How we combat tax evasion and avoidance

When an individual or business falsifies records and claims, hides income or inflates expenses in order to intentionally avoid complying with Canada’s tax laws, it is considered tax evasion.

Tax evasion, unlike tax avoidance, has criminal consequences. A criminal investigation may result in prosecution in criminal court, which could lead to court imposed fines, imprisonment, and a criminal record.

Learn more: Tax evasion

When tax planning reduces taxes in a way that is inconsistent with the overall spirit of the law, the arrangements are referred to as tax avoidance. The CRA's interpretation of the term "tax avoidance" includes all unacceptable and abusive tax planning. Aggressive tax planning refers to arrangements that push the limits of acceptable tax planning.

The CRA is a member of the Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC) network, which brings together 42 of the world's national tax administrations to find ways to collaborate on a spectrum of international tax risks. The JITSIC network offers an effective and well-established platform to enable its members to cooperate on individual cases, as well as share their experience, resources, and expertise to tackle the issues they face in common.

For example, when the International Consortium of Investigative Journalists released information on the most recent data leak in 2021 known as the Pandora Papers, the strong partnerships established through the JITSIC network ensured that members were well positioned to work collaboratively and share information.

However, like tax administrations, JITSIC operates under strict rules designed to protect the confidentiality of information and the confidence of taxpayers. As a consequence, much of the work of JITSIC is not always visible to the public.

The Joint Chiefs of Global Tax Enforcement, known as the J5, is a powerful multicountry, operational alliance that leads the fight against international tax crime. The J5 is dedicated to combatting transnational tax crime and money laundering through increased enforcement collaboration.

The J5 was formed in June 2018 in response to a call to action from the OECD for countries to do more to effectively tackle the enablers of tax crime. It brings together leaders of tax enforcement authorities from the following five countries that face common threats:

• the Australian Taxation Office
• the Canada Revenue Agency
• the Fiscale Inlichtingen - en Opsporingsdienst from the Netherlands
• His Majesty’s Revenue & Customs from the United Kingdom
• the Internal Revenue Service (IRS) Criminal Investigation from the United States

Learn more: The CRA’s international collaboration to combat tax evasion – Joint Chiefs of Global Tax Enforcement

As part of the OECD’s Base Erosion and Profit Shifting (BEPS) project, Canada has committed to the spontaneous exchange of information on tax rulings with certain other countries. In the context of the BEPS project, countries agreed to exchange information on the following types of rulings:

• cross-border rulings related to preferential regimes (for Canada this would include international shipping and certain foreign life insurance operations of a Canadian company)
• cross-border rulings related to transfer pricing legislation
• cross-border rulings providing a downward adjustment not directly reflected in the taxpayers’ accounts
• permanent establishment rulings
• related party conduit rulings

If a Ruling falls into one of the above categories, a summary of its contents may be exchanged with the countries of residence of the immediate parent company, the ultimate parent company and certain other parties. As such, taxpayers making a Ruling request must include sufficient information to allow the CRA to identify the relevant parties for such exchanges. For more information, see the OECD website under BEPS.

Since January 2015, certain financial intermediaries, including banks, have been required to report international electronic funds transfers (EFTs) of $10,000 or more to the CRA. This is detailed financial transaction information related to international wire transfers entering or leaving Canada. This information helps the CRA to identify taxpayers who may be participating in aggressive tax avoidance or who may be attempting to conceal income and assets offshore.

For the period of April 2016 to March 2020, the CRA completed reviews of all reported EFTs that were associated with jurisdiction or financial institutions of concern, otherwise known as the Jurisdiction of Concern (JOC) project. Generally speaking jurisdictions or financial institutions of concern are usually those that operate in countries that have low or no effective tax rate or have banking secrecy or confidentiality laws that provide for anonymity.

The JOC project is complete and intelligence derived from this project is integrated into the CRA’s risk assessment processes. Currently, the CRA can automatically match and integrate the EFT data with other information in our internal systems, allowing for improved risk assessment. This allows the CRA to identify the highest-risk taxpayers across multiple jurisdictions and financial institutions.

The CRA uses the EFT data to assess risk and identify taxpayers with potential offshore non-compliance issues.

While the CRA can gain useful information from offshore data leaks, it does not depend on these leaks to tackle offshore non-compliance. Through advancements such as EFTs, the CRS, and the CRA’s Offshore Tax Informant Program, as well as the significant expansion of its key audit programs, the CRA is well positioned to ensure wealthy Canadians pay their taxes.

Audits resulting from data leaks can be intricate and lengthy. As such, additional taxes and penalties owing are anticipated in the future as more complex and challenging data leak audits are completed.

It is important to highlight that holding an offshore bank account or offshore assets does not necessarily mean there is any tax wrongdoing.

In 2016, the “Panama Papers” were released, which included approximately 11.5 million documents held by the Panamanian law firm Mossack Fonseca.

Analyzing the Panama Papers was complicated by the lack of financial information provided in the data leak, and the fact that some taxpayers create complex structures to deliberately hide their assets. The CRA’s initial information gathering, data analysis, and risk assessment of the data leak took over three years to complete. Through this process, the CRA identified over 900 individuals, corporations, and trusts with a potential connection to Canada. Over 60% of taxpayers identified were found to be compliant with their Canadian tax filing and reporting obligations.

In 2017, the International Consortium of Investigative Journalists (ICIJ) released the “Paradise Papers,” which contain over 13.4 million confidential electronic documents relating to offshore investments.

Since the release of the Paradise Papers, the CRA has reviewed all the taxpayers identified with a potential connection to Canada. The CRA identified approximately 2,790 individuals, corporations, and trusts with a potential connection to Canada. Over 80% of taxpayers identified were found to be compliant with their Canadian tax filing and reporting obligations.

The audits will take several years to complete as many taxpayers have resisted providing access to books and records, and they are also using litigation in the courts to obstruct CRA audits. As a result, these audits can be time consuming and complex.

Every data leak poses its own unique challenges. However, the CRA learned many lessons from the Panama and Paradise papers that are guiding how it manages another recent release by the ICIJ, the “Pandora Papers.”

This release contains almost 12 million documents that reveal hidden wealth, tax avoidance and, in some cases, money laundering.

Additionally, the CRA is working with our international partners to pool resources and share information.

The GAAR is a legal tool used by the CRA to distinguish legitimate tax planning from abusive tax avoidance. The GAAR tries to balance protecting the tax base with a taxpayer’s need for certainty when planning their affairs.

Since 1988, the CRA has invoked the general anti-avoidance rule (GAAR) when a taxpayer attempts to circumvent or exploit the intent of Canada’s tax rules and avoid paying the taxes they owe. The GAAR’s purpose is to deny tax benefits to taxpayers that are not in accordance with the object, spirit or purpose of the Income Tax Act and Excise Tax Act, even if they comply with a literal reading of the legislation.

Cases reviewed for application of the GAAR (cumulative):

• 2023-2024: 2,294
• 2022-2023: 2,029
• 2021-2022: 1,831
• 2020-2021: 1,694
• 2019-2020: 1,608

Cases in which the GAAR was applied:

• 2023-2024: 85%
• 2022-2023: 83%
• 2021-2022: 81%
• 2020-2021: 81%
• 2019-2020: 80%

Note: The actual number of taxpayers whose tax returns were reassessed as a result is much greater than these numbers because many tax avoidance schemes involved multiple partners, related parties, or groups of investors.

Learn more:

• General anti-avoidance rule (GAAR)
• General Anti-Avoidance Rule - Section 245 of the I.T

The CRA has expanded its information sources by better leveraging ongoing audits findings and third-party data as intelligence that help to support the use of unnamed persons requirements (UPRs) aimed at identifying additional non-compliant taxpayers.

To better detect activity in new and emerging sectors, such as crypto-asset and platform economy activities, the CRA has increased its use of information from third parties. UPRs are a legal tool used to gather information from third parties (such as, crypto-asset intermediaries facilitating crypto-asset transactions) to identify taxpayers and registrants involved in crypto-asset activities and other digital economy environments. As a result, the CRA is better leveraging audits findings and third-party data to obtain authorization from the courts to use UPRs in identifying non-compliant taxpayers and addressing non-compliance.

The CRA also uses the information obtained through UPRs to identify beneficial owners of offshore entities, offshore bank and investment accounts.

In addition, the CRA issues UPRs to property developers and builders that have information about buyers involved in an assignment sale. This information is used to identify taxpayers who may not be reporting income tax or GST/HST.

Learn more: Unnamed persons requirements in real estate

The CRA may seek a compliance order from the Federal Court of Canada under the Income Tax Act or the Excise Tax Act when a taxpayer or third-party fails to comply with a request or requirement for information.

The CRA enlists the Department of Justice to seek a compliance order where the information requested is not being provided. A judge must be satisfied that the taxpayer was required under legislation to provide what is being requested and be assured it is not subject to solicitor-client or litigation privilege.

Failure or refusal to comply with a court imposed compliance order could result in the person being found in contempt of court, and potentially resulting in possible fines or jail time.

The real estate sector is one of the many sectors that is addressed through our risk-based method. The CRA enhances its comprehension of non-compliance behaviour in the real estate sector through experience and the use of third-party data, such as data obtained through UPRs. This results in a greater number of audits and non-audit compliance interventions.

For more information on our real-estate audit assessment and penalty results, visit How the CRA addresses non-compliance in the real estate sector web page.

A criminal investigation involves many steps such as gathering evidence, interviewing taxpayers and witnesses, executing search warrants and analyzing evidence. The length of time required to investigate will be dependent on the complexity of the case, the number of individuals and/or businesses involved, the availability of evidence, the need for international requests for assistance and the level of cooperation of witnesses. As with any criminal investigation undertaken by law enforcement, the CRA’s criminal investigations can be complex and often require years to complete.

In a CRA criminal investigation, investigators prepare a comprehensive report based on the results of the investigation, and send it to the PPSC where charges are believed to be warranted. The PPSC will then independently review the evidence and decide whether to initiate and conduct a prosecution on behalf of the federal Crown.

Note: The CRA selects cases for criminal investigation based on priority and impact on compliance. Our enhanced strategic file selection process results in the targeting of the most serious and complex cases.

Various sources of information can lead the CRA to initiate a criminal investigation.

Learn more: The CRA's criminal investigations process

Cases referred for criminal investigations:

• 2023-2024: 186
• 2022-2023: 130
• 2021-2022: 101
• 2020-2021: 110
• 2019-2020: 244

Search warrants executed:

• 2023-2024: 59
• 2022-2023: 26
• 2021-2022: 27
• 2020-2021: 14
• 2019-2020: 196

Files where criminal charges were laid under the Income Tax Act, Excise Tax Act, and/or criminal code:

• 2023-2024: 7
• 2022-2023: 28
• 2021-2022: 16
• 2020-2021: 25
• 2019-2020: 33

Ongoing criminal investigations from joint forces operations with other law enforcement agencies:

• 2023-2024: 16
• 2022-2023: 25
• 2021-2022: 31
• 2020-2021: 31
• 2019-2020: 19

The CRA publicizes tax evasion and tax fraud convictions. The CRA may also, on occasion, release prejudgment information at different stages of a criminal investigation or prosecution, including, but not limited to, the execution of a search warrant, seizure of assets, and/or the laying of criminal charges. Publishing this information serves to maintain the integrity of Canada’s self-assessment tax system and warns Canadians about potential illegal tax schemes, and to deter others from committing tax and other financial crimes.

Learn more: Enforcement notifications: compliance actions