Disclaimer: Please note this article is not financial advice. The purpose of our blog is purely educational, so please consult a professional accountant or financial advisor before making any financial decision.
Let’s visit the numbers right away: The Canada Revenue Agency (CRA) convicted 408 businesses and individuals from April 2012 to March 2017. This case involved $44 million in court fines and federal tax amounting to $122 million evaded.
Hiring a bookkeeper can be the best decision you make as a business owner if you want to protect your company and yourself in Ottawa from a tax evasion case. Tax evasion is a serious offense in Canada, and bookkeeping services in Ottawa help companies avoid this by ensuring that they are compliant with Canadian tax laws. By keeping your books in order, you can ensure that everything is above board and the company is not taking any unnecessary risks.
Keep reading and learn how bookkeepers can help you avoid tax fraud and why hiring bookkeepers in Ottawa plays such an important role in protecting your company's future.
Canada is among the countries in the world that collects high tax compliance rates, and it's one of the major factors why there are Canadian citizens who choose not to pay the government what they owe. Purposely not reporting an income, especially when it is qualified for taxation determined by CRA's tax brackets, is a form of tax evasion. Tax evasion is an illegal approach to avoid tax payments that also includes falsification of records, accounts and claims, and inflating expenses.
The usual forms of tax evasion as reported by CRA are:
- Offshore Properties. In their tax report to CRA, Canadians are mandated to include the income they made local and even abroad in their tax report to CRA if there's any. Not declaring foreign income is considered illegal.
- Tax Avoidance. When a taxpayer uses loopholes in the law to be able to pay less taxes, this approach is legal but inconsistent. A classic example of tax avoidance is hiring an immediate family member to a business to lower the overall household tax bracket.
- Tax Protesters. You have to beware of individuals, especially the ones in your circle, who suggest not to file your earnings or forge your tax information.
- Tax Schemes Promoters. There are organizations and professionals who promote tax schemes, plans, or illegal arrangements. They usually make false claims and assist their clients in evading taxes while they obtain a financial benefit.
Ottawa bookkeeping services will prepare your tax in accordance with the rules and regulations of CRA, protecting you against tax evasion.
Tax evasion is punishable by law. According to Section 238 of the Income Tax Act, you can receive a penalty of anywhere between $1,000 and $25,000 and imprisonment for up to one year if you don’t file your tax return in due time. Section 239 also states that convicted tax offenders might pay anywhere from half to double the amount they tried to cheat on their taxes and two years imprisonment. Under subsection 239(2), CRA tax lawyer prosecutors may proceed to a tax evasion case in which a fine can go up to 200% of the taxes evaded and up to five years of imprisonment.
A tax service provider can help you avoid the consequences of tax evasion.
CRA's Criminal Investigations Program
Tax evasion is illegal, and CRA is serious in fighting it. Public funds are taken mostly from tax collection essential for social programs and critical infrastructure projects. To ensure tax evasion cases are meticulously and adequately investigated, CRA created the Criminal Investigations Program (CIP), which enforces the major acts under the Income Tax Act and the Excise Tax Act.
CIP follows a criminal investigation process which includes:
- Reasons for criminal investigations. CRA can receive information from various sources that lead to a criminal investigation. Such sources can be:
- Referrals within the CRA like from various audit programs
- Tips from the CRA informant leads program
- Information from law enforcement agencies
- Published sources like media articles
- Selected files for investigation. Files can trigger a criminal investigation if they contain the extent of the alleged tax offense and the possibility for prosecution. The CIP will then set priority based on:
- Tax evasion filings with international matters
- Promoters of high-end, organized tax schemes
- Joint investigations with other authorities
- Cases that involve income tax evasion, underground economy, and benefit fraud
- Criminal investigation. An investigation has to follow systematic steps such as:
- Gathering of evidence through interviewing witnesses, execution of search warrants, and checking of evidence
- Preparation of a comprehensive investigation report
- Submission of criminal report to the Public Prosecution Service of Canada for review
The CRA can issue an enforcement notification so they can communicate with the public anytime within the investigation. The investigation of tax evasion and fraud is complex and might take years to finalize because of the following factors:
- Individuals involved in the case
- Availability of evidence and information
- Cooperation of witnesses or the accused
- Accessibility of the tools needed to gather enough evidence
- Availability of information overseas
- The intervention of the Public Prosecution Service of Canada. The Public Prosecution Service of Canada studies the information upon receipt and decides if prosecution is necessary. Once a prosecution is decided, these steps are to be executed:
- Charges from CRA investigators
- The accused is summoned to court for trial.
- The accused learns everything about the case.
With the issuance of an enforcement notification, the CRA will publicize the details if the accused is convicted, including the taxpayer's identity, nature of tax evasion, fine decided by the court, and jail sentence.
- Consequences of tax offense. Criminal records, a possible jail sentence, significant fines, and negative media publicity are the major consequences once convicted of tax cheating. On top of that, the convicted tax evaders have to pay their taxes with interest and penalties.
Entrust Your Bookkeeping in Ottawa to Unloop
Having the right bookkeeper or Ottawa bookkeeping solutions and providing all the correct details for tax preparation protect you from tax violations. Be honest with all the financial records you'll provide to your bookkeeper so that they can generate the correct computation of your tax. A competent and reliable bookkeeper can also help you lessen the tax you owe the government legally.
Bookkeeping services for ecommerce businesses like Unloop can prepare your financial statements with the help of accounting software like Quickbooks Online for seamless tax preparation. If you want to learn more about bookkeeping, better read What is Bookkeeping in Accounting, and Why Do You Need It?, written by one of our CPAs here in Unloop.