Canadians are always surprised to learn that an illegal business must pay tax on its income. Be it drugs, prostitution, theft, etc., the Canada Revenue Agency (the “CRA”) still wants their cut.
If a taxpayer is caught committing a criminal act they will obviously be brought before the Courts on a criminal matter. What taxpayers do not realize is that once the criminal portion is finished, a whole new tax portion begins.
The CRA will audit illegal businesses, and they will claim that the business made a certain amount of money, which the CRA essentially will pull out of thin air. It is then up to the taxpayer to prove that they did not make this much money.
Taxpayers earning illegal income can even offset that income with business expenses. If the CRA is claiming that an illegal business must pay its fair share of taxes, then it is reasonably allowed to deduct all of the costs it incurred to make that illegal money!
Please keep in mind that illegal payments, such as bribes, are not tax deductible.
There is no box on your tax returns asking how you made the money; the CRA just wants to know about the money you are making. Keep in mind that this is how the Internal Revenue Service got Al Capone!
If you, or someone you know should be paying taxes but isn’t, give Barrett Tax Law a call and learn how we can help.