Tax & Trade Blog

The CRA has a number of rules, found in the Income Tax Act (“ITA”), and the Excise Tax Act (“ETA”) requiring taxpayers to keep books and records, and to keep them available for audit and inspection for up to seven years after the current year.

The CRA also has a number of quasi- criminal provisions that they can rely on when dealing with situations where taxpayers and their businesses attempt to use false or incomplete records to underreport revenues, income, or GST obligations.

It does not usually go well for the taxpayer when this is uncovered, and the taxpayer can face both criminal fines and civil assessments of taxes interest and penalty. In one recent case, the taxpayer ended up paying twice for this mistake!

This is an update of our May 2018 blog regarding Samaroo v. Canada Revenue Agency (2018 BCSC 324), a landmark decision for a successful claim against the Canada Revenue Agency (“CRA”) for malicious prosecution.  The underlying prosecution involved allegations that Tony and Helen Samaroo (the “Samaroos”) and their companies evaded income tax by not reporting income generated by their businesses.  The Samaroos were also charged criminally for tax evasion. After their acquittals of all the charges in the criminal trial, the Samaroos brought an action against the CRA for malicious prosecution.  The trial judge found the CRA liable principally because its investigator knew that the actus reus of the tax evasion offence could not be proven, misled others involved in the prosecution and, by abusing his office, acted with malice.  At the end, the trial judge ordered the CRA to pay approximately $1.7 million in damages to the Samaroos.

The Ontario Ministry of Finance is continuing to “lead the charge” against Ontario tobacco wholesalers – turning the industry upside down with assessments worth tens of millions of dollars for failure to collect the Ontario Provincial Tobacco Tax (PTT) on sales of cigars and other non-cigarette tobacco (loose tobacco, pipe tobacco chewing tobacco, snuff, etc.) to Status Indians on Federal Indian reserves.

For many wholesalers these assessments come as a complete surprise, and often years after the actual sales have been made, resulting in significant interest amounts owing on top of the penalty assessed.

When it comes to policing Canada’s voluntary tax compliance system (for income taxes and the GST/HST), the CRA has several effective enforcement weapons in its arsenal. One weapon that one does not often see employed is international extradition of individuals wanted for Canadian tax evasion and/or fraud.

One recent case made the headlines in Canada, when the CRA announced March 11, 2019 that a man living in Costa Rica has been successfully extradited to Canada under charges of tax fraud.

Section 182 of the Excise Tax Act (“ETA”) generally deems any payment made to a registrant as a consequence of a breach, modification, or cancellation of an agreement (other than as consideration for a supply), to be a taxable supply. This rule, in effect, means that where there is a breach of an agreement to supply property or services, a payment to the supplier by the recipient to compensate for that breach will generally be deemed to include GST/HST.

Unfortunately, section 182 is often overlooked by parties resolving legal disputes, as the recent Tax Court of Canada (“TCC”) decision in THD Inc. c. La Reine, 2018 CCI 147 demonstrates.