The CRA announced a new and aggressive campaign to crack down on international tax evasion and will have significant additional information-gathering powers:
- The CRA will be able to reward whistleblowers with up to 15% of the tax collected as a result of information received.
- Financial institutions and others who report international electronic funds transfers to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) will be required to report these transfers to the CRA.
- The CRA’s process for obtaining taxpayer information from third parties such as banks will be streamlined.
- Taxpayers with foreign assets and income will have additional reporting requirements, and non-compliant taxpayers will be subject to extended limitation periods for reassessment.
Civil penalties for failing to report foreign transactions, assets and income can be extremely onerous. These penalties are based on either the cost or fair market value of the underlying assets. As a result, these penalties can be greater than the unpaid tax. We recently saw an assessment for civil penalties of five times the unpaid tax. The fines and penalties for criminal tax evasion can be no more than 200% of the amount of tax evaded, in addition to the risk of imprisonment.
The CRA offers a voluntary disclosure program to taxpayers who want to avoid these civil penalties and the risk of fines and imprisonment for criminal tax evasion. Any taxpayer who has omitted to report transactions, assets or income to the CRA can come forward to rectify their non-compliance. To qualify under the voluntary disclosures program, the disclosure must be commenced before any CRA enforcement action.
A successful disclosure under the voluntary disclosures program also allows the CRA to reduce the interest assessed on unpaid tax for years disclosed that are before the most recent three taxation years. The program has enabled tens of thousands of taxpayers to remediate their past non-compliance while bringing billions of dollars of unpaid tax into federal coffers.