Reporting People and Businesses for Tax Evasion

What is Tax Evasion and How Does it Affect Canada?

Tax evasion occurs when an individual or business fails to comply with tax laws to avoid paying taxes. This crime is a serious offence with harsh fines and possible jail times. More importantly, it robs society of tax dollars which are required to fund roads, hospitals, schools, and more. By evading taxes, tax evaders take advantage of the benefits of tax dollars without paying their fair share. For these reasons, it’s important for Canadians to report cases of tax evasion.

Canada Revenue Agency (CRA) partially relies on its Leads Program and Offshore Tax Informant Program (OTIP) for both Canadians and non-Canadians to report individuals or businesses who may be committing tax evasion.  Reporting tax evasion allows the Canada Revenue Agency to penalize those who have broken tax laws and make the system fairer for everyone.

Reporting Domestic Cases of Tax Evasion: Canada Revenue Agency Leads Program

The Canada Revenue Agency’s Leads Program allows people to submit leads on individuals they believe are evading taxes. Culprits could include those not declaring all income such as participants in the cash economy, creating false expenses, falsely claiming tax benefits and credits, or collecting the Canada Emergency Response Benefit (CERB) when not qualified. There is no monetary reward for reporting suspected evaders under the Leads Program. However, lead submissions help support the community and the country.

When someone submits a lead, their identity remains confidential. The Canada Revenue Agency will do all it can under the law to protect the informant’s identity. The identity of the tipster is protected even if the tax evader later submits an Access to Information Act request.

To make a submission, the reporter must submit:

•         Key identifiers of the tax evader such as their full name/business name, their address/business address, related businesses, etcetera;
•         Facts of the evasion such as why the reporter believes the person or organization is evading taxes, the dates and length of time the evasion likely occurred, whether anyone else was involved, etcetera; and
•         Supporting documents such as emails to help identify the suspected tax fraud, invoices or receipts, financial statements, etcetera.

To report abuse of the Canada Emergency Response Benefits, Canada Emergency Student Benefits (CESB), or the Canada Emergency Wage Subsidy (CEWS), the Canada Revenue Agency also asks for specific details such as the evader’s work or school situation.

Once the Canada Revenue Agency receives this submission, they will

1.   Verify the identity of the suspect;
2.   Review the lead to see if cheating occurred; and
3.   Take the appropriate actions to address the tax fraud.

Once a reporter submits a lead, they will not be updated on the case, as the Canada Revenue Agency cannot disclose the tax information of the suspect.

Reporting International Cases of Tax Evasion: Offshore Tax Informant Program

Unlike the Leads Program, the Offshore Tax Informant Program allows for financial rewards to those who provide information related to major international tax evasions. The program also extends to anyone in the world. Although informants are anonymous, there is a possibility that they’re required as an essential witness for court proceedings. In this case, the informant may have to reveal their identity.

To qualify for the financial reward, the tax non-compliance must be international and the tax evaded must surpass $100,000. There are also certain exclusions that make a tipster ineligible for the reward such as when the informant is:  

•         Convicted of tax evasion concerning the situation that they are reporting;
•         A Canada Revenue Agency employee;
•         An employee, official, or contractor of the federal, provincial, or municipal government who acquired the information in the course of duties for the government;
•         Providing the information anonymously;
•         Legally required to disclose the information to CRA.

A full list of exclusions can be found on the Canada Revenue Agency website.

To submit a claim, the Canada Revenue Agency recommends that the tipster call them to first discuss the situation and for CRA to explain how the reward program works. If the case appears to meet eligibility criteria, the Canada Revenue Agency will provide a case number and instructions to submit a written submission. The written submission is made through the RC626 Offshore Tax Informant Program Submission form with any supporting documents attached. An experienced Canadian tax lawyer can also assist in the process and negotiate compensation with CRA.

After the submission, the Canada Revenue Agency, similar to the Leads Submissions, will

•         Identify the Canadian taxpayer(s) in the informant’s submission;
•         Determine if the submission includes enough facts relating to the international tax non-compliance; and
•         Identify the informant.

Additionally, a specialist in a particular area of offshore tax related to the situation will

•         Assess the existence of non-compliance;
•         Ensure that the case has not already been reported; and
•         Determine if an offshore compliance audit is appropriate and whether to share the information with other Canada Revenue Agency programs.

Once the submission is approved by the internal committee at the Canada Revenue Agency, then they will enter into a contract with the informant to determine payment and other details. Generally, the award amount will be between 5% – 15% of the federal tax collected in relation to the international tax non-compliance that was reported. More information on the payment criteria is found on the website.

Tax Tip: Don’t Work with the Canada Revenue Agency Without Legal Representation from a Canadian Tax Lawyer

If you are looking to report an instance of international tax non-compliance, it may lead to a contract between you and the Canada Revenue Agency. An experienced Canadian tax lawyer can work with the Canada Revenue Agency on your behalf to make sure that you’re awarded the amount of money you deserve and that the contract you sign with the CRA is in your best interest. Further, experienced Canadian tax counsel with significant tax experience can ensure that your confidentiality is maintained through the process. 

About the Author

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David J. Rotfleisch

David J. Rotfleisch, a leading Canadian tax lawyer, is not only a certified specialist in taxation but also a chartered professional accountant. Most recently, David is a pioneer in Canadian crypto taxation.

As of April 2020, he was one of 12 Ontario Certified Specialists In Taxation™.

Learn more about David J. Rotfleisch