Jan

Tax Evasion and Offshore Accounts

Posted By: David M. Piccolo on January 7, 2011 at 2:05:17 in All , News

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Tax Evasion and Offshore Accounts

According to a report in the January 7, 2011 edition of the National Post, no Canadian taxpayers, whose names were identified as account-holders in Liechtenstein, have been charged with tax evasion. In 2007, the Canada Revenue Agency (CRA) was provided with the names of 106 Canadian taxpayers who held accounts in the small European Principality. Since the names were disclosed, about 25 of those taxpayers filed voluntary disclosures. Also, 67 of those taxpayers were audited by CRA. However, of those 67, only 18 were reassessed for additional tax; the other 49 taxpayers who were audited were not reassessed.

Although the article contains quotes from certain MPs who express outrage over the failure of the CRA to pursue these taxpayers for tax evasion charges, the results of the audit are a clue as to why CRA has failed to act. For the 49 taxpayers who were audited and not reassessed, the probable outcome of the audit showed that those taxpayers did not earn any income from the funds held in Liechtenstein. This can occur with holding accounts in supposed ‘tax havens’, as the financial institutions often charge large fees to administer those accounts. Accordingly, if these taxpayers did not earn any income from these funds, there was no evasion of tax.

However, these taxpayers likely made a false statement on their income tax return by answering no to the question “Did you own or hold foreign property at any time in 20XX with a total cost of more than C$100,000?” and not filing the required T1135 Foreign Income Verification Statement. According to section 239 of the Income Tax Act (the Act), that is may be an offense under the Act. An offense under section 239 of the Act can result in jail time up to two or five years, depending on the method CRA chooses to pursue the charge.
Given the penalties involved in not filing a T1135 and the potential offense under the Act, the best course of action for taxpayers with unreported offshore accounts is still to file a voluntary disclosure application with the CRA.

Originally posted on www.piccololaw.ca, used with permission.

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