CRA Needs More Help, Recent Audit Report Reveals

Canada announced in its 2013 federal budget that international tax evasion was at the top of the list of concerns for our nation and that capturing revenue from such sources would help alleviate the tax burdens on other citizens.

Michael Ferguson, the Auditor General, recently released a report stating that to meet that priority, the CRA must bolster its resources to successfully locate and prosecute international tax evaders.

While steps have been taken this year to increase the resources, Mr. Ferguson said that they are still “not prepared for the growing workload in this area. The Agency needs to formalize and communicate its procedures to make sure that it can handle the increased amounts of information it is receiving.”

As a good example of the problem, authorities from the Canada Revenue Agency (CRA) received information from an ex-contract worker of the Liechtenstein-based bank, the LGT Group, who managed to smuggle a CD containing the names of 182 account holders back in 2007. This rogue smuggler left the tiny mountain nation and sold the information to Germany and other countries. Although they were able to ascertain that the account holders emanated from just 81 families, the CRA has had difficulty locating many of them.

When the information was first released about the Liechtenstein evaders it made headlines worldwide. In the United States, the Senate Investigations Committee followed a trail of off-shore banks, ultimately resulting in a charge against the Swiss Bank UBS AG for helping thousands of Americans evade taxes. A US $780-million legal settlement was the result in that case.

The U.S. government estimates that it loses approximately $100 billion in revenue from international tax evasion. Since authorities in the U.S. received notice of the Liechtenstein accounts, 50 taxpayers banking with off shore institutions have been prosecuted.

Back in Canada, it's a different story. Stating that they either could not locate the individuals or that they were dead or had left the country, the CRA decided not to audit 35 of the families. The remaining 46 families were all audited though; 22 of them were reassessed for $24.7-million in additional taxes.

The CRA has not ventured a guess at how much revenue is being lost to such international tax evaders. Amidst an economic breakdown, in 2009 when the news of the Liechtenstein accounts first became public knowledge, Jean-Pierre Blackburn, then National Revenue Minister, stated unequivocally that Canada will find the tax dodgers and the institutions and individuals that assist them. Many are now questioning the CRA’s commitment to that cause and this recent report has revealed that the agency is ill-equipped to deal with the information it is and has been receiving.

Mr. Ferguson stated that the CRA was caught a little off guard by the Liechtenstein file and that the agency had never had to deal with such “extensive informant leads”.

New legislation has given the agency new tools to locate tax evaders internationally, but the report reveals that in order to fight the battles when they are found, the agency requires much more.

Greer Jacks is updating jurisprudence in EverGreen Explanatory Notes, an online research library of assistance to tax and financial professionals in working with their clients.