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Can you go to jail for not paying taxes in Canada


Can Tax Debt Land You in Jail?

If you owe a tax debt to the Canada Revenue Agency (CRA), you know that the agency is very aggressive when it comes to collections. However, a lot of people wonder if you can go to jail for tax debt. The reality is that owing money to the CRA is not illegal. If you owe tax debt and cannot pay, the CRA can take strong collections action against you, but it is not a crime and you cannot go to jail.

However, that doesn’t mean that you can’t face potential criminal charges for other tax situations.

The CRA Criminal Investigations Program investigates significant cases of tax evasion, fraud, and other violations of tax laws. In some situations, it can refer cases to the Public Prosecution Service of Canada for criminal prosecution. However, owing tax debt is not a situation that can be investigated as a criminal offense.

What Happens if you Owe Tax Debt and Do Not Pay?

If you owe the CRA money and do not pay when it’s due, the agency will start by charging compound daily interest on your debt. This means that the longer you take to pay, the more money you’ll end up owing. If you owe a large amount of tax debt, paying interest on this money can get very expensive very quickly.

If you’re not able to pay the amount that you owe, the CRA may be willing to negotiate a payment plan with you. While the agency will never accept less than the full amount owed, it may be willing to take monthly payments rather than a lump sum. However, you may need to prove that you attempted to pay your debt in full by reducing expenses and borrowing money before the agency will agree to accept payment terms.

The CRA has very strong powers and it will take collection action against you if you owe tax debt and do not pay or arrange a payment plan. The agency can seize your assets and sell them, freeze your bank account, garnish your wages, and take many other serious steps. Obviously, you do not want any of these situations to happen to you.

However, while CRA collection action is certainly serious, owing the agency money is not enough to face potential jail time.

What Tax Offences Can Lead to Jail Time?

While owing tax debt is not a crime, there are several situations where a Canadian can potentially face jail time for tax offenses. One major one is tax evasion.

  • What is tax evasion?

    • Tax evasion is a situation where a taxpayer intentionally ignores Canadian tax law. In most cases, this means willfully suppressing or not disclosing income that should have been reported.
    • Taxpayers that are convicted of tax evasion will be required to pay the full amount of tax debt they owe, plus interest and penalties. Canadian courts can also fine those who evade taxes up to 200% of the taxes evaded.
    • In addition to court-imposed fines, those convicted of tax evasion could also be fingerprinted, receive a criminal record, and potentially face up to five years in prison.
    • However, prison time is usually only recommended for very serious offenders.
  • What constitutes tax evasion?

    • As mentioned, owing tax debt is not a crime. However, if you do not file your tax returns, the CRA could consider this an attempt to avoid disclosing your income, which may be considered tax evasion.
    • If you do not disclose all your income, or if you intentionally misrepresent your earnings, this can be considered tax evasion.
    • Tax evasion needs to be a willful attempt to evade taxes. If you have made a small mistake on your return, the CRA will likely not consider this to be tax evasion. However, if the agency believes your mistake was actually an attempt to avoid paying taxes, it could consider this to be tax evasion.
    • In addition to failing to accurately disclose your income, other actions that may be considered tax evasion include: not reporting foreign assets or income from foreign sources; participating in schemes to deliberately misrepresent or make false statements involving tax shelters or arrangements; or conspiring, counseling, or encouraging others to participate in such schemes.

If the CRA is accusing you of tax evasion or if you believe tax evasion charges could be coming, speaking with a professional is crucial. The CRA is incredibly difficult to deal with and tax evasion charges are very serious.

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