The Canada Revenue Agency (CRA) is increasing its efforts to audit and prosecute promoters of tax evasion schemes. The CRA cautions all Canadians to be aware of individuals who try to convince them to not pay their taxes. These individuals, often known as tax protesters, not only fail to report their own earnings, but they also conspire, counsel, and promote these tax schemes to other Canadians. Protect yourself. Know the facts.
Fact: You are not two people for tax purposes.
One of the most common false arguments tax protester promoters use is the natural vs. legal person argument, in which someone defines themselves as two separate people for income tax purposes. They define the natural person as the individual that performs the labour required to earn income, and the legal person as the legal entity that the federal government creates by issuing a social insurance number (SIN). Tax protesters allege that only the legal person has to file an income tax return, and that your earned income belongs to the natural person and is therefore not subject to Canadian income tax.
Taxpayers should be aware that tax protestors who promote intentional tax evasion are seeking a personal financial benefit at the expense of the taxpayer and of all Canadians. Those who avoid paying taxes are taking money that is needed for important investments in schools, hospitals and other vital government services. For more information, see Tax Protesters – Questions and Answers.
Fact: All tax protester arguments have been rejected by the Canadian courts.
Federal and provincial courts have repeatedly and consistently rejected all arguments made in these tax protester schemes. The CRA is committed to administer Canadian tax laws in a fair and equitable manner and has had a 100% success rate in its efforts to bring tax protesters to justice. For more information, go to www.cra.gc.ca/myths.
Fact: Participating in these schemes will have serious financial and legal consequences for you.
Canada has one of the highest rates of compliance in the world. However, individuals who try to evade or avoid taxes by participating in tax evasion schemes will be detected and addressed accordingly. That means you will lose the high fees you paid up front for the bad advice you’ve received from the promoter, and once your tax return is proccessed, the CRA will reassess income tax and interest, and charge penalties. In some cases, you could be prosecuted for tax evasion.
For promoters of these schemes, consequences include all of the above, plus significant fines and possible jail time for counselling others. For more information on convictions, go to www.cra.gc.ca/convictions.
Fact : It’s not too late to correct your mistakes.
If you have participated in a tax evasion scheme, you may be able to make things right. Under the Voluntary Disclosures Program, you may be able to avoid being penalized or prosecuted if you make a full disclosure before any audit or criminal investigation is started. You may only have to pay the taxes owing plus interest, but not the penalties. Taxpayers can correct previous errors and omissions in their tax affairs through that program. For more information, go to www.cra.gc.ca/voluntarydisclosures.
Fact: When it comes to your tax affairs, get independent advice from a reputable professional.
If you have doubts about certain tax arrangements, you should get advice from an independent tax professional, someone who is not connected to the scheme or promoter. If it sounds too good to be true, it probably is.