Canada: Budget 2013: International Tax Compliance

Budget 2013 contained a number of international compliance measures designed to limit the incidence of non-compliance and evasion with regards to taxpayers' international activities. Several of these measures aim to improve the information gathering capacity of the Canada Revenue Agency (the "CRA") and to increase the consequences of failing to comply with taxpayers' Canadian tax obligations. Budget 2013 also announced the Government's intention to release a consultation paper on "treaty shopping" that would consider approaches to limiting the perceived abuse of Canada's network of bilateral tax treaties.

International electronic funds transfers

Budget 2013 announced the Government's intention to grant the CRA certain additional information gathering powers to better track electronic transfers of money that cross Canada's international borders. The Government expects that these powers will permit the CRA to better understand the international financial activities of Canadian taxpayers to better ensure compliance with certain of Canada's taxing statutes.

Certain Canadian financial intermediaries are already obliged to report international electronic funds transfers ("IEFTs") of $10,000 or more to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) pursuant to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada). Such financial intermediaries generally include banks, credit unions, caisses populaires, trust and loan companies, money service businesses and casinos (collectively, "Financial Institutions").

Budget 2013 proposes to amend the Income Tax Act (Canada) (the "Tax Act"), the Excise Tax Act (Canada) and the Excise Act, 2001 (Canada) to also oblige Financial Institutions to report IEFTs of $10,000 or more to the CRA. A Financial Institution reporting an IEFT to the CRA will be required to supply information on the person conducting the transaction, on the recipient of the funds, on the transaction itself and on the Financial Institutions facilitating the transaction. Such information must be provided to the CRA no later than five business days after the day of the transfer.

Curiously, the Government has placed the obligation on Financial Institutions to report information to the CRA rather than obliging FINTRAC to share such information with the CRA directly. This arguably places an administrative burden on the part of Financial Institutions that might more efficiently have been addressed by permitting information sharing between these two branches of the federal government.

Financial Institutions will be obliged to report such IEFTs to the CRA beginning in 2015.

Information requirements regarding unnamed persons

Budget 2013 proposes measures intended to streamline the procedure the CRA must follow to obtain information on unnamed third parties under its broad investigatory powers.

Currently, the CRA may not require a person to provide information about unnamed third parties without first receiving judicial authorization (i.e., a court order). To obtain such a court order, the CRA must establish that (i) the unnamed person or group of persons is ascertainable, and (ii) the requirement is made to verify compliance by the person or persons in the group with any duty or obligation under the Tax Act. The obligation to obtain such a court order is generally perceived as protection against the CRA engaging in "fishing expeditions".

The Tax Act currently permits the CRA to obtain such judicial authorization on an ex parte basis (i.e. without the party from whom the information will be requested being notified of the court proceeding). As a counterbalance to the inherent inequity of acting on an ex parte basis, the Tax Act permits the party subject to the requirement to apply to have it extinguished or varied within 15 days after service of the request for information. The Government has indicated that such review hearings can cause a significant delay in obtaining the requested information.

The Budget Papers state that the Government rarely obtains judicial authorization to obtain information on unnamed third parties on an ex parte basis. Accordingly, Budget 2013 proposes to eliminate both the CRA's authority to obtain such judicial authorizations on an ex parte basis and the right of the party subject to the requirement to have such a judicial authorization extinguished or varied after service. Instead, the CRA will be obliged to give notice to a person being requested to provide information about unnamed third parties of any proposed authorization hearing before the Federal Court. The proposed amendments to the Tax Act do not otherwise affect the rights of either party to make an appeal to the Federal Court of Appeal where available.

The proposed amendments to the procedure for obtaining documentation on unnamed persons will apply in respect of requests made after the enacting legislation has received Royal Assent.

Foreign reporting – T1135s

Canadian-resident individuals, corporations, trusts and certain partnerships that, at any time during a year, own "specified foreign property" with an aggregate cost amount in excess of $100,000, are required to file CRA Form T1135, Foreign Income Verification Statement (a "Form T1135") with the CRA by the legislated deadline. The Tax Act defines "specified foreign property" to include most types of income-earning property held outside of Canada, other than certain listed exceptions including personal property, property used in carrying on an active business and shares in certain foreign affiliates.

Budget 2013 proposes certain amendments to (i) the content of Form T1135, and (ii) the consequences of failing to file a Form T1135 if required to do so.

a. revised form T1135

Form T1135 currently requires general information about the geographic region in which specified foreign property is located and the income such specified foreign property generates. Budget 2013 proposes revisions to Form T1135 that would require taxpayers to provide a greater level of detail about their specified foreign property. It is proposed that the revised Form T1135 will require taxpayers to provide more specific information regarding each specified foreign property including:

  • the name of the specific foreign institution or other entity holding funds outside of Canada;
  • the specific country to which the property relates; and
  • the foreign income generated from the property.

It is expected that the additional detail provided to the CRA on the proposed Form T1135s will allow the CRA to better administer the tax system and identify foreign non-compliance. Unfortunately, taxpayers will bear the burden of increased compliance costs.

b. extended reassessment period

Budget 2013 proposes to extend the period during which the CRA may reassess a taxation year if a Form T1135 was not properly filed.

Subject to certain exceptions, the CRA is not permitted to reassess a taxpayer outside of the "normal reassessment period". For mutual fund trusts and corporations other than Canadian-controlled private corporations, the "normal reassessment period" in respect of a particular taxation year generally continues for four years after the sending of the original notice of assessment in respect of that year. For other taxpayers, the "normal reassessment period" in respect of a particular taxation year generally extends for three years after the sending of the original notice of assessment in respect of that year.

Budget 2013 proposes to extend the reassessment period for taxpayers for an additional three years for taxpayers that have either (i) failed to file a Form T1135 as and when required, or (ii) failed to report on Form T1135 information required in respect of a specified foreign property held by the taxpayer at any time during that year. Under the proposal, the CRA may only reassess during the additional three year reassessment period if the taxpayer has failed to report an amount in respect of a specified foreign property that is required to be included in computing the taxpayer's income in respect of the applicable year.

Under proposed amendments, it would appear that the extension of the reassessment period is three years notwithstanding that the Form T1135 may be late by less than three years. Accordingly, it is possible, as currently drafted, that a reassessment period could be extended by three years notwithstanding that the Form T1135 was only late by a de minimus period of time. It remains to be seen whether the legislation will be enacted as currently proposed or whether it will be amended to avoid such a harsh result.

It is proposed that the amendments to the reassessment period discussed above are to apply to the 2013 and subsequent taxation years.

Stop international tax evasion program

Budget 2013 proposes to launch the Stop International Tax Evasion Program pursuant to which the CRA will pay rewards to persons that notify the CRA of major international tax non-compliance. It is proposed that the CRA will be permitted to enter into contracts with "whistle blowers" to pay 15% of the federal tax collected (excluding penalties, interest and provincial taxes), conditional upon (i) the additional assessment or reassessment exceeding $100,000 in federal tax, and (ii) the non-compliant activities involving foreign property or property located or transferred outside Canada, or transactions conducted partially or entirely outside Canada.

In proposing such a "bounty" or "whistle blower" program, the Government is following the lead of several other countries that have already established comparable programs, including the United States. The CRA will announce further details about the program at a later date.

Treaty shopping

Canada has entered into a wide network of bilateral tax treaties that limit instances of double taxation and reduce the rates of withholding taxes imposed on various cross-border payments. Generally, the benefits of such treaties are limited to residents of the contracting states. However, the Government has observed that residents of jurisdictions that do not have a bilateral tax treaty with Canada are able to indirectly access the preferential treatment available under such treaties by establishing corporations, or other entities, that are resident in a treaty jurisdiction. The Government has referred to this practice as "treaty shopping".

The Government has attempted a variety of approaches to combat "treaty shopping". For example, the Government has amended the general anti-avoidance rule in section 245 of the Tax Act such that it applies to bilateral tax treaties. The Government has also attempted to deter "treaty shopping" by challenging such arrangements in the Courts. The CRA, however, has been largely unsuccessful with such challenges.1

The Government has also amended tax treaties to limit the scope for "treaty shopping". Such amendments have been either of a general nature or of more limited scope. For example, the Canada-U.S. Income Tax Convention contains a broad "limitation on benefits" clause limiting access to treaty benefits. Conversely, Canada has negotiated other treaties where the "anti-treaty shopping" prohibitions were of more limited scope.2 Although the Government has had some success in combating "treaty shopping" by amending the terms of its bilateral tax treaties, the process for amending each of Canada's treaties is expected to be time consuming and laborious.

Accordingly, the Government announced its intention in Budget 2013 to consult on other possible measures to discourage "treaty shopping". A consultation paper will be publicly released to provide stakeholders with an opportunity to comment.

Footnotes

1 See, for example, Prévost Car Inc v R, 2009 FCA 57 and Velcro Canada Inc v R, 2012 TCC 57.

2 See, for example, the Canada-Hong Kong Income Tax Convention (not yet in force).

The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.

© Copyright 2013 McMillan LLP

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Osler, Hoskin & Harcourt LLP
Miller Thomson LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Osler, Hoskin & Harcourt LLP
Miller Thomson LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions