Canada is tackling international tax evasion and aggressive tax avoidance. It has adopted several measures to do so including a whistleblower program and expanding reporting of international wire transfers to the Canada Revenue Agency (CRA). The Canadian government is also investing C$30 million with the CRA to strengthen compliance and audit efforts.
Canada signed the OECD's Multilateral Competent Authority Agreement (MCAA) on June 2, 2015 after committing in the April 21 federal budget to propose legislation to implement the Common Reporting Standard (CRS). Information received by the CRA under the CRS, including income, account balances (or values) and social insurance numbers, will continue to increase CRA efficiency in curbing international tax evasion.
These developments and Canada's long-standing voluntary disclosure program are discussed below.
Wire transfer reporting to the CRA
From January 1, 2015, certain financial intermediaries, including banks, credit unions and trust and loan companies are required to report international wire transfers of $10,000 or more to the CRA. This applies to the same financial intermediaries that are already reporting information on international electronic funds transfers to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) for anti-money laundering purposes.
On January 15, 2014, the Offshore Tax Informant Program (OTIP) was launched. The program was part of a larger package of reforms announced in Budget 2013 under the "Stop International Tax Evasion Program" and allows the CRA to give financial compensation to individuals who provide information relating to major international tax evasion which leads to the collection of taxes owing of at least $100,000. The amount awarded will be between 5% and 15% of the federal tax collected. In the first twelve months of OTIP (January 2014 to January 2015), 1,712 calls were received with 113 being eligible for the program.
Common Reporting Standard
As noted above, Canada joined the CRS on June 2, 2015 by signing the MCAA. Canada has committed to starting CRS from July 1, 2017 with the first exchanges of information to, and from, Canada scheduled for September 2018. Draft legislative proposals will be released for comment in the coming months.
CRS requires financial institutions to obtain client information for automatic exchange with participating jurisdictions on an annual basis. The CRA will therefore receive information on Canadian residents from over 90 other countries participating in the CRS. This information will include gross income, details of ownership in foreign entities, partnerships, trusts and foundations, account balances (or values) and Canadian Social Insurance Numbers. Similarly, Canadian banks and other financial institutions will need to collect financial account information on accounts held by residents of participating countries and report this to the CRA. The CRA will then automatically exchange this information to the foreign tax authorities where the account holder resides.
Voluntary disclosure program
Canada has a longstanding voluntary disclosure program. If the CRA accepts that a taxpayer qualifies for the program, the CRA will waive penalties, will not prosecute and may partially waive interest. The disclosure can be commenced on a no-names basis. The conditions for a valid disclosure include (i) that a taxpayer must not be under audit or be aware that the CRA has an intention to begin an investigation in relation to the taxpayer, and (ii) the taxpayer must provide complete disclosure.
Figures released by the CRA show that the number of voluntary disclosures of offshore income and assets has nearly doubled in the year ended March 31, 2015 from the previous 12 months with unreported income increasing to almost C$800 million. Further, more than 10,000 voluntary disclosures of offshore activities were made in the past year, up from 1,215 in 2006-07. The pace of voluntary disclosures is likely to continue as the measures discussed above take effect.
Canadian taxpayers concerned with potential past defaults should seek advice on a voluntary disclosure before the CRA initiates an investigation.