Tax evasion prosecutions in Canada fall dramatically
Prosecutions for tax evasion almost halved across Canada in just three years, figures released to Global News show.
Fewer Canadians were taken to court for tax evasion in every part of the country between 2012-13 and 2014-15. In Ontario, cases fell to 47 from 119 just three years earlier.
Manitoba saw the biggest fall, from 35 cases to just 11.
The numbers were released by the federal prosecution service, which takes tax cases to court.
Dennis Howlett of Canadians for Tax Fairness links the fall in prosecutions to cutbacks at the Canada Revenue Agency, which led to there being fewer auditors.
(The CRA auditors refer tax cases to federal Crowns for prosecution.)
“Because of the nature of cuts to CRA capacity, they just didn’t have the staff needed to do the more complicated cases,” he explains. “So they preferred to settle out of court.”
“But if you don’t take some cases to court you lose the deterrent factor.”
Toronto-based tax litigation lawyer Richard Yasny links the fall in prosecutions to the closure of CRA regional offices in 2011, which included one in Mississauga, Ont. that did criminal investigations.
“I had a threatened prosecution, charges hadn’t yet been laid, out of Mississauga, and it was cancelled,” he remembers. “We didn’t get far enough to be clear on the scope of the evidence that the Crown had. The reason for the cancelling, at least as far as I recall from the lead investigator, was the reorganization. It effectively cut her office out, and a decision was made not to go ahead with that.”
Update: In a statement e-mailed late Tuesday, CRA spokesperson David Walters linked the fall in prosecutions to a decision to focus on more complex cases.
“As expected with the increased case complexity, the number of convictions has decreased since the changes were implemented. However other metrics confirm that the strategic shift is working, particularly in relation to offshore convictions, as evidenced by an increase in jail sentences and court fines,” he wrote.
Earlier this month, media outlets across the world reported on a vast trove of leaked information about hundreds of thousands of companies that had offshore accounts with the Panama-based law firm Mossack Fonseca.
Offshore bank accounts and other financial dealings in another country can be used to evade regulatory oversight or tax obligations. Companies or individuals often use shell companies, initially incorporated without significant assets or operations, to disguise ownership or other information about the funds involved.
Mossack Fonseca has denied any wrongdoing, saying it only set up offshore financial accounts and anonymous shell companies for clients and was not involved in how those accounts were used.
About 350 Canadians were found in the data.
The revelations have led to broader discussions about tax fairness.
In the wake of the leak, the CRA announced it would hire more auditors, and increase scrutiny of high-risk taxpayers. Tightened tax enforcement, the CRA announced, would result in an extra $2.6 billion in revenue over five years.
Tracking tax cheats is a complex skill, and the CRA will take a lot of time to get back into the game, Howlett warns.
“It won’t change things overnight,” he says.
“They lost a lot of their most experienced, skilled auditors because of the cutbacks of the last few years. It’s going to be a big challenge to get back up to speed – they’re going to have to invest heavily in training. What they really need is the capacity to deal with the more complicated cases.”
