How does the CRA draw a line between Negligence and a Tax Fraud?

Tax fraud has been commonly defined as an intentional violation of a legal duty. The general case of tax fraud takes place when a taxpayer files a deliberate false return. CRA will decide on how it will draw a line between a tax fraud such as cheating on your tax returns and filing them negligently. It does not come as a surprise to people that it is deemed criminal to cheat on their taxes and commit a tax fraud. CRA had done a survey recently whereby it had concluded that almost twenty per cent of taxpayers were not in compliance with the tax laws in some fashion or the other, though the number of actual convictions for tax fraud has gone down over the last few decades.

Part of the survey revealed that about seventy five per cent of the tax fraud was committed by individual taxpayers. These taxpayers were made up of mainly middle income individuals. Corporations made up the rest. It was found that the worst offenders included cash intensive businesses and workers from the service industry ranging from handymen contractors to physicians. It was also reported that waiters and waitresses also under-reported their cash tips by almost eighty five per cent.

It is an undeniable fact that most people cheat and commit a tax fraud by under-reporting their income deliberately. Bulk of the under-reporting of earning had come from self-employed restaurant managers; clothes shop owners and car dealers. Sales people and telemarketing people came next followed by physicians, lawyers, accountants and hairdressers.

The surprising thing was that self-employed taxpayers usually blew up their business related expenses like transportation expenses. If the tax fraud is proved by the CRA auditors, civil fines and penalties will be imposed and it may also lead to criminal prosecution and imprisonment.

The CRA auditors are trained to investigate tax fraud, which is a deliberate act which may be done with intent to defraud the CRA. Examples of tax fraud could be using false social security numbers, keeping a double set of financial books or claiming false dependency claims when you are single. Benefit of doubt is also passed on to the taxpayer as the tax laws have become complex. CRA auditors may expect to find some mistakes in some tax return and they do not suspect all of them as deliberate.

A negligent or a careless mistake on a tax return might attract a twenty per cent penalty to the tax bills, but the charges for a tax fraud, when proved, could attract civil penalty. Often, the line between mere negligence and a tax fraud is not always very clear to the CRA and the tax courts. The CRA auditors are not trained detectives but they are pretty sharp in highlighting common kinds of errors or wrongdoings. Such acts could include freshly altered false receipts or altered checks to boost up the deductions.