In Budget 2019 the federal government continues to bolster its tools and resources to detect and prosecute tax evasion. These proposals are relevant both to:
- those who do not pay the amount of tax that the law requires; and
- tax professionals who either intentionally or inadvertently offer services to those who are outside of the law.
The budget states that the government is "cracking down on tax evasion and aggressive tax avoidance". It will do this through significant investments, which will:
strengthen the Canada Revenue Agency's (CRA's) ability to unravel complex tax schemes, increase collaboration with international partners, and ultimately bring offenders to justice.
As such, several measures have been proposed:
- Audit teams will continue to focus on "high net worth individuals and their associated corporate structures". The budget reports that there are currently more than 1,100 offshore audits being conducted, which have resulted in "more than 50 criminal investigations with links to offshore transactions". It is unknown how many of these investigations have or will translate into prosecutions.
- A new C$150.8 million investment over the next five years will fund new initiatives, including hiring more auditors to "target non-compliance associated with cryptocurrency transactions and the digital economy".
- The technology used to analyse information as it relates to the detection of tax evasion and aggressive tax avoidance will be improved through a C$65.8 million investment over five years.
- A commitment has been made to "improv[e] corporate transparency so that Canadian authorities can more clearly know who owns which corporations in Canada". As such, "beneficial ownership information" for federally incorporated corporations will be "more readily available to tax authorities and law enforcement".
- Interestingly, under the first phase of this initiative, it is the police – not the CRA – that will be given more resources. In addition, under this first phase, resources will be allocated to "address gaps in information sharing". Further, a team will be created:
across intelligence and law enforcement agencies to strengthen inter-agency coordination and cooperation and identify and address significant money laundering and financial crime threats.
- The budget also proposes "complementary legislative measures to strengthen Canada's legal framework and support operational capacity" and these would include "new tools for investigators and prosecutors".
Some of these proposals engage significant privacy concerns. For example, opening the tap on the flow of information between Canadian and international agencies will certainly make it easier for tax evasion to be audited, investigated and prosecuted. However, this is not the test for constitutionally justifying a loss of privacy.
Some budget proposals never come to be. However, there can be no doubt that the government's focus on tax compliance continues to intensify and that standards have changed when it comes to what files might be audited, investigated or prosecuted. For some taxpayers, this might mean that careful consideration must be given to whether a voluntary disclosure should be made to the CRA for past misstatements or omissions in tax filings. With increased resources, information sharing and cooperation between tax and law enforcement agencies within Canada and internationally, the risk of detection will increase.
For tax professionals representing clients in high-risk audits, it is imperative to understand how:
- an audit can potentially shift to a criminal investigation;
- information or documents provided in the course of an audit can potentially be used as part of an investigation or prosecution of a client; and
- to protect a client's interests in these circumstances.
Finally, for tax professionals themselves, increased vigilance is needed to ensure that a client's wishes do not result in the professional becoming:
- ethically or legally compromised; or
- the target of an investigation themselves.
More so than ever, tax professionals should be well acquainted with the definitions of 'tax evasion', 'proceeds of crime', 'money laundering', 'aiding', 'abetting', 'conspiring', 'wilful blindness' and now 'recklessness' to ensure that the services and advice that they offer to their clients cannot be construed as the commission or facilitation of a criminal offence.
This 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.