Penalty for Tax Evasion in Canada

Penalties for tax evasion can be severe in Canada.

The penalty for tax evasion in Canada may take the form of a fine or a combination of a fine and imprisonment. The amount of the fine is calculated based on the amount of tax the convicted individual was attempting to evade.

Income Tax Act

In Canada, the piece of legislation dealing with tax matters is called the Income Tax Act. Under its terms, all people who are Canadian residents at any point during the year are required to pay tax on their earnings. The law allows taxpayers to claim legal deductions to reduce their taxable income.

Tax Evasion Defined

A person is guilty of tax evasion if she either deliberately conceals income or claims deductions she is not entitled to. For example, a business owner who deliberately under-reports sales or a person who participates in the underground economy by doing work on a cash basis and not reporting it on an income tax return is committing an act of tax evasion. Over-reporting expenses or claiming tax deductions the taxpayer is not entitled to also constitutes tax evasion.

Failing to File Tax Return

Under Section 238 of the Income Tax Act, a person who does not file an annual return has committed a summary offense. If convicted, the penalty is a fine of between $1,000 and $25,000. Along with the fine, the individual may be sentenced to up to 12 months in jail.

False Statements on Return

An individual who makes a false or misleading statement on her income tax return or willfully attempted to evade paying taxes is guilty of a summary offense. The penalty for this form of tax evasion is a fine equal to at least 50 percent and no more than 200 percent of the amount of tax that should have been paid, according to Section 239 of the act. The judge hearing the case may also order a prison term of up to two years as well as the monetary punishment for this offense.

Claiming False Credits

Claiming credits that the individual is not entitled to or conspiring with another person so do so is another form of tax evasion. Under the provisions of Section 239(1.1) of the Income Tax Act, this summary offense is punishable by a fine of between 50 and 200 percent of the amount of tax that would be assessed if the taxpayer had not made the false claim. Along with the fine, an individual convicted of this offense may be sentenced to up to two years in jail.

References

• Duhaime: Legal Definition of Tax Evasion
• Canada Department of Justice: Income Tax Act