While many tax disputes are resolved through reassessments, penalties, and repayment, willful tax evasion is a criminal offence that can result in significant fines and imprisonment, including sentences of up to 14 years in the most serious cases.
Canadian tax law draws a clear legal distinction between mistakes, negligence, and deliberate evasion. When the Canada Revenue Agency (CRA) believes a taxpayer intentionally attempted to avoid paying taxes owed, the matter can escalate from a civil audit into a criminal investigation and prosecution.
This article explains when tax evasion becomes a criminal offence, how it is prosecuted under Canadian law, what penalties apply, and under what circumstances jail time becomes a real risk.
Not every tax problem is a crime. Canadian courts and the CRA distinguish between:
Criminal liability requires intent.
Under Canadian law, tax evasion occurs when a person knowingly and deliberately attempts to avoid paying taxes they are legally required to pay. This intent element distinguishes a criminal offence from a civil reassessment or penalty.
Examples of conduct that may constitute tax evasion include:
Errors, misunderstandings, or poor bookkeeping may still result in penalties, but they do not automatically lead to criminal charges.
The CRA has broad statutory powers to audit and investigate taxpayers. A case typically progresses through several stages:
Once a matter moves from audit to investigation, the taxpayer’s legal exposure changes significantly. CRA investigators may seek search warrants, compel document production, and interview witnesses.
At this stage, statements made to the CRA can be used in criminal proceedings.
Most tax evasion cases in Canada are prosecuted by the Public Prosecution Service of Canada (PPSC) under the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.).
Section 238 (1) applies to taxpayers who fail to file required returns, despite being legally obligated to do so.
“Every person who fails to file a return as and when required by or under this Act… is guilty of an offence.”
—
Income Tax Act, s. 238(1)
Penalties upon conviction:
| Penalty | Maximum |
|---|---|
| Fine | $1,000 – $25,000 |
| Imprisonment | Up to 12 months |
Before charges are laid, the CRA typically issues multiple compliance notices. Criminal charges usually arise only after persistent non-compliance.
Section 239 addresses intentional attempts to evade taxes, including false statements and deceptive conduct.
“Every person who has… wilfully evaded or attempted to evade compliance with this Act or payment of taxes imposed by this Act is guilty of an offence.”
—
Income Tax Act, s. 239(1)
Conduct covered under this section includes:
Penalties depend on how the offence is prosecuted:
| Prosecution Type | Penalties |
|---|---|
| Summary conviction | Fine of 50%–200% of tax evaded + up to 2 years imprisonment |
| Indictment | Same fines + up to 5 years imprisonment |
In addition to criminal penalties, the taxpayer must still repay all taxes owing, interest, and civil penalties.
Tax evasion involving GST/HST and other excise taxes is prosecuted under the Excise Tax Act, R.S.C. 1985, c. E-15.
Section 327 mirrors the language of the Income Tax Act and applies to those who:
Excise taxes commonly involve:
Penalties upon conviction are substantially the same as those under the Income Tax Act.
Business owners, directors, and officers are particularly exposed, as liability may extend beyond the corporation.
Yes. In serious cases, tax evasion may also be prosecuted as criminal fraud under the Criminal Code of Canada, R.S.C. 1985, c. C-46.
“Everyone who, by deceit, falsehood or other fraudulent means, defrauds the public… of any property, money or valuable security is guilty of an offence.”
—
Criminal Code, s. 380(1)
Fraud charges are more likely when tax evasion involves:
Maximum penalties:
| Amount Involved | Maximum Sentence |
|---|---|
| Under $5,000 | Up to 2 years imprisonment |
| Over $5,000 | Up to 14 years imprisonment |
At this level, jail is a realistic and serious possibility.
In practice:
However, sentencing trends indicate an increasing judicial emphasis on deterrence, particularly when the conduct undermines public confidence in the tax system.
If the CRA has:
You should seek legal counsel immediately.
“Once a tax matter shifts from audit to investigation, the stakes change completely. What you say or provide at that point can determine whether the case remains civil or becomes criminal.”
— Robbie Tsang, Criminal Defence Lawyer & Managing Partner
Tax evasion matters often involve parallel civil and criminal exposure. Decisions made early can significantly affect outcomes.
“Clients often underestimate the criminal implications of tax matters. Our role is to protect their rights while managing both financial and legal risk.”
— Heather Spence, Criminal Defence Lawyer & Partner
“Tax prosecutions are document-heavy, complex, and highly technical. Effective defence requires both criminal law expertise and a deep understanding of CRA enforcement practices.”
— Jeff Mass, Criminal Defence Lawyer & Founding Partner
With decades of experience defending clients against tax evasion and criminal fraud, the Greater Toronto Area criminal fraud defence lawyers at Mass Tsang provide strategic representation from the earliest stages of CRA investigation through trial.
If you are facing tax evasion allegations, early legal intervention can make a decisive difference.
Contact Mass Tsang today for a confidential consultation and protect your rights before the situation escalates further.
Yes. While many cases result in fines and repayment, willful tax evasion can lead to imprisonment, including sentences of up to 14 years in serious cases prosecuted as criminal fraud.
Tax evasion requires intent. Honest errors, negligence, or misunderstandings usually lead to reassessments or penalties, not criminal charges. Deliberate deception may result in prosecution.
The CRA assesses intent, scale, duration, and sophistication. Cases involving large sums, false records, or organized schemes are more likely to be referred for prosecution.
Most cases are prosecuted under the Income Tax Act or the Excise Tax Act. Serious cases may also involve Criminal Code fraud charges.
Yes. Directors and officers can be held personally liable, especially for failure to remit GST/HST or involvement in deliberate evasion.
Once a matter becomes a criminal investigation, you should seek legal advice before speaking to the CRA, as any statements you make may be used in court.
