What penalties can be imposed for providing false information?

Providing false information to the Canada Revenue Agency (CRA) is one of the most serious violations of Canadian tax law. Such an offense can have devastating consequences for your financial future and often results in a multi-level system of penalties, ranging from significant civil fines to criminal prosecution with the possibility of imprisonment for up to 14 years.

The Canadian tax system is based on the principle of voluntary self-assessment: citizens declare their income and calculate their own taxes, relying on the honesty and transparency of all participants. It is this trust that leads to very severe penalties for those who abuse it. Moreover, fines and criminal liability serve not only as punishment but also as a powerful deterrent. This knowledge is particularly important for Calgary residents, as any carelessness or negligence in preparing tax returns can result in fines several times higher than the amount of tax owed.

Penalties for gross negligence — the CRA's main tool

The main mechanism that the CRA uses against those who file false information is a penalty for gross negligence under section 163(2) of the Income Tax Act. It is imposed if the taxpayer intentionally or through gross negligence stated false information or “forgot” to include significant amounts in their return. Gross negligence, under Canadian law, means a level of carelessness bordering on intent: you completely ignore tax laws, do not check the data at all, or act with blatant indifference.

The penalty is determined as the greater of the following two amounts:

  • $100
  • or 50% of the underpaid tax (or overpaid credits).

If, for example, you concealed $40,000 in income (resulting in $12,000 in evaded taxes), the penalty would be at least $6,000 (plus the amount of the original tax, plus interest and penalties).

Important: The CRA must prove that you acted intentionally or with gross negligence (the standard of proof is quite high). The court will consider your education, experience, frequency of errors, and the complexity of your financial situation. Simply “not knowing” is not an excuse if any reasonable person would have consulted an advisor!

The same approach applies to GST/HST reporting under Section 285 of the Excise Tax Act (same penalty calculation). Entrepreneurs who may mistakenly classify personal expenses as business expenses or confuse sources of income are at particularly high risk.

Penalties for repeated failure to file income

Another type of penalty is automatic and applies even without intent: a penalty for failure to file income (subsection 163(1) of the Income Tax Act). If you did not report $500 or more in the reporting year and at least once in the previous three years you also “forgot” to report a similar amount, the CRA will automatically impose a penalty.

The amount is the lesser of the following two amounts:

  • 10% of the unreported amount
  • or 50% of the difference between the underpaid and already withheld tax.

Both penalties for the same amount are not applied at the same time — only the larger one is collected. Another risk: federal and provincial penalties are imposed separately, meaning that the total penalty is twice as high (except for Quebec and some non-residents).

This is very common among freelancers, entrepreneurs, and those with complex incomes or multiple jobs. Incorrect transfer of amounts from forms, arithmetic errors, or carelessness can lead to serious consequences regardless of intent.

Penalties for “third parties” — the responsibility of consultants and accountants

A unique feature of the Canadian tax system is the ability to impose penalties not only on taxpayers themselves, but also on their consultants (Income Tax Act, section 163.2). If an accountant, lawyer, or tax planner helps to file knowingly false information, attempts to promote mass evasion schemes, or leaves false information in their clients' tax returns, they will be personally fined.

  • “Planner penalty” — for those who create and distribute schemes: either $1,000 or all profits derived from this activity (whichever is greater).
  • “Preparer penalty” — for providing documents or advice containing false information: the lesser of $100,000 plus compensation, the taxpayer's penalty, or $1,000.

In addition to financial losses, such individuals often lose their professional licenses, and their cases come under close scrutiny by the professional community.

Criminal liability — the most severe consequences

In the most serious cases (intentional evasion, blatant lies, concealment of income for years, conspiracy of several persons, destruction or falsification of documents), the CRA initiates criminal proceedings (sections 238, 239 of the Income Tax Act, section 380 of the Criminal Code).

The rule is:

  • For “summary conviction” (simplified proceedings): maximum fine — 200% of the amount of tax evaded, up to 2 years in prison.

  • For “indictable offence” (serious violation): up to 5 years' imprisonment.

  • Fraud (Criminal Code): up to 14 years' imprisonment.

The CRA investigation process involves years of audits, searches, account analysis, interrogations, and often public exposure. From 2019 to 2024, the CRA obtained more than a hundred convictions in court, dozens of people received real prison terms, and hundreds of millions were collected in fines.

Penalties for international reporting and foreign assets

For taxpayers who have more than $100,000 CAD in foreign assets (stocks, real estate, bank accounts), Form T1135 is applicable. Failure to file this form will result in a penalty of $25/day (up to $2,500); if concealed or filed with gross misconduct, the penalty will be $500/month (up to $12,000) or even 5% of the value of the asset.

For lying on the T1135 — the greater of $24,000 or 5% of foreign property (this practice is particularly strict for business owners or investors with real estate outside Canada).

How to avoid penalties: Voluntary Disclosure Program

For those who realize their mistake before the CRA audit, the best option is to apply to the Voluntary Disclosure Program (VDP). Since March 2018, the program has two streams:

  • General — for unintentional violators (allows you to avoid major penalties and even criminal charges)

  • Limited — for serious, long-standing, or intentional violations among large taxpayers

You will be required to pay the full amount of the principal tax and most of the interest, but your loyalty and lack of a criminal record will be worth it.

Practical recommendations for Calgary

  • Don't put off dealing with suspicious issues or errors — contact a tax advisor.
  • Keep a detailed record of your income and expenses, and keep documents for more than 6 years.
  • Remember: even an unintentional mistake in complex situations (foreign assets, multiple sources of income, business) is grounds for a significant penalty.
  • Respond promptly to any letters, calls, or messages from the CRA.
  • Be honest, cautious, and organized — this is the best defense against penalties, sanctions, and possible criminal prosecution.

In today's tax world, transparency is increasing: the CRA effectively exchanges information with tax authorities in other countries, implements automated audits, and is serious about punishing any violations. You can only protect yourself by being honest and taking timely action!