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June 13, 2024

Tax Tips

The Window is Closing on Some Voluntary Disclosures
Subject: Voluntary Disclosures
Number: 13-10
Date: 7/26/2013
the clock is ticking for offshore investors

The Voluntary Disclosures Program (VDP) allows taxpayers to bring their Canadian tax filings up to date, or correct them, without the risk of criminal prosecution or assessment of penalties. The VDP can also be used to allow taxpayers to submit information forms such as T1135s (see Tax Tips 10-05 and 13-09) and T1134s that are more than a year late and would otherwise be subject to late filing penalties. The mechanics of the VDP are not the focus of this tax tip but you can learn more at the CRA website.

It is important to point out that a voluntary disclosure will not be accepted if enforcement action (including a request for a tax return, notification that an audit will begin, or various other actions) has been initiated by the CRA or a provincial tax authority. With more information becoming available to the CRA, the chances of being caught for not reporting income are higher than ever.

The reality now is that information has never been easier for the CRA to obtain. In some cases, the information is made public and, therefore, easily obtained by the CRA. In April of 2013, the CBC reported the existence of a list containing the names of at least 550 Canadians with offshore assets.

In an announcement on May 9, 2013, Gail Shea, the Minister of National Revenue at the time, pointed out that the Canadian Government has a growing network of information sharing agreements, making it increasingly possible for Canada to access information from jurisdictions around the world. More specifically, the United States, Australia, and the United Kingdom announced that they are in possession of tax-related information involving trusts and companies holding assets on behalf of residents around the world. Minister Shea commented that Canada has secured a commitment from the United Kingdom for information relevant to Canada to be shared, and formal requests for sharing have been made to the American and Australian tax administrations for such information. Minister Shea specifically stated that this is "very bad news for tax evaders in this country". She also suggested that taxpayers who have failed to report foreign income and assets should seriously consider the use of the voluntary disclosure program at this time before it is too late.

On June 10, 2013, the CRA announced that it “has received information from international allies that relates to persons resident in Canada with assets offshore.... The data that the CRA has obtained is voluminous and requires substantial review which is currently underway”. So the clock is ticking for offshore investors who have not reported their income and/or filed appropriate information returns.

On June 14 of this year this list (referred to by the CBC) with more than 100,000 offshore entities was made public by the International Consortium of Investigative Journalists.

As clarified in Tax Tip 13-05, there is nothing illegal about offshore accounts. However, not disclosing the existence of these accounts and/or not reporting the income from them accounts can lead to penalties, fines and imprisonment. The penalties for not filing the information returns can result in penalties even if the income has been reported (or there was no income).

We, at the Tax Specialist Group, would never counsel Canadians to under-report income, but we can help those who have. We cannot help if the CRA finds you first. Taxpayers at risk of prosecution and penalties are strongly encouraged to contact a TSG member to discuss the VDP before the window of opportunity closes.

TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.

The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.