Recently, the Canada Revenue Agency (CRA) has taken various measures to put an end to tax evasion. Examples of this can be seen in the introduction of information disclosure forms (such as: Form T1135 Foreign Income Verification Statement), withholding refunds in doubtful cases, and additional efforts put into scrutinizing every tax return filed. Another major move by the CRA is the ‘Offshore Tax Informant Program’, launched on January 8th 2014 by National Revenue Minister Kerry Lynne Findlay, which uses persons close to taxpayers’ as whistleblowers, offering them monetary rewards for providing information regarding a taxpayer’s foreign accounts or assets that is used for the purpose of evading taxes.
AG Tax professionals think that every Canadian taxpayer should be aware of these tax-evasion prevention measure of the CRA, as a taxpayer could get in trouble if found guilty and have one’s reputation tarnished.
Offshore Tax Informant Program’ (OTIP)
Offshore Tax Informant Program (OTIP) was introduced as a tax-evading measure in the Economic Action Plan 2013. It is a program which will reward individuals who provide relevant and specific information to the CRA about Canadian taxpayers with undisclosed foreign assets (accounts, investments, properties and etcetera) provided the assessment of these offshore (foreign) assets is equal to or greater than C$100,000 in federal taxes excluding any applicable penalties and interests.
The awarded sum could range from 5% to 15% of the federal tax amount (excluding interest and penalties) collected from the tax-evader. However, this reward is subject to realization of the taxes owed and penalties which could delay the reward by several years. Additionally, the CRA may deny the reward completely in any of the following cases:
- If the information is received from more than one source
- If an audit / investigation is conducted and the assessment of federal tax relating to international tax non-compliance is less than C$100,000 or if the CRA is successful in only discovering assets which lead to a lower than C$100,000 tax liability
- If the taxpayers appeals to a federal or tax court and is found not guilty or the assessed federal tax is less than C$100,000
*The informant can be domestic or international but should not be a current or former federal employee (including the CRA).
Other Measures against Tax-Evasion
The CRA is leaving no stone unturned to prevent tax evasion and revenue loss; as a result it has introduced the following additional measures as a part of its 2013 Economic Action Plan:
- Compulsory reporting of international electronic funds transfers of $10,000 or more to the CRA by certain financial intermediaries (bank, financial services companies)
- Extension of the ‘Normal Reassessment Period’ by an additional 3 years for taxpayers who failed to report income from their foreign property on their annual income tax return, and also failed to file Form T1135: Foreign Income Verification Statement accurately
- Updated Form T1135 (Foreign Income Verification Statement) to include more detailed information regarding names of specific foreign institutions and countries where offshore assets are located and the passive income earned on these assets
- Reorganized the legal process to operate more efficiently for CRA to acquire information related to “unnamed persons” from third parties (like: banks, insurance companies)
Some individuals are of the opinion that these measure are an unsuccessful step by the CRA. Liberal Senator Percy Downe supported this opinion by stating “What is the point of giving CRA more information if they do not have the resources to make use of it? The government needs to reverse its cuts at CRA” in response to the announced cut-down in the CRA budget by $259 million by 2018 and a decrease in staff by 2,500 or more. However, individuals like Canadian Auditor General Michael Ferguson firmly believe in the OTIP, saying that the CRA has realized close to C$24.7 million in taxes owed to Ottawa from reassessment of 23 families out of the 46 families identified by an informant in 2007 as having unreported offshore bank accounts.
The Canadian government loses close to C$8 billion dollars in tax revenue every year as a result of money laundering through offshore accounts, which needs to be addressed at all costs, and the CRA is determined to make its Economic Action Plan for 2013 work.
Taxpayers should be aware that misrepresenting or completely avoiding reporting income from domestic or foreign source(s) is prohibited and the individual could be subject to jail time along with interests and penalties. However, all is not lost, if any Canadian taxpayer wishes to voluntarily disclose their foreign assets and rectify their tax filings, he/she should consult a tax professional, and consider CRA’s Voluntary Disclosures Program (if applicable) before the CRA launches any compliance action against the taxpayer.
AG Tax LLP Can Help
If you have any tax-related queries, need assistance with tax planning or filing your tax returns please contact us. Our team comprises of highly experienced tax professionals with extensive knowledge of U.S. and Canadian tax laws as well as cross-border compliance
Furthermore, as a full service accounting firm, AG Tax assures complete assistance with even your most complex tax needs.
We can assist with:
- Canadian Personal and corporate tax returns
- Cross Border Taxation and Business Planning
- U.S. Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- State Sales Tax & E-commerce Taxation
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:
- 416-238-5920 (Greater Toronto Area, ON)
- 604-538-8735 (Greater Vancouver Area, BC)
- 780-702-2732 (Greater Edmonton Area, AB)
Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.