ENFORCEMENT AND DISCLOSURES DIRECTORATE (EDD), CANADA REVENUE AGENCY (CRA)

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1 (EDD), CANADA REVENUE AGENCY (CRA) This presentation will explain that the mission of the Canada Revenue Agency s (CRA s) enforcement area is to deter, detect, and correct tax crimes. CRA s main goal is to promote voluntary compliance from taxpayers by giving examples of the penalties of those who do not pay their share will face for their actions. BARRY CASSELMAN, CFE, CGA Senior Technical Specialist Criminal Investigation Division Canada Revenue Agency Ottawa, Ontario Barry Casselman has been a Criminal Investigator for the Canada Revenue Agency for 23 years. Barry is currently a member of a team of Head Quarters (HQ) liaison personnel that reviews and monitors field operations to ensure consistent quality in the Agency s National Criminal Investigations Program. He deals with technical legal issues involving complex investigative techniques, legal interpretations, and issue management, as well as overall program direction. Barry s extensive career within the Tax Department s Criminal Investigations area has provided him with an in-depth knowledge of all aspects of Tax Evasion cases. Association of Certified Fraud Examiners, Certified Fraud Examiner, CFE, ACFE, and the ACFE Logo are trademarks owned by the Association of Certified Fraud Examiners, Inc. The contents of this paper may not be transmitted, re-published, modified, reproduced, distributed, copied, or sold without the prior consent of the author. 2011

2 Our Mission The mission of the CRA s EDD program mission is to deter, detect, and correct tax crimes and non-compliance in the criminal economy. Vision The CRA s EDD programs will support the Agency s drive for excellence and be known internationally for its effectiveness to deter, detect, and correct tax crimes and non-compliance within the criminal economy. To deliver its mandate the Directorate has developed and implemented a number of programs. They are: Voluntary Disclosures Informant Leads Tactical Intelligence Strategic Intelligence Special Enforcement Criminal Investigations Voluntary Disclosures Program (VDP) Mandate The mandate of the VDP is to facilitate voluntary compliance with the legislation administered by the CRA by fostering and processing disclosures submitted by non-compliant taxpayers and/or their representatives, including the development and dissemination of national VDP policies, procedures, and training, and conducting VDP Quality Assurance and Program Reviews. Key Activities POLICIES Develop and disseminate national VDP policies Coordinate and provide functional leadership, technical advice, policy development, and

3 program direction to the VDP field officers servicing taxpayers and/or their representatives through Tax Services Offices (TSOs) and other CRA functional program areas TRAINING Identify training needs Develop and deliver VDP-related training for employees in the VDP and other CRA functions as requested REVIEWS Conduct Quality Assurance and Program Reviews. Promote the consistent application of standards of quality in the VDP. This is accomplished by regularly scheduled Quality Assurance Reviews of VDP outputs generated by the field offices. Identify best practices and disseminate to the field via reports and national meetings. COMMUNICATION Liaise with the field, other CRA functions and outside stakeholders concerning matter of mutual interest Provide assistance, advice, and guidance on the administration of the VDP to other CRA functions, to other federal, provincial, and territorial bodies, and to taxpayers and their representative Provide for VDP outreach initiatives as required

4 Informant Leads Mandate The mandate of the Informant Leads Program is to co-ordinate all leads that the CRA receives from informants, to determine if there is an element of noncompliance with tax legislation, and to ensure that the information is reviewed and provided to the corresponding compliance program for appropriate enforcement action. Key Activities Continue to work with the Compliance Systems Redesign team at HQ to optimize the use of technology and available software to enhance the delivery of the leads program. Develop systemic and specialized information, techniques, tools, and training for the leads centre officers. Tactical Intelligence Mandate The Tactical Intelligence Section s mandate is to provide a national mechanism for the management of information and intelligence that will allow the EDD Directorate to better detect and prevent fraudulent and/or serious non-compliant activities. We provide support to our field offices in the form of intelligence focused on specific individuals or groups. We also work closely with internal and external partners to exchange intelligence that will assist our field offices in identifying priority files. Key Activities Provide effective collection, analysis, and dissemination of intelligence on specific individuals or groups

5 Maintain and/or pursue partnerships with intelligence, investigative, and law enforcement agencies as well as other government departments. Strategic Intelligence Mandate The mandate of the Strategic Intelligence Section is to provide senior management with forward-looking analysis that provides early warning of emerging fraudulent activities, including tax-evasion and other opportunities of non-compliance. The analysis and its resulting strategic intelligence will assist senior management in their strategic decision-making process, the development of operational priorities, and also provide the foundation for recommending policy, program, and/or legislative changes. Strategic intelligence is not related to a specific case or individual, but rather to detecting new or emerging issues and trends. While information is pieces of raw data gathered from diverse sources, intelligence is the product resulting from a process involving the collection, evaluation, and analysis of all available information. Key Activities Conduct research, develop strategic analysis, and provide reports to senior management on current and emerging trends and developments in fraudulent activities and non-compliance. Build and strengthen partnerships with key stakeholders (internal and external) to minimize the overall impact of emerging fraudulent activities and opportunities of non-compliance. Support Regional Intelligence Officers who, under the direction of Headquarters (HQ), will perform specific intelligence activities at the regional level

6 Special Enforcement Program (SEP) Mandate The mandate of the SEP is: In cooperation with law enforcement agencies, focus on removing the proceeds from criminal activities through civil tax assessments. The SEP Section provides guidance and functional leadership to the field through program management and field support. Key Activities Determine the priorities of the SEP, which for fiscal are: Financial Transactions and Report Analysis Centre of Canada (FINTRAC) related disclosures Organized crime such as Outlaw Motorcycle Gangs and Traditional Organized Crime Marihuana Grow Operations Develop, maintain, and enhance relationships with internal and external partners in order to increase the effectiveness of the SEP Monitor program delivery and prepare national reports on results Conduct quality assurance and functional reviews Receive, review and disseminate all FINTRAC disclosures ensuring the Audit Information Management System is updated in a timely fashion, and statistics are tracked

7 Criminal Investigations Division Mandate As a division of the EDD Directorate, the Criminal Investigations Division provides technical, accounting, and legal guidance, training, and support to the TSOs in the delivery of the Criminal Investigations Programs. It also provides support to senior management. The Criminal Investigations Division is comprised of two sections: Investigations Advisory Services and the Forensics Informatics Services. Investigations Advisory Services Section Mandate The mandate of the Investigations Advisory Services Section is to provide in a timely and informed fashion technical, accounting, policy, and legal guidance and support to the TSOs in the investigations of violations of the Income Tax Act and the Excise Tax Act. Another major function is to provide assistance and support to senior management. Key Activities APPLICATION OF LEGISLATION AND POLICIES Provide technical and expert advice to field operatives in the areas of the: Application of legislation; Organization and delivery of searches; and, Interpretation of investigative policies and techniques. Review search warrants to confirm their compliance with Agency policies, the Criminal Code, and other legislation ensuring that relevant and critical information is legally obtained for prosecution of criminal activities

8 ISSUES MANAGEMENT Address, analyze, and resolve complex field cases and issues, and provide investigative and legislative advice and guidance. Implement procedures and tools to address key and critical field issues. Prepare reports, assessments, briefing papers, and communications for senior management regarding high profile and critical investigations. HELP AND SUPPORT PROVIDED TO TSOS, PROJECTS, AND OTHER ENFORCEMENT SECTIONS Provide expertise, guidance, direction, and approval to TSOs for requests for assistance to/from other federal and provincial government departments, law enforcement agencies, and foreign governments. Coordinate major national projects, such as carflipping, tax preparers, charity, and identity theft. Assist the Enforcement Policy Section in the delivery of investigation-related courses to CRA and law enforcement agency officials. Act as a representative of the Agency at meetings, conferences, and seminars. In consultation with the field and other stakeholders, develop recommendations to improve policies, practices, and tools regarding the investigation of tax evasion and the application of the Criminal Code. Assist the Enforcement Policy Section with the Quality Assurance review program and the delivery of investigative training, including the Fraud Awareness and Detection Sessions

9 Forensics and Informatics Section Mandate The mandate of the Forensics and Informatics Section is to provide advanced technology to improve the CRA s ability to perform efficient and thorough criminal investigations. For the past decade, the Forensics and Informatics Services has been providing Investigators and other clientele across Canada with professional, expert services designed to enhance the criminal investigation process. Key Activities INFORMATICS SEARCH AND EVIDENCE RECOVERY Create procedures and best practices for the retrieval of evidence from various digital and electronic devices; Research and perform extensive testing and evaluations on the most advanced evidence retrieval hardware, software, and techniques; Offer specialized training courses dealing with various computer related topics including training in basic Informatics Search and Evidence Recovery Training, network search training, and annual update lectures; Provide technical support for all Informatics Investigators. IMAGING TECHNOLOGY Provide access to an Imaging Technology Centre that converts evidence from paper documents to electronic format while maintaining document continuity and integrity during transport and the imaging technology process;

10 Offers a process to organize, sort, and research thousands of paper evidence documents within seconds. ELECTRONIC COURTROOM Using technology and presentation tools in order to facilitate communication with judges and jurors, increasing their understanding and their focus on the evidence being presented and thereby increasing our success rate in the Courts; Increase trial speed through simultaneous viewing of evidentiary exhibits on display monitors, eliminating time previously spent waiting for evidence to be distributed and reviewed; Search and retrieve electronic documents within seconds upon request, thereby eliminating the burden of flipping through numerous binders and boxes of documents; Improving storage and handling of case evidence by eliminating the daily task of unpacking and packing boxes of evidence. Example of Tax Alerts A) Warning: If You Claim False Losses or Expenses on Your Tax Return, You Can be Fined, Penalized, or Even Convicted The CRA has recently uncovered a fraudulent scheme in which taxpayers claim large losses or expenses equal to their personal expenses such as payments for mortgages, personal loans, vehicle loans, and common everyday expenses. In this scheme, taxpayers use a CRA business number to submit information slips for amounts related to their

11 personal debts and expenses. These slips include the T5008 Statement of Securities Transactions, the T5 Statement of Investment Income and the T4A Statement of Pension, Retirement, Annuity and Other Income. The amounts from the slips are reported on T1 tax returns as business losses, professional income losses, capital losses or as expenses. Under the Income Tax Act, deductions for personal expenses are not permitted. SERIOUS CONSEQUENCES The CRA has identified taxpayers who are participating in this scheme, and is taking action. Under the Income Tax Act and the Excise Tax Act, the CRA has the authority to reassess tax returns, charge interest and levy penalties. Where intentional non-compliance with tax laws, tax evasion, or fraud is suspected, the CRA will undertake criminal investigations and will recommend prosecution against the taxpayers promoting, organizing, or participating in such tax schemes. If you are convicted of tax evasion or tax fraud, the courts may fine you up to 200% of the federal tax evaded or false refunds claimed, and sentence you to a jail term of up to five years. The CRA will also publicize your court conviction in the media to deter non-compliance with tax laws, and to maintain confidence in the integrity of the self-assessment tax system. More information on these convictions is available on the CRA Web site at

12 EVEN IF YOU RECEIVE A REFUND, YOU CAN STILL BE REASSESSED You may have participated in this scheme and received a tax refund; however, this does not mean that the CRA agrees with your claims. Therefore, keep your books and records, since the CRA generally has three years from the date of assessment to audit and reassess taxpayers. In cases of alleged fraud or misrepresentation, such as neglect, carelessness, or willful default, the CRA can audit and reassess outside the three-year period. These audits can take over a year to complete. The fact that participants in this type of scheme have not yet been reassessed should not be interpreted as the CRA s acceptance of their claims. GET PROFESSIONAL, INDEPENDENT ADVICE If you are thinking about participating in an arrangement to minimize your tax, it s very important that you get independent legal and tax advice. Independent advice means advice from a tax professional that is not connected to the particular arrangement

13 B) Warning: Schemes that Promote Big Tax Losses or Deductions are Not Worth the Risk The CRA is warning taxpayers about investing in schemes that provide inflated or unsubstantiated tax losses or deductions. This type of business arrangement may be an unregistered tax shelter, and participating in it puts taxpayers at risk of losing their entire investment, as well as any tax refunds they may receive as a result of making a claim on their tax return. Interest and penalties may apply. IF IT SOUNDS TOO GOOD TO BE TRUE, IT PROBABLY IS Unregistered tax shelters can take many forms, but they typically involve buying a tax loss that is well in excess of the cash investment. People who promote these schemes will promise a large tax loss that can be claimed when investors file their income tax returns. This loss usually results in a tax refund, enabling the taxpayer to recover the initial cash they invested plus more. However, don t be fooled; simply buying a tax loss does not mean it is deductible. In describing these schemes, the Canadian courts have used strong language such as short-changed, if not swindled, in referring to the taxpayers who invested in these schemes. A number of these schemes have already been reviewed by the CRA and claims made by investors have been disallowed. As schemes are identified, the CRA will continue to deny the losses claimed

14 THERE ARE CONSEQUENCES If the CRA determines that a scheme is an unregistered tax shelter, all tax deductions or credits claimed by taxpayers participating in the unregistered tax shelter must be denied. As well, the cash investment to participate in the unregistered tax shelter is not deductible since it was made solely to acquire tax losses. Reassessments will be issued and penalties will be considered. When an investor is found to have knowingly participated in an unregistered tax shelter to get tax benefits that he or she was not entitled to receive, penalties can amount to 50% of the taxes payable after reassessment. There are also consequences for promoters. Penalties apply in situations where promoters should have registered and obtained a tax shelter number from the CRA. A registration number allows the CRA to identify a scheme and the taxpayers who have participated in the tax shelter, but it should not be interpreted to mean that investors are entitled to receive the proposed tax benefits. Promoters who do not register their tax shelters in an attempt to avoid audit action will face a penalty of 25% of the proceeds received from the investors for their participation in the tax shelter. GET PROFESSIONAL, INDEPENDENT ADVICE If you are thinking about investing in one of these arrangements, it is very important that you get independent financial and/or legal advice. Independent advice means advice from a tax professional that is not connected to the scheme or to the promoter

15 C) Be an Informed Donor Charities play a very important role in Canadian society. As a donor, it is important to be informed and make wise decisions about your donations. Unfortunately, there are people who pretend to raise money for charity but keep the donations for their personal gain. Do your homework and gather some important facts before you make any donations. How can you become an informed donor? Gather as much information as possible on the charity and ask for any background documentation, annual reports, and budget information. Find out how much of your donation will go to charitable activity. Never give out personal information. Only charities registered under the Income Tax Act can issue official donation receipts. To verify if a charity is registered under the Income Tax Act, and to access its annual information return, please visit the Charities Directorate Web page or call our bilingual toll-free number at Before Making a Donation, Beware of High-pressure solicitors who want you to contribute immediately. Don't give in to pressure. Take the time to review your objectives and your donation budget. Remember that you are entitled to say no and that you do not need to justify your decision. Someone who calls you or knocks at your door and thanks you for a pledge you do not remember making. This tactic is often used to create a false sense a familiarity and lure you into believing that your previous donation made a

16 positive difference in your community, when in fact, you never gave money to this fraudulent organization. Names that sound like well-known charities, but that are not quite the same. Scam artists will not hesitate to use similar wording, logos, and graphics to make you believe you are giving to a national, well-known charitable organization. Come To Us Before We Go To You If you are involved in a tax scheme such as explained above, and you would like to correct your tax return, you can do so by sending the CRA an adjustment request. For more information, go to or call In some cases you may be able to come forward and correct your tax information through the CRA s VDP. Taxpayers may avoid penalties and prosecution if they make a valid disclosure before the CRA begins to take any compliance action against them. Taxpayers availing themselves of the VDP may only have to pay the taxes owing, plus interest. For more information on the VDP, go to