Canada’s auditor general Michael Ferguson complimented the Canada Revenue Agency (CRA) for its efforts in cracking down on Canadians with offshore accounts, in his latest report released Tuesday.
The report says that the Canada Revenue Agency properly handled its initial investigations into the affairs of Canadian taxpayers with offshore accounts; but that it needs more formal procedures for dealing with its growing workload in this area.
The auditor general’s report, among other things, looked at the CRA’s handling of a list of Canadian taxpayers that it received in 2007 from an informant, containing information on 182 supposed Canadians with accounts at a bank in Liechtenstein. It examined whether the CRA adequately conducted compliance actions for those named on the list and used the intelligence gained to confirm or update its detection and audit procedures for offshore banking.
“Overall, the agency managed the Liechtenstein list as intended, with the information and tools it had,” it says. It reports that the CRA organized the 182 names on the list into 81 family groups. Of those 81 groups, 35 were not audited because the agency either determined that the taxpayers were not residents of Canada, were deceased, or it was unable to identify or locate the taxpayers.
“For the taxpayers the agency was unable to locate, our audit showed that on the basis of the information it had, there was little more the agency could do to confirm the identity and location of those taxpayers,” it notes. Of the 46 audits it did complete, 23 led to reassessments totalling $24.65 million in federal tax, interest, and penalties, it says.
It notes that the agency signed agreements with some taxpayers to gather information about the structure of the investments and the details of the income earned. In exchange for full disclosure, and paying the amounts owing, the CRA agreed to waive referrals for potential criminal investigation. “The agreements were a key tool for the agency to learn about the set-up of the offshore accounts—information that it can then use to audit other taxpayers who have similar arrangements,” it says.
The report notes that auditing based on extensive informant leads for offshore accounts was a new area for the agency; and, the audits largely relied on informal approaches. It also introduced some new audit procedures, “and the work it has initiated on detecting non-compliant taxpayers is promising,” it says.
However, the report also found that the CRA is not prepared for the growing workload in this area. This year’s federal budget also announced several new measures designed to step up the fight against international tax evasion.
“The agency needs to formalize and communicate its procedures to make sure that it can handle the increased amounts of information it is receiving,” the report says. To that end, the report makes several recommendations; and, it notes that the CRA agrees with all of the recommendations.
“The CRA accepts all recommendations made by the Auditor General to further strengthen its capacity to address non-compliance by taxpayers who have offshore holdings. Action plans to address the recommendations are currently underway,” said Kerry-Lynne Findlay, minister of national revenue, in response to the report.
“I am pleased that the Auditor General’s audit has confirmed that the Canada Revenue Agency appropriately managed the information it received in 2007 on potentially undeclared income in offshore accounts in Liechtenstein,” she added.