Tax Cheat…not me!

Ruth Horst

The Canada Revenue Agency (CRA) is very serious about tax evasion and non-compliance and readers can expect that they will actively pursue businesses and individuals that engage in tax non-compliance, non-payment or other tax crimes in Canada and abroad, according to their new departmental plan for 2025-26. 

Dragging your heals on paying your tax bill?  Here’s what you need to know:  According to CRA’s commissioner, Bob Hamilton:  “This year, we’ve made an explicit objective to increase the rate of resolution of the tax debt.” 

In focus at CRA:  to resolve approximately $1.2 billion in outstanding tax debt and to apply new analytical tools using technology, machine learning, and AI to recover $250 million in unwarranted GST/HST refund and rebate claims.

Prime Minister Mark Carney has also pledged to increase fines and penalties as a way to raise revenues.  That means, tax cheats, beware.

Tax evasion occurs when an individual or business intentionally:

• falsifies records or claims
• hides income
• inflates expenses or
• claims fraudulent refunds or benefits

Tax evasion is addressed under Section 380 of the Criminal Code of Canada and carries serious criminal consequences, including prosecution, court proceedings, fines, imprisonment, and a criminal record.

Tax avoidance is a different matter.  It involves using strategies to reduce tax obligations by pushing the limits of Canada’s tax laws. When tax is avoided within the object, spirit and intent of the law, there is no problem.

But when taxpayers hold undeclared assets or income abroad or fail to file a tax return, there are administrative penalties to pay through the CRA.  So, while tax avoidance is not covered under the Criminal Code, it is addressed through the Income Tax Act and the Excise Tax Act, and it can still result in significant costs.

Penalties are big business for CRA: From 2019 to 2024, the Canada Revenue Agency (CRA) levied over $73 million in penalties against promoters of tax schemes and tax preparers. During this period, the CRA also participated in more than 4,650 international information exchanges under tax treaties.

Who are the Tax Cheats? We often assume that tax evasion is limited to big players — the ultra-wealthy or financial experts engaged in high-stakes schemes. However, many people don’t realize that they too could be guilty of tax evasion or avoidance. Common examples are “cash under the table” transactions - those not reporting the cash for babysitting ventures or construction jobs.

In fact, a number of taxpayers unknowingly engage in tax fraud by cheating the tax system, often without fully understanding the consequences.  Myths and misinformation are widespread, and many taxpayers unknowingly fall into non-compliance — only to be caught years later. By then, interest and penalties may have accumulated significantly over time. The CRA also has the authority to impose consequences beyond just interest and penalties, including audits, reassessments, and even legal action.

Myth #1 – Marital Status Myths

The CRA has clearly defined marital status categories, leaving little room for interpretation. However, many taxpayers attempt to redefine their status, often filing as single or separated while actually being in a common-law relationship. Regardless of personal reasoning, this constitutes tax fraud. Once the CRA identifies the discrepancy, it will reassess incorrectly filed returns and recalculate benefits such as the GST credit, Canada Child Benefit (CCB), and Climate Action Incentive (CAI), often resulting in thousands of dollars owed. It is essential to report and update your marital status accurately and in real time to remain compliant.

Myth #2 – “Under the Table” Income is Not Taxable:

According to CRA “the gig economy generally refers to services provided through short-term contracts, freelance work, or other temporary work that is arranged through an online platform or mobile application” This includes services such as Skip the Dishes, Uber, Lyft, and other forms of contracted work.

This requirement to report income also extends to peer-to-peer platforms such as Kijiji, Etsy, eBay & Amazon as well as earnings from the social media influencer economy, including platforms like Facebook (Meta), Instagram, TikTok, You Tube, and Twitch.

Additionally, income from illegal activities—such as drug trafficking, theft, or fraud—is also considered taxable and must be reported.

Under the Income Tax Act, all income is taxable and must be reported on your tax return unless it is specifically classified as exempt by the CRA.

Myth #3 – My Foreign Pension is Tax Exempt:

Many taxpayers mistakenly believe that if there is no official Canadian documentation for a foreign pension, it is not taxable in Canada. This is a myth. All worldwide income, including foreign pensions, must be reported by Canadian residents, converted to Canadian dollars.

The requirement to report foreign income also applies to foreign investment income and the sale of foreign real estate or property. The CRA has international compliance agreements with many countries, enabling the exchange of banking and financial information about taxpayers to ensure global tax compliance.

The Bottom Line: The CRA takes tax fraud very seriously—not just for major corporations or high-net-worth individuals, but at all levels. It is your responsibility to report all worldwide income on your Canadian tax return each year. There is no minimum threshold exempt from reporting. And they will aggressively collect what is owing, especially under their new departmental mandates. 

Ensuring that your tax professional is properly trained and providing accurate, up-to-date advice in managing the relationship with CRA is important.   The consequences of getting it wrong are real.  Ask to work with a DMA-Tax Services Specialist™ and/or advisors who keep up to date attending the CE Summit Programs offered exclusively by Knowledge Bureau.