Canada tackles international tax evasion

May 21, 2013

Canada announced new measures to combat international tax evasion and aggressive tax avoidance in the March 21, 2013 federal budget. Current reporting by Canadian financial institutions of international wire transfers above CAD$10,000 for anti-money laundering purposes will also be sent to the Canada Revenue Agency (CRA), a whistleblower program will be launched, and reporting of foreign property broadened. A complete summary of Budget 2013 is available on the firm's website.

On May 8, the Canadian government also committed $30 million of additional funds to the CRA to crack down on international tax evasion.

Wire Transfer Reporting to the CRA

Budget 2013 will require certain financial intermediaries, including banks, credit unions and trust and loan companies, to report international wire transfers of $10,000 or more to the CRA within 5 days. The reporting requirement will mirror those currently imposed for anti-money laundering purposes and require disclosure of information on a transaction, the participants of a transaction and the financial intermediary. This obligation will apply from 2015.

Whistleblower Program

Budget 2013 also announced the launch of the "Stop International Tax Evasion Program". Under the program the CRA will agree by contract to reward individuals for providing information to the CRA that results in the collection of additional federal tax exceeding CAD$100,000. The reward will be up to 15% of the tax collected, and the non-compliant activity must relate to foreign property or transactions or to cross-border transactions. The reward will be taxable income. The CRA will release further details on the program.

Foreign Property Reporting

Canadian resident individuals, trusts and corporations are required to report "specified foreign property" annually to the CRA where the cost of that property exceeds CAD$100,000. Form T1135 (entitled "Foreign Income Verification Statement") will be revised to require broader disclosure including the name of the foreign institution or entity that holds the assets, the country where the assets are located and the income generated from the property. The CRA is developing a system to permit the form to be filed electronically.

Budget 2013 also extends the period in which the CRA can audit a taxpayer. The normal reassessment period (three years for individuals) will be extended by a further three years if Form T1135 is not filed on time or it is incorrectly completed. These measures apply from 2013.

Voluntary Disclosure Program

Canada has a longstanding voluntary disclosure program. If the CRA accept that a taxpayer qualifies for the program, the CRA will waive penalties, will not prosecute and may partially waive interest. The disclosure can be commenced on a no-names basis. One of the conditions for a valid disclosure is that a taxpayer must not be under audit or be aware that the CRA has an intention to begin an investigation in relation to the taxpayer. Accordingly, Canadian taxpayers concerned with potential past defaults should seek advice on a voluntary disclosure before the CRA finds them.

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