Change to the Procedural Requirements at the Bank of Israel?

The Bank of Israel has recently implemented measures that are designed to minimize legal and reputational risks for Israeli banks. The Bank of Israel circulated a draft directive for all Israeli banks by virtue of which all foreign (non-Israeli resident) account holders must sign a declaration that confirms that they pay taxes on the income generated in their Israeli bank account in their resident jurisdiction. In addition, the draft directive requires foreign account holders to sign a confidentiality waiver pursuant to which Israeli banks would be allowed to pass bank account information to non-Israeli tax authorities. This would make it possible for Israeli banks to provide the Canada Revenue Agency (the “CRA”) with information about the income that a Canadian resident earned in an Israeli bank account. The move by the Bank of Israel marks another step in the global battle against tax evasion.1

Many Canadian residents with accounts at Israeli banks first learn about the declaration when they are approached by their Israeli bank. A large number of Canadian residents have been caught off guard by the request to sign the declaration, and, in some cases, have even been surprised by the fact that there is an obligation to report and pay taxes in Canada on the income earned in an Israeli bank account.

If a Canadian taxpayer has an account at an Israeli bank that generated unreported income, that taxpayer may be liable for interest, penalties, and taxes owing, and, in certain circumstances, could be subject to prosecution for tax evasion. Fortunately, the CRA has a Voluntary Disclosures Program in place that can be undertaken in order to minimize, if not eliminate, the possibility of a penalty assessment and prosecution. In order to minimize the possibility of being prosecuted by the CRA for tax evasion, we advise any Canadian taxpayer who may have unreported income from an Israeli bank account to consult with a tax lawyer about the possibility of utilizing the Voluntary Disclosures Program.

How to Qualify for Voluntary Disclosures Program

There are a number of conditions for qualifying for the Voluntary Disclosures Program. A legal advisor can help ensure the qualifications are met while protecting the taxpayer’s rights. Generally, in order to ensure that the disclosure is valid under the CRA program, a taxpayer must satisfy the following four conditions:

  1. The disclosure must be voluntary;
  2. The disclosure must be complete;
  3. The disclosure must involve the application of a penalty; and
  4. The disclosure must include information that is at least one year past due.

A legal advisor can assist the taxpayer by:

  1. Drafting the required submission and filing it in a way that minimizes risk;
  2. Requesting relief from all penalties that would otherwise apply; and
  3. Negotiating the elimination of interest that would otherwise apply.

Since a disclosure must be voluntary in order to be valid, it is important to come forward before the CRA conducts an investigation. If a taxpayer’s Israeli bank provides information to the CRA and the CRA reassesses the taxpayer for taxes owing – it will likely be too late to take advantage of the Voluntary Disclosures Program.