Tax Evasion Defence: CRA Criminal Investigations and Prosecutions

Most CRA files are civil: auditors determine tax owing and may impose civil penalties. Criminal investigations are handled by a separate team of investigators whose goal is to gather evidence for prosecution. The two can overlap, and a civil audit can be referred to criminal investigations if the auditor suspects deliberate evasion.

In R. v. Jarvis, 2002 SCC 73, the Supreme Court of Canada held that once the predominant purpose of a CRA inquiry becomes the determination of penal liability, the taxpayer's Charter protections apply, and the CRA can no longer use its compulsory audit powers to gather evidence for the prosecution. Evidence obtained in breach of these principles may be excluded. Identifying when this line was crossed is a key part of a defence.

Section 239 of the Income Tax Act and section 327 of the Excise Tax Act create offences including making false statements, destroying or altering records, wilfully evading or attempting to evade tax, and claiming refunds or credits to which one is not entitled. On summary conviction, an individual faces a fine of 50% to 200% of the tax evaded plus possible imprisonment of up to two years. Where the Crown proceeds by indictment, the fine is 100% to 200% and imprisonment can be up to five years.

A conviction does not end the tax liability. The tax, interest and civil assessments remain owing in addition to any criminal fine. Related charges, such as fraud under the Criminal Code, may also be laid in serious cases.

We act at every stage, from the first sign of criminal interest to trial and sentencing.

The Voluntary Disclosures Program can protect against prosecution for the disclosed matters, but only if the disclosure is made before enforcement action, such as a criminal investigation, has begun. If you have unreported income or offshore assets and have not yet been contacted, a privileged consultation about a disclosure may be the most important step you can take. Once investigators are involved, the VDP is generally unavailable.

Solicitor-client privilege protects your communications with your lawyer, and privilege claims must be asserted when documents are seized. We ensure seized privileged material is sealed and reviewed properly, challenge search warrants and the use of audit evidence where appropriate, and work toward the best result, whether that is no charges, a negotiated resolution or a defence at trial.

CRA investigators can obtain search warrants under the Income Tax Act, the Excise Tax Act or the Criminal Code to enter homes and businesses and seize records, computers and phones. They can also obtain production orders requiring banks, accountants and other third parties to provide documents. These are court orders, and you should not obstruct their execution, but you also should not answer investigators' questions without a lawyer.

If a search warrant is executed, ask for a copy of the warrant, note what is taken, and contact a lawyer immediately. Where privileged communications with lawyers may be among the seized records, a privilege claim should be made so that those records are sealed and reviewed through a proper process. Warrants can sometimes be challenged if the information used to obtain them was inaccurate or incomplete.