPP and EI) which were deducted at source and collected from clients on behalf of the temporary workers. The CRA found that during the years under review, nearly $6-million was not remitted. The court concluded that woman "derived a direct personal benefit from the diverted deductions."

In another 2013 case, a Markham, Ont., man was sentenced to 92 months in jail and fined $935,000 when he pleaded guilty to GST/HST fraud and failure to file personal income tax returns. The CRA's investigation revealed that from 2001 through 2005 he filed fraudulent GST/HST returns thus receiving nearly $10-million in unwarranted refunds by taking advantage of his position within a large retail energy reseller to get access to the books and records of a newly acquired subsidiary. By adding his name as an authorized representative for the company and incorporating a company with a similar name, he was able to open a bank account to deposit and cash fraudulent GST/HST refunds.

The taxpayer used the proceeds from the fraud to live a lavish lifestyle, which included major renovations to his Markham home while at the same time transferring millions of dollars to U.S. accounts and buying foreign property.

So if you're getting a bit nervous because you haven't filed a return for a few years - don't panic. You won't face jail time right away as the CRA will not lay charges for failure to file a return until you have received a formal demand from the CRA to file which you proceed to ignore.

If you haven't filed returns for prior years or haven't reported all of your income, you can voluntarily correct your tax affairs by coming forward under the CRA's Voluntary Disclosures Program. The trick is to make the disclosure before you become aware of any compliance action being initiated by the CRA against you and you could avoid penalties, prosecution and even jail.