Written on behalf of Feigenbaum Consulting
Earlier this fall, the Canada Revenue Agency (CRA) seized six rental properties as well as a car belonging to two Ottawa residents recently charged with tax evasion. This marks the first time that the “proceeds of crime” provisions of the Criminal Code were used in a situation of tax evasion. Until this case, these provisions have only been used in cases involving money laundering or suspected terrorist financing.
The two taxpayers in question were charged with tax evasion under the Income Tax Act in late October 2018 for allegedly underreporting more than $3 million in income and evading $523,532 in federal income tax. Both were arrested and released under court-imposed conditions.
Both were listed shareholders, directors, and/or corporate officers in multiple corporations in the property development and real estate rental sectors. Schemes that the two taxpayers engaged included appropriating funds from multiple corporations under their control, appropriating rental income, and manipulating invoices.
In this case, the CRA worked with other government agencies, including the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), the Seized Property Management Directorate (SPMD).
Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), an indepedent federal government agency, bills itself as “Canada’s financial intelligence unit”, and is tasked with facilitating the detection, prevention, and deterrence of money laundering and financing of terrorist activities.
FINTRAC fulfills part of this mandate by providing law enforcement and security agencies with information relevant to investigations into money laundering and terrorist financing as well as subsequent prosecutions. It collects and analyzes financial transaction reports sent by entities that are legally required to provide reports (including banks and securities dealers).
FINTRAC has the authority to investigate any entity covered by the Proceeds of Crime (Money Laundering) and Terrorist Financing Act
The Seized Property Management Directorate (SPMD) is a branch of Public Services and Procurement Canada, a government entity.
- Provides consultation services to law enforcement agencies with respect to property seized in connection with certain criminal offences;
- Disposes of seized property where a court declares a forfeiture;
- Shares the proceeds from the sale of seized assets.
Seized property can include:
- Cash, bank accounts, RRSPs, life insurance policies, personal loans, mortgages, etc.
- Cars, motorcycles, boats, airplanes;
- Real estate (houses, land, etc.);
- Personal property (art, jewelry, electronics, etc.)
The SPMD holds seized assets until all legal proceedings are done. If the court finds the accused party guilty and the subsequent sentence includes forfeiture of assets, the SPMD will begin the asset disposal process.
Assets can be sold publicly or through auction to obtain a fair market value.
The CRA’s Position on This Matter
With respect to the seizure of property for the failure to pay taxes, an employee in the CRA’s criminal investigations division told CBC News that “this is a tool that we have not used in the past”, and that:
I can say that this is indeed the first time, but I can promise you that this is not the last time that we [will use] those provisions of the Criminal Code to restrain or seize assets that tax evaders have acquired through their illegal behaviours.
What Could This Mean Going Forward?
As noted by an expert who spoke with the CBC, the CRA’s move to use proceeds-of-crime provisions in this way may prove to be a “game-changer” as seizure of property was never previously a consequence for tax evasion. This could potentially even be used outside of Canada to target offshore evasion.
In addition, this could be used to prevent the types of tactics that are currently used by taxpayers seeking to avoid paying taxes, such as declaring corporate bankruptcy so that the government cannot recover money owing. Using the proceeds-of-crime provisions would allow the government to seize assets immediately in order to avoid such tactics.
We will continue to follow developments in this interesting matter and will provide updates as they become available. In the meantime, if you have questions about personal tax planning, corporate tax planning, or tax litigation, contact Feigenbaum Law. Our goal is to create the best tax strategy possible for our clients. We work with you to create a personalized solution that will streamline your compliance requirements. Our focus is complex matters related to tax planning for individuals with high net-worth. We offer services to clients in the US, Canada and around the world. Contact us to learn more about how we can help or call us at (905) 695-1269 or toll free at (877) 275-4792.