Budget 2016 – A New Focus on the Investigation of Tax Evasion

Published by Greg DelBigio, K.C.

As part of Budget 2016 the government announced that it is “committed to preventing underground economic activity, tax evasion and aggressive tax planning.” To achieve this, the budget proposes to allocate $444.4 million over five years to enable CRA to “crack down” in these areas.

For anyone who reads the domestic or international news, this priority and initiative should come as no surprise because there has been much popular clamour urging that this should be done.

The $444.4 million will be used to hire additional auditors and specialists, to increase verification activities and to improve “the quality of the investigative work that targets criminal tax evaders.” The government also announced that through increased information exchange between countries, there will be new efforts directed at “combat[ting] international tax evasion and avoidance.”

Interestingly, in a recent statement CRA affirmed its belief that “all participants in offshore tax evasion and tax avoidance schemes be identified and brought into full compliance with their tax obligations.” It stated:

The CRA also takes action against tax professionals who offer, assist or create opportunities for clients to participate in offshore tax evasion and tax avoidance schemes. The willful failure to follow tax laws or to counsel others to evade taxes has serious consequences and penalties and could lead to prosecution. The CRA will pursue these to the fullest extent possible, based on the law and the facts of each case.

The law governing counselling, aiding, abetting or being a party to an offence, including the offence of tax evasion is of course not new. What is of interest is that this recent statement is not just directed towards so-called tax preparers, but also to tax professionals. CRA didn’t, but might just as well have said that it is planning to take action against accountants and lawyers.

So what does this mean? Likely more sharing of information between countries; more audits that target aggressive and offshore tax avoidance; likely a commitment by criminal investigators to aggressively pursue leads that auditors uncover; more search warrants; more production orders; there will likely be a greater scrutiny of professional advice and of tax professionals and, more prosecutions.

This also means that lawyers and accountants whose advice may tend to be aggressive should have a clear understanding of the difference between what is lawful and what is not. For if it is found that the professional advice or assistance facilitated a plan or course of action that amounts to tax evasion, that lawyer or accountant might no longer be acting as an advisor but, instead, may be the target of an investigation and prosecution.