The recent “Panama Papers” leak brought to light the offshore financial dealings of various well-known individuals around the world, including many Canadians. The Canada Revenue Agency (CRA) has decided to pursue these revelations to identify not only the Canadians involved in these activities but also whether these Canadian residents were using offshore havens to avoid taxes.
On the 6th of April 2016, the CRA indicated that it will pursue audits related to offshore tax evasion, including Canadian clients associated with Mossack Fonseca (The Panamanian law firm responsible for the paperwork leaked). The CRA intends to achieve this with the help of tax treaty partners and a consortium of investigative journalists.
The Minister of National Revenue has instructed CRA officials to obtain the data leaked through the Panama Papers in order to cross-reference this information with the data already obtained through the Agency’s existing investigation tools.
Chloe Luciani-Girouard, a spokeswoman for National Revenue Minister Diane Lebouthillier said that: “Canada is closely watching the cases of citizens found to have set up offshore companies in Panama and elsewhere and will refer cases to prosecutors if necessary”.
Although most of these offshore accounts were likely set up legally it’s definitely going to highlight the names of various Canadians who have been hiding their money in off-shore locations.
Canadian residents, like U.S. taxpayers, are subject to taxes on their worldwide income and are required to disclose their foreign financial assets to the CRA on Form T1135 and or T1134 annually. This can lure high income net worth individuals to transfer some of their earned income to offshore locations in an attempt to avoid taxes.
However, the problem with transferring money to foreign locations is that not only does it reduce the tax revenue that the government can utilize for funding development projects but it also impacts the money in circulation within the country. Transferring the money to off-shore banks has adverse effects on the Canadian economy; in this case the money is sent out of the country which largely impacts the national income and thereby increases interest rates.
That being said, in 2007 an informant provided the CRA with information on close to 182 Canadians with accounts at a bank in Liechtenstein. Although only 46 of the audits were completed it resulted in the CRA obtaining $25 million in taxes, penalties, and interest. This success makes the CRA all the more motivated to pursue the Panama papers. The Prime Minister has announced the provision of $444 million dollars to the CRA to eradicate tax evasion so this project is definitely on the top of the CRA’s priority list.
If you are implicated in the Panama Papers or receive a notice from the CRA inquiring into your offshore dealings contact a tax professional as soon as possible. A cross border tax specialist can help you mitigate your exposure and ensure that your tax returns have been filed correctly.
AG Tax LLP Can Help
If you wish to discuss further on the above issue, or have any tax-related queries or need assistance with tax planning or filing please contact AG Tax. Our tax professionals are highly-experienced with U.S. and Canadian tax laws and can provide you the right guidance to handle your tax situation.
Aylett Grant Tax LLP is a full service accounting firm with a dedicated team of experts, who are highly-qualified and experienced in handling situations related to U.S., Canadian, and other international tax laws.
We can assist with:
- Canadian Personal and Corporate tax returns
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- U.S. Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
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