Solemn man holding a stack of documents in court with a screen behind him displaying the phrase "Conviction for Tax Evasion."

Guidance from a Canadian tax lawyer on tax evasion offences and using the Voluntary Disclosures Program as a path to avoid prosecution.By David J. Rotfleisch, C.P.A., J.D.

BC Accountant Sentenced to 2 Years Due to Tax Evasion

A Surrey, B.C. accountant was sentenced to a two-year conditional sentence followed by two years of probation after pleading guilty to tax evasion, the Canada Revenue Agency (CRA) announced. Aeddy Leung, who served as the bookkeeper for the Quality Hotel Airport (South) and the Coast Vancouver Airport Hotel from 2014 to 2018, deliberately filed false GST/HST returns and failed to submit required tax filings during that period.

According to the CRA, these actions led to the evasion of $987,863 in GST/HST owed by the hotels. Leung admitted to willfully evading remittance taxes and making false statements on GST/HST returns. His sentence was delivered in Vancouver Provincial Court on April 15, 2025.

The CRA credited the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) for playing a key role in the investigation that resulted in Leung's guilty plea. In addition to legal penalties, individuals convicted of tax evasion are required to repay all owed taxes, along with applicable interest and penalties. Leung's conditional sentence, two years less a day, will be served in the community rather than in custody.

What Is Tax Evasion

Tax evasion generally refers to the illegal act of violating tax laws to avoid paying taxes. The specifics of what constitutes tax evasion are outlined in sections 238 and 239 of the Income Tax Act (ITA) and section 327 of the Excise Tax Act (ETA).

Under section 239(1) of the ITA, a person commits an offence if they:

Make false or misleading statements in any return, certificate, or document submitted to the Canada Revenue Agency (CRA);
Destroy, alter, hide, or dispose of records to evade tax;
Falsify or omit taxpayer records;
Willfully evade or attempt to evade compliance with the ITA;
Conspire with others to commit any of the above actions.

A person convicted under these provisions may face a fine of up to 200 percent of the evaded tax and up to two years of imprisonment upon summary conviction. Under section 239(2), if prosecuted by indictment, the penalty may increase to up to five years in prison. Sections 327(1) and (2) of the ETA mirror these provisions for GST/HST.

Section 238(1) of the ITA also makes failure to file a tax return an offence, punishable by a fine of up to $25,000 and up to one year of imprisonment on summary conviction. In more serious cases involving deliberate and significant deception, individuals may be charged with fraud under section 380 of the Criminal Code, which carries a maximum penalty of up to 14 years in prison.

Voluntary Disclosures Program: A Path to Avoid Tax Evasion Prosecution

Taxpayers who have made errors or omissions in their tax filings may be eligible to correct them voluntarily through the CRA's Voluntary Disclosures Program (VDP).

What Does the Voluntary Disclosures Program Cover

Common examples of disclosures that are eligible for VDP relief include:

Unfiled Form T1135, Foreign Income Verification Statement, where a taxpayer held specified foreign property above the reporting threshold but never filed the form.
Unreported cash income, including income from a cash-based business or side work that was never included on a tax return.
Unreported offshore income or assets, such as foreign bank accounts, foreign investment income, or foreign rental income.
Missed GST/HST filings and other unfiled returns, for one or more years where nothing was filed at all.
Incorrect expense claims, where a taxpayer previously overstated deductions or claimed expenses they were not entitled to.
Unreported cryptocurrency income, including trading gains, mining income, and staking rewards.

Effective October 1, 2025, the CRA updated the VDP under Information Circular IC00-1R7. The prior two-track system, a General stream and a Limited stream, no longer applies to applications received on or after that date. The current framework sorts every application into one of two streams based on how much contact the CRA already had with the taxpayer before the application was filed.

Unprompted application: filed before any communication about the specific issue, or after only a general education letter. Normally eligible for 100 percent penalty relief and 75 percent interest relief.
Prompted application: filed after communication identifying a specific error, a deadline to correct it, or after the CRA receives third-party information naming the taxpayer. Normally eligible for up to 100 percent penalty relief and 25 percent interest relief.

Both streams, where accepted, protect the taxpayer from criminal prosecution on the disclosed matter and waive gross negligence penalties. A disclosure is not voluntary at all if a tax audit or investigation, by the CRA or another regulator, has already been opened into the same issue for the taxpayer or a related taxpayer.

We discuss this timing question in more detail in:

Pro Tax Tips: File a Voluntary Disclosure Before the CRA Finds the Error First

Although taxpayers who commit tax evasion face severe penalties and the risk of prison time, many can still correct the underlying error by filing a voluntary disclosure and avoiding those penalties entirely, provided they come forward before the CRA does.

As David J. Rotfleisch, the firm's founding tax lawyer and a Certified Specialist in Taxation, puts it:

“The CRA still has full discretion over every application, unprompted or prompted, so the analysis of whether a disclosure still qualifies has to happen before anything is sent to the CRA, not after.”

Taxpayers should also be aware that a voluntary disclosure application can be denied outright if it is incomplete or if the CRA later learns of non-compliance that was not originally disclosed, so it is worth having an experienced Canadian tax lawyer review a submission before it is filed.

FAQ

What is the penalty for tax evasion?

If found guilty of tax evasion, a taxpayer is liable on summary conviction to a fine of up to 200 percent of the tax that was to be evaded and up to two years of imprisonment, rising to up to five years on indictment. Failure to file a return under section 238 carries a fine of up to $25,000 and up to one year of imprisonment.

What's the benefit of a voluntary disclosure application?

An accepted unprompted application normally receives 100 percent penalty relief and 75 percent interest relief. An accepted prompted application normally receives up to 100 percent penalty relief and 25 percent interest relief. Both streams protect against criminal prosecution on the disclosed matter.

What is the difference between an unprompted and a prompted VDP application?

An unprompted application is filed before any CRA communication about the specific issue, or after only an education letter. A prompted application follows communication that identifies a specific compliance problem or a deadline to correct it. Unprompted applications receive higher interest relief.

Can I still file a voluntary disclosure after the CRA has contacted me?

Sometimes. Routine correspondence or an education letter generally does not disqualify a later disclosure. Once the CRA has identified a specific error or opened a tax audit or investigation into the issue, the application will be treated as prompted at best, or refused entirely.

How far back does a voluntary disclosure need to go?

Supporting documentation is generally required for the six most recent years for domestic non-compliance, extending to ten years where the disclosure involves offshore income or assets.

Is tax evasion the same as tax avoidance?

No. Tax avoidance uses legal means to reduce tax owing, while tax evasion involves illegal conduct such as false statements, hidden records, or willful non-compliance under section 239 of the Income Tax Act.

Can unreported cryptocurrency income be disclosed through the VDP?

Yes. Unreported cryptocurrency transactions are a common subject of VDP applications, and the CRA has significantly expanded its use of blockchain analytics and exchange reporting to identify non-compliant taxpayers.

Does a tax audit of my corporation affect my personal voluntary disclosure?

Yes, potentially. A tax audit or investigation opened against a related taxpayer, including a corporation in which someone is a shareholder or director, can affect that individual's own eligibility for connected issues.

What happens if the CRA denies my voluntary disclosure application?

A taxpayer can request a second administrative review, and if that is unsuccessful, apply to the Federal Court for judicial review of the CRA's decision within 30 days.

Do I need a lawyer to file a voluntary disclosure?

A taxpayer can apply personally using Form RC199, but because an involuntary or incomplete application generally cannot be resubmitted with a better result, many taxpayers retain an experienced Canadian tax lawyer to assess eligibility before filing.

DISCLAIMER: This article provides broad information. It is only accurate as of the posting date. It has not been updated and may be out-of-date. It does not give legal advice and should not be relied on as tax advice. Every tax scenario is unique to its circumstances and will differ from the instances described in the article. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.

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