As a self-employed sales agent, Mr. Spooner operated a business in the Windsor area, J B & B Enterprises.  For the quarter ending March 31, 2003, Spooner had made false statements on the GST return for his business.  The net GST owed was understated by $1,312.  There was also a failure to file eleven consecutive quarterly returns from April 2003 to December 2005 and the GST owing for this period of time was not remitted.  Total GST evaded was $18,396.

In all such cases, upon conviction, all taxes owing, plus interest, Canada Revenue Agency (CRA) penalties and Court fines must be paid.  It should be noted that the Court may impose a fine of up to 200% of the taxes evaded as well as a jail sentence of up to five years.

If full disclosure is made under the Voluntary Disclosure Program, it is possible that the taxpayer will avoid penalties and/or prosecution by the CRA.  Under this Program delinquent returns can be filed and previously unreported income can be disclosed, provided that the CRA has not taken action or initiated an investigation against the taxpayer.

Mr. Silva is self-employed and operates Silva Communications.  He did not file income tax returns for the 2002, 2003 and 2004 taxation years, nor did he file GST returns for 2003, 2004 and 2005.  The court frequently imposes a fine of $1,000 per count and this was the case for Mr. Silva.   While he was given one year to pay the fine, he was also placed under six months probation and ordered to file all delinquent returns.

The charges noted above could have been avoided if Mr. Silva had entered the Voluntary Disclosures Program.  Under this program, provided that all outstanding tax returns are filed and/or any previously undisclosed income is reported prior to the CRA initiating any action or investigation, the taxpayer can avoid penalties and prosecution and it is possible that the taxpayer will only be required to pay taxes and interest owing.

CRA investigated Mr. Tourikis and discovered that he failed to remit $140,616 in GST that was charged and collected during the years 2002 to 2004. The GST was charged and collected on worm sales made to several wholesalers in Ontario.

If Mr. Tourikis applied under the voluntary disclosure program before CRA began their investigation, there would be no penalties or prosecution. There would only be interest and taxes due.

If an individual or a corporation is convicted of tax evasion, they have to pay the full amount of tax owing, plus interest, and any penalties that is assessed by CRA. If there is a gross negligence penalty, the Income Tax Act and Excise Tax Act allow CRA to assess an additional 50% penalty of the unpaid tax. In addition, the court on summary conviction could fine them 50% to 200% of the tax evaded and sentence them to jail for up to two years.

The CRA investigation determined that the company used different methods to reduce taxes, including corporate officers claiming personal expenditures as business expenses. Scherba claimed costs relating to renovating his home, landscaping services, furniture and electronic purchases, golf membership fees, sporting goods and family vacations. The son- in law of Scherba claimed boat repairs, towing, dockage fees, flooring costs and electrical work for the home, insurance, clothing and sporting goods as expenses charged to the company. When a shareholder and their families claim personal expenses as business expenses in a company, CRA will add back these expenses and will increase the corporations taxable income. They will also add back to the shareholder the benefit derived by the company paying for their personal expenses. For example, if a corporation paid $100,000 in personal expenses and claimed them as a business expense, CRA on an audit would add the $100,000 to the taxable income of the corporation and a another $100,000 to the taxable income of the shareholder. Therefore, the corporation and the shareholder will be taxed on a total of $200,000 plus penalties and interest. It is very costly to claim personal expenses in a corporation.

If Mr. Scherba and the 952768 Ontario Limited applied under the voluntary disclosure before a CRA investigation began, then they would be exempt from penalty or prosecution. They would only be liable for the income taxes and the interest.