Tax accountants and lawyers could be the subject of heightened scrutiny from the Canada Revenue Agency (CRA), as the tax authority joins its global peers in attempting to clamp down on aggressive tax avoidance and offshore tax evasion.
Language used in recent federal government statements regarding tax evasion and aggressive tax avoidance “may indicate a shift in the direction in which investigative tools and resources may be used,” says Greg DelBigio, a lawyer in the tax litigation group of Thorsteinssons LLP in Vancouver.
DelBigio says that the CRA’s resources could be used “in respect to taxpayers who may be offside, as well as against professional advisors who have knowingly assisted in facilitating a tax-evasion plan or scheme.”
Timothy Fitzsimmons, partner with Dentons Canada LLP in Toronto, agrees that recent announcements have left little doubt that the CRA views international tax compliance as a priority.
“It’s apparent that the CRA intends to pursue both non-compliant taxpayers and any advisors who counsel such non-compliance,” Fitzsimmons says.
In recent months, the federal government has announced a number of initiatives regarding its fight against aggressive tax avoidance and offshore tax evasion. That includes directing $444.4 million over the next five years to the CRA to hire more auditors, and creating an offshore compliance advisory committee.
These moves are merely the latest steps in a longer-term battle against tax avoidance and offshore tax evasion. The recent release of the so-called Panama Papers, a massive leak of 11.5 million financial documents related to offshore companies listed by a Panamian law firm, has raised the issue’s profile in the public’s mind.
Recently, the CRA issued a statement indicating that “all [CRA’s emphasis] participants in offshore tax evasion and tax avoidance schemes must be identified and brought into full compliance with their tax obligations.”
The CRA went on to state that it would take action against “tax professionals who offer, assist or create opportunities for clients to participate in offshore tax evasion and tax avoidance schemes.”
DelBigio believes that the CRA’s use of the term “tax professional” is deliberate and notable in that it differs from “tax preparer” – a term used to refer to any individual who might offer tax advice and related services.
“When the CRA chose to use the word ‘professionals’,” DelBigio says, “there’s at least a strong suggestion that the focus is upon professionally trained advisors as opposed to others who might offer tax-related services.”
DelBigio notes that the laws that govern tax evasion on the part of a tax professional have not changed, nor have the laws that list the financial penalties for being in violation of these laws. However, the difference lies in the implied meaning in the government’s language.
“The CRA didn’t, but might just as well have said that it is planning to take action against accountants and lawyers,” DelBigio wrote in a blog post on the issue.
While increased enforcement in the area of offshore tax evasion is understandable, remember that most offshore tax planning is perfectly above board.
“Not all international tax planning is aggressive or evasive,” Fitzsimmons says. “Foreign companies invest into Canada, Canadian companies carry on business in other jurisdictions and Canadian individuals may have familial ties to other countries.”
Although the CRA’s increased scrutiny of international tax planning might have a chilling effect on the use of certain aggressive tax planning schemes, most legitimate strategies are likely to continue to be used, says Mitchell Stein, assistant professor of managerial accounting and control at the Ivey Business School at Western University in London, Ont.
“If a professional has suggested a [tax] structure that legally works, then it legally works,” Stein says. “We need to be careful about drawing a line between what we might think is morally acceptable [and] what, from a regulatory point of view, works.”
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