Introduction
Taxation law is a complicated, nuanced beast. When a criminal investigation is launched by the Canada Revenue Agency (CRA) into a taxpayer for alleged violations of tax law, the law’s complications become more pronounced. In these moments, it can be stressful for taxpayers and their advisors to be aware of certain collateral consequences that can arise from criminal investigations. That said, it is frequently worse for the taxpayer to overlook the ways in which a criminal tax investigation presents a different set of challenges than regular tax administration.
This article aims to introduce taxpayers and their advisors to some of these collateral consequences, including: Disclosure of taxation offences and investigations to the public; invasive and lengthy investigations conducted by the CRA; and the possibility of charges being laid against individuals associated with the taxpayer. When advising taxpayers on their tax liability in situations where there is potential for criminal charges, it is important to be mindful of these consequences derived from criminal law.
The Disclosure of Taxation Offences and Investigations to the Public
In 2022, the Canada Revenue Agency reported 14 instances of taxpayers having been convicted and then sentenced for criminal offences related to taxation. In 2023, the CRA reported 11 instances in the year; in 2024, the comparative figure was only 5. As of the date of publication of this piece, the CRA has reported 1 such instance for 2025. We know this because the CRA maintains a website where it advises the public on cases where taxpayers (individuals as well as trusts and corporations) have been sentenced following convictions for tax offences. This website reveals the identities of individuals and corporations convicted and sentenced for taxation offences. It also provides case-specific facts and information for each convicted and sentenced individual and entity, all of which is derived from court records.
The CRA also maintains an enforcement notifications service from which it sends out notices by e-mail when there have been new sentencing activity for tax matters. Members of the public can subscribe to this mailing list to receive such notifications. (Less frequently, the CRA will also publish a notice upon someone being charged with criminal offences related to tax, notably for high-profile enforcement actions.)
On another webpage intended to help the public understand tax evasion, the CRA states that, from April 1, 2019 through to March 31, 2024, its Criminal Investigations Program had led to 135 convictions with $25.1 million in court-imposed fines along with sentences of more than 108 total years in jail for 58 individuals. Similar statistics are reported in the sentencing publication notices for prior years.
The Purposes Behind the Disclosure
The CRA explains on its website that it “seeks publicity on conviction in the case of tax evasion. It does this to maintain confidence in the integrity of the self-assessment system, and to increase compliance with the law through the deterrent effect of such publicity.”
In a 2024 report by the Organisation for Economic Co-operation and Development (OECD) on “Designing a National Strategy against Tax Crime”, the OECD similarly states that a plan for communicating a country’s tax crimes strategy to the public is important to shape perceptions as well as behaviour, including as a reminder of the potential for serious sanctions and thus as a deterrent. This external communication has dual functions of educating the public and ensuring public confidence in fair enforcement of taxation laws. The CRA, for its part, advised the OECD for purposes of its report that the CRA will consistently issue enforcement notifications that name individuals and/or businesses to the greatest possible extent (unless, for instance, there is judicial direction to the contrary). The CRA will therefore advise the media and the public upon convictions for tax-related offences, but it may also, on occasion, issue notices at prior stages of the criminal process, from the execution of a search warrant to the laying of criminal charges.
The CRA’s view, as emphasized to the OECD, is that it seeks publicity related to tax enforcement activity in order to encourage taxpayer voluntary compliance, on the one hand, and also to demonstrate how Canada’s national tax agency will seek to enforce the country’s tax laws by taking action against those who do not comply with their obligations.
The Information Revealed by the Publicly Available Data
And yet, if the figures for tax convictions in Canada seem low, that is because they are. Truly comparative figures for criminal tax matters are somewhat hard to come by, but in the United States, the Internal Revenue Service (IRS)’s Criminal Investigations unit reported 655 taxpayers were sentenced for tax crimes in 2023. Similar to Canada, the United States publicizes “successful results in criminal tax cases” in order to deter criminal conduct and to foster public confidence. The IRS itself is not immune from criticism for the appearance of low rates of criminal prosecution activity, although the budgetary and other resource constrains facing the IRS have been a significant issue for many years.
The data on reported convictions from the past few years are suggestive of an interesting, if rather cursory, story. In particular, there are some rough industry or sector patterns identifiable from the types of cases the CRA recommends for prosecution (and which make it past the Public Prosecution Service of Canada (PPSC) who makes the final decision whether to prosecute for federal tax offences in Canada). Groupings of cases arise from: the staffing agency sector; real estate and construction; and also as referrals to the CRA from other police investigations in Canada into organized criminal activity. There is also a cast of tax return preparers who facilitate the improper claiming of tax benefits across individual taxpayers’ returns.
What of taxpayers who operate out of other industrial sectors? Taxpayers should not be complacent for several reasons. The first is practical and it arises from both top-down and bottom-up perspectives. Simply put, CRA enforcement priorities can change over time. At the same time, CRA detection mechanisms themselves are changing, particularly as the CRA’s risk assessment systems become more sophisticated both in terms of the data sets available and the tools used to interrogate them for leads on potential criminal conduct.
Controlling the Narrative: The CRA’s Power in Disclosing Information to the Public
Perhaps more important, however, is appreciating the significant differences that exist between Canada’s civil and criminal tax systems. Taxpayers routinely chafe under the strain of CRA tax audits, knowing that they face the burden of time and cost outlays that are essentially unrecoverable regardless of the taxpayer’s compliance. The criminal process, however, begets different considerations. Amongst the first is a wary apprehension on the part of the taxpayer that it faces potential severe reputational repercussions for the simple disclosure of the taxpayer being involved in a criminal investigation.
Taxpayers will frequently ask, then, about their prospects for keeping a criminal investigation under wraps. It is important for taxpayers to know that they have little control regarding the information that is shared with the public at large or persons proximate to the taxpayer concerning criminal investigations. First, as noted above, the CRA possesses the ability to communicate with the public at different stages of a criminal investigation through the use of enforcement notifications. Second, the CRA will sometimes reach out to potential witnesses in the context of conducting an investigation as part of information gathering. Finally, the open court principle, which grants the public the right to observe court proceedings and access court records, prevents the taxpayer from ultimately controlling the information Canada’s tax prosecutors decide to advance in court.
During the investigation, the narrative is seemingly in the hands of the CRA. At this stage, it can feel like the taxpayer is at the mercy of the CRA investigators. As issues pertaining to tax evasion are complicated, the investigation itself can span years, and it can be particularly invasive. In conducting such an investigation, the CRA may be required to seek judicial intervention for the preparation of search warrants and production orders. As the seeking of such warrants and production orders will become a matter of public record, the CRA is able to utilize its enforcement notifications regime to alert the public when the warrants and production orders are executed. The ball is essentially in their court. Of course, the act of the CRA seeking judicial authorization to gather information for use in a criminal investigation against can itself bring unwanted attention to a taxpayer.
The taxpayer’s lack of control in preventing information from being shared with the public is cemented when trial commences. Given the sheer complexity of a tax evasion investigation, it may take years before a taxpayer faces trial. Once at trial, the open court principle allows members of the public to attend court proceedings and access materials and exhibits filed by both the Crown and the taxpayer. Certainly, the taxpayer can attempt to control the narrative through legal submissions and a carefully crafted defence.
Before it comes to that, however, a taxpayer may attempt to control the information that is revealed through cooperation with the CRA and through careful negotiations with the PPSC. At the investigation stage with the CRA, the degree of a taxpayer’s cooperation can render the investigation less complicated, potentially reducing the need for warrants or production orders, and sometimes narrowing the field of inquiry the CRA decides to pursue.
Furthermore, once the PPSC has decided to pursue criminal charges, the taxpayer can enter into negotiations regarding the alleged offences, which could include potential guilty pleas. Avoiding trial may be a way for taxpayers to address the reputational repercussions of criminal prosecution and it may be possible to reduce the scope of criminal sanctions facing the taxpayer. However, the CRA will still generally publish the eventual results of a guilty plea and sentencing via its enforcement notifications system. (In recent years, most reported convictions come from taxpayers pleading guilty.)
The Criminal Offences at Play
What are individuals and companies actually convicted of in Canada in relation to tax offences? These cases generally involve convictions for a few kinds of criminal offences. The first is making a false or deceptive statement in a tax return under paragraph 239(1)(a) of the Income Tax Act (ITA). The second is tax evasion under paragraph 239(1)(d) of the ITA. Third, taxpayers are sometimes prosecuted for fraud over $5,000 under s. 380(1)(a) of the Criminal Code. (In cases involving organized crime, there may be other conduct charged under the Criminal Code in addition to the tax offences.)
Putting aside the Criminal Code offences, it is worth unpacking the elements of the main offences charged under section 239 of the ITA. The statute reads as follows:
239 (1) Every person who has (a) made, or participated in, assented to or acquiesced in the making of, false or deceptive statements in a return, certificate, statement or answer filed or made as required by or under this Act or a regulation, (b) to evade payment of a tax imposed by this Act, destroyed, altered, mutilated, secreted or otherwise disposed of the records or books of account of a taxpayer, (c) made, or assented to or acquiesced in the making of, false or deceptive entries, or omitted, or assented to or acquiesced in the omission, to enter a material particular, in records or books of account of a taxpayer, (d) wilfully, in any manner, evaded or attempted to evade compliance with this Act or payment of taxes imposed by this Act, or (e) conspired with any person to commit an offence described in paragraphs 239(1)(a) to 239(1)(d), is guilty of an offence and, in addition to any penalty otherwise provided, is liable on summary conviction to (f) a fine of not less than 50%, and not more than 200%, of the amount of the tax that was sought to be evaded, or (g) both the fine described in paragraph 239(1)(f) and imprisonment for a term not exceeding 2 years.
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239 (1) Toute personne qui, selon le cas : a) a fait des déclarations fausses ou trompeuses, ou a participé, consenti ou acquiescé à leur énonciation dans une déclaration, un certificat, un état ou une réponse produits, présentés ou faits en vertu de la présente loi ou de son règlement; b) a, pour éluder le paiement d’un impôt établi par la présente loi, détruit, altéré, mutilé, caché les registres ou livres de comptes d’un contribuable ou en a disposé autrement; c) a fait des inscriptions fausses ou trompeuses, ou a consenti ou acquiescé à leur accomplissement, ou a omis, ou a consenti ou acquiescé à l’omission d’inscrire un détail important dans les registres ou livres de comptes d’un contribuable; d) a, volontairement, de quelque manière, éludé ou tenté d’éluder l’observation de la présente loi ou le paiement d’un impôt établi en vertu de cette loi; e) a conspiré avec une personne pour commettre une infraction visée aux alinéas a) à d), commet une infraction et, en plus de toute autre pénalité prévue par ailleurs, encourt, sur déclaration de culpabilité par procédure sommaire : f) soit une amende de 50 % à 200 % de l’impôt que cette personne a tenté d’éluder; g) soit à la fois l’amende prévue à l’alinéa f) et un emprisonnement d’au plus 2 ans. |
The criminal penalties for conviction upon a prosecution on indictment are set out in ITA subsection 239(2). There are other similar offences contained in section 239 of the ITA (along with comparable offences in the Excise Tax Act in respect of GST/HST), but paragraphs 239(1)(a) and (d) are most frequently referenced.
The criminal acts – actus reus – for these offences are fairly straightforward, although the scope of the act that forms the basis for a criminal tax offence can be broader than one might expect. For the s. 239(1)(a) offence of making a false or deceptive statement in a return (or in a statement or answer filed or made as required under the ITA), the mens rea requirement is that the accused made the statement knowing it to have been false or deceptive but with the intention that the statement be accepted as true. For s. 239(1)(d), the mens rea requires the accused’s act to evade the payment of tax to have been undertaken with the purpose of evading such payment.
Returning to the criminal act itself, another aspect of tax prosecutions that is not necessarily obvious is the range of investigated individuals who can become accused in the criminal process. In short, criminal investigations are not limited to the taxpayers themselves but can draw in principals (for corporate taxpayers) or tax preparers.
For instance, the s. 239(1)(d) tax evasion offence is not restricted to a taxpayer’s evasion of his or her own taxes. Instead, the offence relates to depriving the state from tax being collected. Accordingly, a scheme’s promoter can face tax evasion charges. An accused can also be convicted of tax evasion in circumstances where the accused had enabled others to claim deductions to which they were not properly entitled. Moreover, a corporate taxpayer can be convicted of tax evasion. (Although in such cases there is often a corporate principal also charged with tax evasion, given that corporations can only act through natural persons.)
Establishing mens rea for white collar offences such as tax evasion is tricky, as it requires an in-depth investigation into the financial matters of the taxpayer to demonstrate an intent or an attempt to avoid payment of tax owing. Demonstrating this intent through financial evidence is what is key in differentiating legitimate tax planning from nefarious tax evasion. As stated by Justice Doherty in R. v. Klundert for the Court of Appeal for Ontario at para. 41,
It is the culpable state of mind that distinguishes the legitimate tax planner from the dishonest tax evader. Both may engage in the same course of conduct that can aptly be described as a deliberate attempt to avoid payment of tax. The difference lies in their respective states of mind. Unlike the tax evader, the tax planner does not intend to avoid the payment of a tax that he or she knows is owed under the Act, but rather intends to avoid owing tax under the Act.
Marshaling together evidence to establish this mens rea is what leads to lengthy, wide-ranging, and invasive investigations into the taxpayer’s affairs. The CRA notes that investigations into tax evasion are “complex and usually require years to complete.” Notably, the CRA will attempt to interview witnesses – including the taxpayer – and it will utilize its search powers to analyze the taxpayer’s financial records, potentially going back years into the past. Subject to the well-litigated but sometimes still unclear limits for CRA Criminal Investigation’s access to information gathered pursuant to CRA’s civil audit powers under the ITA, the CRA could notably investigate a taxpayer’s paper and electronic records to identify and review correspondence, agreements, payment records, invoices, cheques, bank drafts, and other important and private financial documentation. The cooperation of the taxpayer is ostensibly beneficial to ensure the speedier completion of a CRA investigation. However, such cooperation would undoubtedly be disruptive to a taxpayer, requiring them to provide intrusive access to their personal or commercial data to CRA investigators. Careful attention to criminal procedure and appreciating the limits for how and what the CRA can access in relation to a taxpayer under criminal investigation is an important aspect of how a taxpayer and its existing tax advisors can best protect the taxpayer’s rights (including the presumption of innocence) and facilitate a process that is properly managed from the taxpayer’s perspective.
Conclusion
When the CRA decides to initiate a criminal investigation into a taxpayer, such taxpayers may not be aware of the collateral consequences that can occur. As described above, these consequences include publicity, invasive and lengthy investigations, and the possibility of charges being laid against individuals associated with the taxpayer. Given the mens rea for tax evasion offences is highly nuanced and requires an extensive investigation, it is possible that many other individuals will face such an examination and the prospect of prosecution, including a taxpayer’s principals and advisors.
If a taxpayer should be approached by the CRA, it is important that they be made aware of these collateral consequences. In these situations involving potential criminal prosecution, taxpayers should consider retaining knowledgeable and experienced criminal counsel to complement their existing tax advisors before the process gets too far along.
Any article or other information or content expressed or made available in this Section is that of the respective author(s) and not of the OBA.