CRA Serious About Cracking Down on Tax Evasion and Avoidance

The Canada Revenue Agency (CRA) is taking its fight against non-compliance by offshore tax evaders to a new level, as 85 Canadians are investigated and 60 tax audits have been initiated, as reported by news media this week.   This is the result of searching millions of files and identifying 2600 Canadians with a link to the abuse.

“This is not fair and has to stop,” says an article on the CRA website posted this week.  Noteworthy is the edgy tone and strong language which reflects how serious the agency is about this issue: “Tax schemes rob Canadians of important resources and deprive all levels of government of tax revenues that provide essential services to all Canadians.”

The CRA is quick to point out that most Canadians file and pay their taxes on time; in fact, Canada has one of the highest rates of voluntary tax compliance in the world. However, they have their sights set on the small minority who are deliberately avoiding their tax obligations, estimating that they are on track to identify $1 billion in income that would otherwise have been hidden—up 400% over the last six years.

Aggressive action against tax evasion and avoidance is clearly a government priority. At a time when many departments and programs had been facing cutbacks, Budget 2016 announced funding to improve CRA’s ability to combat tax avoidance across all jurisdictions of concern, domestically and internationally.

As a result, CRA is gathering intelligence on a global scale at an unprecedented level, going beyond the scope of traditional audit teams within Canada and cooperating with international partners to crack down on offshore non-compliance in particular.

Here are some of the ways in which CRA is taking action on tax evasion and aggressive tax avoidance, based on their recently posted information on the subject:

• Reviewing high-value, cross-border money transfers: Since January 2015, Canadian financial institutions have been required to report every international electronic funds transfer (ETFs) of $10,000 or more to assist CRA in identifying anyone who may be deliberately avoiding tax obligations by trying to hide income and assets offshore.
   
• Cooperation and information sharing with international partners: Canada has long been part of a  global network, including many organizations such as the Organization for Economic Co-Operation and Development (OECD), working as partners to create opportunities for business, promote international tax standards, and to reduce tax barriers globally. The government is now actively using this global network to ensure that individuals and corporations are not hiding assets offshore that that all Canadian taxpayers fulfill their tax obligations.
  
  By extension, Canada has one of the largest tax treaty networks in the world, comprising 92 tax treaties, 22 tax information exchange agreements (TIEAs), and others. These treaties facilitate the exchange of information on a global scale, helping CRA identify non-compliance and take action to stop it.
   
• Identifying promoters of aggressive tax schemes: CRA is going to the source, focusing on those who create tax-avoidance schemes and promote them to taxpayers and levelling serious penalties against them, including fines and criminal prosecution.
   
• Reviewing transactions by multinational corporations: Large multinational companies routinely employ tax schemes to artificially shift profits offshore and minimize their tax obligations in Canada. CRA deems this aggressive tax avoidance and is getting serious about ensuring that these global operations are more transparent about their reporting and that they pay appropriate taxes in the countries where profits are generated. In May 2016 Canada signed on to the Multilateral Competent Authority Agreement (MCAA), which requires stronger country-by-country reporting on the part of these multinational companies.
   
• Reporting of foreign assets: The Voluntary Disclosure Plan (VDP) allows taxpayers to correct a tax return previously filed or to file a return they neglected to file, increasing the rate of compliance.
   
• Inviting Canadians to come clean on their tax affairs: The Voluntary Disclosure Plan (VDP) allows taxpayers to correct a tax return previously filed or to file a return they neglected to file, increasing the rate of compliance.
   
• Creating a whistle-blowing program: CRA encourages anonymous reporting of any information on offshore tax avoidance through the Offshore Tax Informant Program (OTIP). And you may be surprised by how many people are willing to give up information this way: As of August 31, 2016, there have been 899 calls and 378 written submissions from potential informants, and over 190 taxpayers are currently under audit thanks to this program.

Bottom line:  don’t be caught in the CRA’s tax net as they fish far and wide for anyone avoiding or evading paying taxes. Even inadvertent failure to comply with your tax obligations can incur serious penalties and potential prosecution. Consult a DFA-Tax Services Specialist or an MFA-Business Service Specialist to be sure you stay above the law.

Additional Educational Resources:  January Advanced Tax Update - The Distinguished Advisor Workshop is coming to six cities in 2017.

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