The federal government continues to bolster its efforts to fight offshore tax evasion and aggressive tax avoidance, recently announcing that it has established a team of experts at the Canada Revenue Agency (CRA) and will be providing the agency with $30 million over the next five years to crack down on offshore tax evaders.
The dedicated team, the creation of which was announced in May, will be charged with implementing the anti-international tax evasion and avoidance initiatives the government proposed in the 2013 federal budget. The CRA group also will make sure that the full range of CRA resources are directed at those taxpayers not reporting their income from international property.
Although tax professionals laud Ottawa’s efforts to ensure that Canadians don’t hide money offshore, they also maintain that the government’s anti-international tax evasion and avoidance initiatives will have the inadvertent but unfortunate consequence of increasing the compliance burden on the many individuals who own assets outside of Canada but who comply with all their tax obligations each year.
“I’m in favour of the CRA making sure everybody pays their fair share,” says Joanne Swystun, director of wealth management at Tacita Capital Inc. in Toronto. “And I’m in favour of the offshore income information initiative. I just think it’s a shame that honest investors who are simply trying to put together a good portfolio to take them through to their winter years get caught up in so much compliance.”
Budget 2013 initiatives include changes to the rules for reporting of “specified” foreign financial assets with a total cost of more than $100,000, owned at any time in a taxation year. Specified foreign financial assets include most types of international property that produce income, but excludes personal-use property and property used in carrying on a business.
Starting in the 2013 tax year, changes to Form T1135: Foreign Income Verification Statement will require Canadians who hold more than $100,000 in specified foreign financial assets to provide the name of the foreign institution in which the amounts are held. Such taxpayers also must list the country to which the assets relate and declare the foreign income generated by each of these assets.
Form T1135 has to be filed each year, with a penalty of $25 a day for each day it’s late, up to a maximum of $2,500 a year. The Canadian government also says that beginning in 2013, it will remind taxpayers about these obligations on their assessment notices if they have reported foreign property covered by the new rules.
“For people who are reporting all their income on their return as they should,” says Swystun, “it’s an additional administrative burden.”
Budget 2013 also includes a new whistleblower program that would pay individuals for information leading to the identification of tax evasion or avoidance.
In addition, banks and other financial services firms must report any individual international electronic transfers of more then $10,000 to the CRA, in addition to reporting such transactions to the Financial Transactions and Reports Analysis Centre of Canada.
The federal government’s various anti-international tax evasion and avoidance initiatives are consistent with recent announcements that target non-compliance, and match similar efforts made by governments around the globe.
As Gabrielle Richards, partner with McCarthy Tétrault LLP in Toronto wrote in a tax bulletin published in May: “These measures arrive at a time of increased social activism, media attention and political interest in one’s ‘fair share’ of taxes being paid internationally. Further, revising deficits and falling tax revenues may be a reason for the recent focus by tax administrators on tax abuse.”
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