Nov

It’s time for individuals to disclose offshore bank accounts to Canada Revenue Agency

Posted By: Jonathan Crangle on November 8, 2012 at 2:32:36 in All , News

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After five years of research on overseas tax havens, Senator Percy Downe’s efforts to curb tax evasion appear to be gathering steam (see Jordan Press, “Liberal Senator wants Harper’s help to hunt down Canadians hiding cash in overseas tax havens” Postmedia News (5 November 2012)).

Sen. Downe and a growing number of MP’s in the House of Commons are taking their case to the Prime Minister’s Office with the hope that CRA will step up its efforts to crack down on Canadians hiding assets abroad. This renewed focus on tax evasion and offshore accounts suggests that Canadians with undisclosed offshore assets should think about submitting a voluntary disclosure application to the CRA through the Voluntary Disclosures Program (VDP) before they come under CRA scrutiny, after which it is too late.

A taxpayer with offshore accounts who submits a voluntary disclosure with CRA would need to pay any tax owing over the prior ten years. However, the taxpayer would not be liable for any penalty or prosecution as a result of the disclosure. Additionally, the CRA may reduce the interest charged on outstanding tax owing as a result of the disclosure.

To qualify for the VDP, the application must meet the following criteria:

1. The disclosure must be voluntary—a disclosure will not be considered voluntary if it results from enforcement action by CRA;

2. The disclosure must be complete;

3. The disclosure must involve an actual or potential penalty; and

4. The disclosure must include information that is at least one year past due.

Canada has been signing an increasing number of tax information exchange agreements and tax treaties with other countries. To date, Canada has signed 113 tax treaties and tax information exchange agreements. These agreements allow Canada to request information on tax abusers for use in criminal, tax or civil investigations. Known tax havens have been targeted to sign such agreements and curb tax abuse.

In light of the increased efforts by Canada to sign tax treaties and tax information exchange agreements, and an increased focus on tax evasion, it’s time for those with offshore accounts to disclose their assets to CRA and prevent possible prosecution and penalties. As noted in the article, these penalties can be double the tax on the civil side, and prison time if the government opts to go with a criminal prosecution. In our experience, given weak returns in Canadian dollar terms over the past decade, and the impact of the 2008-2009 financial crisis on many offshore portfolios, account holders now have a once-in-a-lifetime opportunity to get undisclosed accounts back on-side at a reduced cost.

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