Canadian residents (including individuals, businesses, corporations, trusts, and members of partnerships) are required to report their worldwide income for tax purposes. Yet, some Canadians use offshore accounts to avoid reporting income. The Canada Revenue Agency (CRA) classifies this as tax evasion, which is punishable by significant fines or jail under the Federal Income Tax Act. As well, the CRA publishes the names of Canadians convicted of tax evasion.
Recently, the Canadian government has stated its intention to pursue to “the fullest extent of the law” the taxes owing from Canadians with offshore accounts. Furthermore, the government has declared that the full “force of the Canadian law” will be brought against those using offshore bank accounts to avoid taxes. And considering related developments, it appears that the authorities are proceeding as indicated.
In October of 2010, the Canadian and Swiss governments concluded an agreement that would compel the Swiss to provide more information about Canadians using that country as a tax haven. Changes to an existing double-taxation agreement between the two countries suggests that the CRA will have greater access to the information it needs to go after those using foreign jurisdictions to avoid paying Canadian taxes. However, the agreement has to be approved by the Swiss and Canadian Parliaments and will not likely come into effect until 2012.
In addition, the Canada Revenue Agency has been compiling information from other sources regarding the alleged use of offshore accounts to avoid taxes. In one instance, a former head of security at HSBC provided a list of approximately 1,700 Canadian foreign account holders. As well, in May 2010 , the Federal Court of Canada ordered three Canadian banks to provide information related to Canadian accounts in Switzerland. As of September 2010, the CRA has confirmed that more than 1000 offshore bank accounts have been connected to Canadian taxpayers and that each account will eventually be reviewed. Similar operations conducted last year netted more than $1 billion in unpaid taxes.
In the meantime, Canadians wishing to avoid penalties and prosecution can make a voluntary disclosure through the CRA’s Voluntary Disclosure Program (VDP). With the help of our experienced tax lawyers, taxpayers with offshore tax havens can voluntarily disclose that information to the CRA. In addition, the voluntary disclosure department of the CRA has indicated that it will only go back a maximum of 10 years when determining what income is to be reported and taxed under the VDP. See the related article, CRA New Rules for Tax Amnesty (Voluntary Disclosure Canada) for more information.
A voluntary disclosure can be initiated on a no-name basis in order to protect the identity of the account holder. Doing this means the taxpayer can retain anonymity while receiving insight into how his or her situation will be handled by the CRA. Note, to receive a final and official decision the taxpayer is required to disclose his or her identity.
But beware, you can only rely on the voluntary disclosure process before the CRA has initiated any action against you. Generally, you will not be able to rely on the VDP if related contact by the CRA compels you to file a voluntary disclosure. Therefore it is imperative that you seek the help of a tax lawyer before the government acts first.
"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."