It’s Curtains for Tax Cheats

Offshore Tax Cheats: the Finance Department wants You! The CRA will be empowered to pay you a “finder’s fee” for identifying international tax cheats as a result of new provisions in the March 21, 2013 budget. Further, businesses using “zapper” software to evade taxes by hiding or “suppressing” sales income will face stiff new penalties and criminal convictions – with fines in the 7 figures.

Tax Evasion Penalties. Taxpayers are required under the law to maintain adequate books and records, and that includes electronic data, in order to compute their GST/HST and Income Tax liabilities or any benefits/refunds they may be entitled to.

New administrative monetary penalties and criminal offence fines – in the 7 figures – are being introduced to penalize business use of software to manipulation of electronic records for the purposes of avoiding tax liabilities.  

The penalties are steep and they will be levied when the proposals receive Royal Assent or January 1, 2014, whichever comes first, as follows:

1.  Penalty for use of “Electronic Suppression of Sales” software (ESS Software) :

• For the possession, acquisition, or use of ESS software, $5,000 on the first offence and $50,000 on subsequent offences
• For the manufacture, development, sale, possession for sale, offer for sale or otherwise making available ESS software; $10,000 on the first offence and $100,000 on any subsequent offence

2.  Criminal Offences for the use, possession, acquisition, manufacture, development, sale, possession for sale, offer for sale or otherwise making available of ESS software:

• On summary conviction, a fine of not less than $10,000 and not more than $500,000 or imprisonment for a term of not more than 2 years, or both, or,
• On conviction by indictment, a fine of not less than $50,000 and not more than $1,000,000 or imprisonment for a term of not more than 5 years, or both.

Stop International Tax Evasion Program. The Finance Department will soon announce a way for you to get a significant return on tax sleuthing: give information leading to the collection of $100,000 or more of additional assessment or reassessments of tax for major international tax fraud and you will get 15% of the taxes collected, but not including penalties, interest and provincial tax.)

The awards will be paid only where the activity involves foreign property or property located or transferred outside of Canada, or those transactions conducted outside of Canada. Informants will enter into a contract with CRA and must declare they themselves have not been convicted of tax evasion. In other words, you will not be eligible to collect a reward if you are also guilty of the same tax evasion, so business partners won’t be able to strategically rat each other out.

The bad news? The payments to the informant will be taxable.