Canada Revenue Agency (finally) warns Canadians about (detax) tax protester schemes

Canada Revenue Agency (finally) warns Canadians about (detax) tax protester schemes

The Canada Revenue Agency (“CRA”) has assessed a number of taxpayers who have participated in the detax schemes. In addition, the CRA has imposed 50% subsection 163(2) gross negligence penalties. We think that — in many cases — the imposition of the subsection 163(2) gross negligence penalties is wrong in fact and law.

We are in the process of representing taxpayers to dispute the correctness of the subsection 163(2) gross negligence penalties. The detax “interpretation of the law” has been promoted for some time. CRA has finally issued a press release warning taxpayers about detax and other types of tax protester schemes. We are not sure what took so long.

The interesting sections of the CRA’s press release, along with our comments, are as follows.

“The CRA cautions all Canadians to be aware of individuals who try to convince them to not pay their taxes. Taxpayers should be aware that tax protestors who promote intentional tax evasion are seeking a personal financial benefit at the expense of the taxpayer and of all Canadians.”


In our experience, taxpayers who participated in the detax scheme were persuaded that the scheme was legal and not contrary to the law. It is not that the detax promoters persuaded these taxpayers that they should willfully evade tax or that the tax legislation was unjust. Instead, the detax promoters persuaded these taxpayers that the law allows for a refund of tax paid.

“Canada has one of the highest rates of compliance in the world. However, individuals who try to evade or avoid taxes by participating in tax evasion schemes will be detected and addressed accordingly. That means you will lose the high fees you paid up front for the bad advice you’ve received from the promoter, and once your tax return is processed the CRA will reassess income tax and interest, and charge penalties. In some cases, you could be prosecuted for tax evasion.”

As discussed, the CRA is routinely imposing 50% gross negligence penalties. It appears that — at this time — the CRA is not deleting the penalties at the objection stage. In order to dispute the penalty, taxpayers will likely need to retain a tax lawyer and appeal the penalty in the Tax Court of Canada.

“If you have doubts about certain tax arrangements, you should get advice from an independent tax professional, someone who is not connected to the scheme or promoter. If it sounds too good to be true, it probably is.”

It is not advisable or appropriate for taxpayers who participated in the detax scheme to obtain advice from the tax promoters, accounting professionals involved in the detax scheme or the CRA. We believe that all of these parties have a vested interest in the outcome and, therefore, taxpayers will not receive independent information and advice.

We recommend that taxpayers call our firm to obtain independent advice from a tax lawyer and discuss their options.


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