Aggressive GST/HST tax schemes in Canada
Most Canadians comply with tax laws, but some individuals and groups use aggressive Goods and Services Tax/Harmonized Sales Tax (GST/HST) schemes to claim unwarranted refunds or reduce their liability to avoid paying the taxes they owe. These schemes are not unique to Canada. They are a global issue and are also common in other tax jurisdictions. Wherever they are found, these aggressive GST/HST schemes undermine the integrity of the tax system and cost the government hundreds of millions of dollars in tax revenue needed for vital programs and services for Canadians.
The Canada Revenue Agency (CRA) collects taxes to support the essential programs and services provided to Canadians by the federal, provincial or territorial, and municipal levels of government, such as education, social services, infrastructure, and public health. Perpetrators of these aggressive GST/HST schemes are committing theft and diminish tax revenue at the expense of all compliant taxpayers.
It is crucial to remain informed and vigilant when it comes to GST/HST schemes, and the risks related to you and your business’s potential participation in them. Individuals or groups involved in these schemes face serious consequences, including penalties, court fines, and even jail time.
How to recognize and avoid involvement in a GST/HST scheme
It is important for every business entering into a GST/HST-related transaction to remain vigilant for indicators of these schemes. You and your business should be aware of warning signs that suggest fraudulent transactions or connections to a larger GST/HST scheme.
Here are some common signs of tax schemes which may help you to recognize suspicious activity and reduce your risk of involvement:
- Unusually favorable deal terms such as no upfront payment or payment only after resale
- Guaranteed or fixed profit margins requiring minimal involvement regardless of transaction timing, volume, or product specifications, or the suggestion that by transacting with this supplier you or your business are guaranteed certain profits
- Requests for payment to third parties or offshore accounts which may obscure the true nature of the transaction
- High-value transactions lacking proper documents, contracts, or formal agreements
- New or small suppliers offering goods at significantly below-market prices, especially when compared to established vendors
- Suppliers or vendors with poor credit ratings or limited trading history, raising concerns about legitimacy
- Coordinated behavior between suppliers and buyers, such as referrals to a customer who wants to purchase identical goods, or receipt of contact from both parties simultaneously
- Supplier’s company name and details continuously change but they continue to provide the same goods or services
- Offers to register for a business number and GST/HST account without operating a legitimate business, often accompanied by promises of financial gain
This is not a complete list, and the presence of one or more indicators cannot identify a scheme with certainty. If you come across any of these signs, consider taking a closer look, seeking independent advice, and verifying the legitimacy of the arrangement before going ahead. By staying informed and attentive to these warning signs, you can protect yourself and your business from potential fraud.
Consequences of participating in a GST/HST scheme
In recent years, the CRA has dedicated itself to combating aggressive GST/HST schemes by investing in innovative technology, enhancing business intelligence, and allocating audit resources. The CRA constantly works to identify and address these aggressive schemes and other threats to tax revenue.
You should be aware of scams that entice you into business relationships with promises that easy money can be made by registering for a business number and GST/HST accounts without operating a legitimate business.
Aggressive GST/HST schemes often involve submitting fraudulent claims for GST/HST refunds, which can trigger audits, penalties, and even prosecution. If you authorize someone else to file these claims on your behalf, you (as the business owner) are legally responsible for any debts incurred, including repayment of the full refund amount and the resulting penalties and interest, which can be significant. Participating in such activities equates to fraud and may lead to serious legal consequences, including fines or jail sentences or both.
CRA action against registrants who facilitate or participate in schemes
The CRA is actively pursuing entities involved in these scheme activities, but it is also taking action against those who facilitate and participate in them to ensure equal treatment under the tax system.
The CRA can apply third-party civil penalties against tax preparers, promoters, and other third parties who intentionally file or prepare false statements, or omit information on the tax returns of other individuals or businesses. Third-party penalties are explained in detail in the Information Circular IC01-1, Third-Party Civil Penalties. Third-party civil penalties are serious, and can result in large financial levies.
Learn more about court decisions concerning third-party penalties:
Supreme Court of Canada: Guindon v Canada
Tax Court of Canada: Ploughman v The Queen
The CRA will also investigate and prosecute those who promote and counsel others to commit tax evasion. When taxpayers are convicted of tax evasion, they must repay the full amount of taxes owing, plus interest and any civil penalties assessed by the CRA. As well, the courts may fine them up to 200% of the taxes evaded and impose a jail term of up to five years.
The CRA publicly shares cases of individuals, corporations, and trusts convicted of tax evasion. For more information on CRA convictions, go to Enforcement notifications: compliance actions.
What you can do
- Send information to the National Leads Centre
- If you have information about suspected tax evasion or tax fraud that you want to anonymously report, you should report the information about suspected tax or benefit cheating in Canada
- Apply for the Voluntary Disclosures Program
- If you want to voluntarily correct your tax filings, you should consider the CRA’s Voluntary Disclosures Program
Links to related pages
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