On April 3 2013 several media outlets, including the Canadian Broadcasting Corporation (CBC),(1) revealed the existence of leaked financial documents apparently showing that more than 130,000 people throughout the world have placed funds in offshore tax havens. The leaked documents originated from the Washington DC-based International Consortium of Investigative Journalists. Reportedly, more than 450 Canadians were among those on the list. As of April 13 2013 the CBC had revealed the name of only one of the Canadians on the list, but has indicated that it continues to review the leaked materials.

Canada's minister of national revenue and the federal tax authority, the Canada Revenue Agency (CRA), have publicly indicated that they are exploring legal options for obtaining access to the documents, and have made requests of both the International Consortium of Investigative Journalists and the CBC.(2) On April 12 2013 the commissioner and chief executive officer of the CRA wrote an open letter to the CBC asking for the leaked materials so that the CRA "may review and take action according to its mandate" to combat offshore aggressive tax avoidance and tax evasion.(3) The CRA has assured the CBC it is not asking for the source of the information, and that it will treat any information provided "with strict confidentiality in the same manner it treats all taxpayer information it receives".

While there is nothing illegal about investing money offshore, it is an offence not to report income to the tax authorities. Canadian residents are taxed on their worldwide income, and it is obvious from the tone of the public discourse over the leaked documents that there is an expectation that the documents will reveal that many Canadians have been hiding money offshore. The Canadian government and the CRA have taken increasingly aggressive measures to crack down on international tax evasion, including several measures that were contained in the recent federal budget for 2013.(4) Indeed, on April 15 2013 the minister of national revenue issued a news release pointing out that the number of audit positions in the CRA's International Audit Programme has increased by nearly 40% since 2006.(5)

These events have raised numerous and interesting issues, including:

  • privacy concerns;
  • the extent to which the leaked materials can be used to prosecute tax offences (which may turn, at least in part, on how the documents were obtained); and
  • the legal means that can be used by tax authorities to obtain access to the documents.

For example, in Canada there is a line of authority,(6) which confirms that the CRA may not use its civil powers (eg, the power to compel documents from third parties in the course of a civil audit) to conduct criminal investigations. Criminal investigations engage rights enshrined in Canada's Charter of Rights and Freedoms,(7) including rights to privacy and rights to be secure against unreasonable search and seizure.

However, for Canadian taxpayers, the recent revelations will have heightened the need to consider making voluntary disclosures where unreported amounts have been invested offshore. The CRA implements a voluntary disclosures programme, which allows affected taxpayers to avoid civil penalties and criminal prosecution if they reveal the unreported amounts to the CRA before the initiation of enforcement action being undertaken by the CRA or other authorities or administrations. Affected taxpayers must then pay the outstanding tax and interest on the unreported amounts.

In order for a voluntary disclosure to be considered valid, it must meet several conditions that are outlined in CRA's relevant policy statements.(8) Valid voluntary disclosures must be 'voluntary', in the sense that the taxpayer initiates the disclosure before the CRA initiates enforcement action that is likely to have uncovered the information being disclosed. Valid voluntary disclosures must also:

  • be complete (ie, the disclosing taxpayer must reveal omissions for all taxation years and all tax accounts with which the taxpayer is associated);
  • involve the application or potential application of a penalty (cases of unreported amounts secretly invested offshore will involve penalties); and
  • include information that is at least one year overdue.

It will be interesting to see how the ongoing public discourse between the CRA and the CBC plays out in the press and, potentially, in Canada's courts. In the meantime, Canadian taxpayers who feel that they might benefit from the voluntary disclosures programme should contact their professional advisers as soon as possible in order to help ensure that a valid disclosure is possible at all.

For further information on this topic please contact Salvatore Mirandola at Borden Ladner Gervais LLP by telephone (+1 416 367 6000), fax (+1 416 367 6749) or email (smirandola@blgcanada.com).

his article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.Endnotes

(1) See April 3 2013, "Senator's husband put $1.7M in offshore tax havens" (www.cbc.ca/news/canada/story/2013/04/03/merchant-offshore-trust.html).

(2) See April 4 2013, news release, "Statement from the Canada Revenue Agency" (www.cra-arc.gc.ca/whtsnw/tms/sttmnt130404b-eng.html); April 4 2013, "Statement from the Honourable Gail Shea, Minister of National Revenue" (www.cra-arc.gc.ca/whtsnw/tms/sttmnt130404-eng.html); April 9 2013, news release, "Minister Shea highlights new initiatives to crack down on International Tax Evasion" (www.cra-arc.gc.ca/nwsrm/rlss/2013/m04/nr130409-eng.html); and April 9 2013, "Revenue minister explores 'legal options' to get CBC tax haven list" (www.cbc.ca/news/canada/prince-edward-island/story/2013/04/09/tax-haven-shea-cra-cbc-request.html).

(3) Letter from A Treusch, CRA to the Canadian Broadcasting Corporation, April 12 2013 (www.cra-arc.gc.ca/nwsrm/rlss/2013/m04/nr130412-eng.html). TNI Doc 2013-9021.

(4) See Canada, Jobs, Growth and Long-Term Prosperity, Economic Action Plan 2013 [2013 federal budget], Annex 2, under heading "International Tax Evasion and Aggressive Tax Avoidance" at pages 365-9 (www.budget.gc.ca/2013/doc/plan/budget2013-eng.pdf).

(5) April 15 2013, news release, "Minister Shea highlights on the Harper Government's efforts at cracking down on international tax evasion and aggressive international tax avoidance" (www.cra-arc.gc.ca/nwsrm/rlss/2013/m04/nr130415-eng.html?utm_source=mediaroom&utm_medium=eml).

(6) See especially R v Jarvis (2002 SCC 73) and R v Ling (2002 SCC 74).

(7) Canadian Charter of Rights and Freedoms, Part I of the Constitution Act, 1982, being Schedule B to the Canada Act 1982 (UK), 1982, c 11.

(8) See especially Income Tax Information Circular IC00-1R3, March 21 2013, "Voluntary Disclosures Program". More generally, see P Lindsay and S Mirandola, "Resolving Tax Disputes in Canada", TNI, June 11 2012 at 1043.