of Crime Are Taxable
The Canada Revenue Agency (CRA) has the authority to use a
certain number of tools to enforce the provisions of the Income
Tax Act, including civil and criminal action possibly leading to
fines, penalties, and even imprisonment.
Like legitimate incomes, proceeds of crime are taxable. This is
an enforcement principle of the Act; its purpose is not only to
ensure fairness of the tax system, but also to reduce profits
from crime and to help counter the lure of profit that motivates
criminal activity. Thus, the tax system becomes an important
tool in combatting crime.
As part of its Special Enforcement Program (SEP), the CRA audits
persons suspected of deriving income from organized crime or any
other criminal activity. These audits may lead to a reassessment
and applicable penalties and interest. CRA collections officers
also take the necessary action to collect these amounts if no
payment is made, including the seizure of goods from the
taxpayer concerned. In 2005-06, the CRA conducted 1,349 audits
of taxpayers suspected of earning income from illegal
activities. These audits resulted in the identification of more
than $80 million in additional tax owing.
In addition, the CRA operates the Criminal Investigation Program
(CIP). Through this program, the CRA investigates suspected
cases of tax evasion, fraud and other serious violations of tax
laws. In 2005-06, criminal investigations led to 293 convictions
for tax evasion or fraud. Courts across Canada imposed close to
$14.4 million in fines and more than 33 years of jail sentences.
These convictions related to revenue loss of $13.4 million. The
CRA obtained convictions in 94% of cases prosecuted.
In addition to fines imposed by the courts, which can represent
up to 200% of the taxes evaded, taxpayers are still obligated to
pay the taxes owed, as well any other civil penalties and
interest imposed by the CRA.
Court convictions are publicized in the media to communicate the
consequences of tax evasion and fraud committed against the
Canadian public and to maximize the deterrent effect of these
convictions. The information provided to the media is derived
strictly from public court documents and not from confidential
files that may be held by the CRA. This confidential information
is always protected pursuant to section 241 of the Income Tax
Act and section 295 of the Excise Tax Act.
The CRA works closely with the Royal Canadian Mounted Police
(RCMP), local and provincial police departments, as well as with
other law enforcement agencies in order to reduce the lure of
profit relative to criminal activities. It is also a full
partner of the Integrated Proceeds of Crime (IPOC) units, which
operate in 12 Canadian cities under the direction of the RCMP.
These units investigate organized crime activities pursuant to
provisions of the Criminal Code on proceeds of crime.
Taxpayers are encouraged to contact the CRA through the
Voluntary Disclosures Program to disclose any previously
unreported information before compliance or enforcement actions
are initiated by the CRA.