Canada: International Aggressive Tax Avoidance And Tax Evasion

Last Updated: May 15 2013
Article by Gabrielle M.R. Richards

Canada's 2013 federal budget (Budget 2013) released on March 21, 2013 introduces a number of measures to strengthen the ability of the Canada Revenue Agency (CRA) to address international aggressive tax avoidance and to combat international tax evasion so as to maintain and protect Canada's tax base. These measures reflect the trend in other countries such as the United Kingdom, where the March 20, 2013 budget announced significant new measures on tax avoidance and tax evasion (including "name and shame") to increase tax compliance. 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 administrations on tax abuse. The Forum on Tax Administration (FTA), which actively shares information among G20, OECD and non-OECD countries, has identified compliance with tax laws as a key challenge facing tax administrations in the 21st century.

Coincidentally, on April 4, 2013 the International Consortium of Investigative Journalists (ICIJ) released information gathered from an investigation into the world of offshore money, which investigation revealed a global tax evasion web of named individuals and groups, including 450 Canadians.

The CRA quickly responded to the media coverage of the ICIJ release and urged Canadians to provide information on suspected cases of tax avoidance or evasion through the existing Informant Leads Program and to take the opportunity, if necessary, to correct their own tax affairs through the use of the Voluntary Disclosure Program. In an announcement April 9, 2013, supported by a written request, the CRA called upon the ICIJ as well as to the Canadian Broadcasting Corporation (CBC) to provide the CRA with the information. Since the ICIJ has publicly stated that it will not provide any government agencies with access to the files that form the basis of its reporting, the CRA will need the Budget 2013 measures discussed below to address international tax non-compliance.

"Whistleblower" Program

Budget 2013 announced the CRA's intention to launch Stop International Tax Evasion Program (SITEP), a "whistleblower" program under which the CRA will pay rewards to individuals who provide information that identifies major international tax non-compliance. As noted above, currently the CRA accepts information under the Informant Leads Program, including information provided anonymously, but does not pay for the information.

Under SITEP, the CRA will enter a contract with an individual where information provided relating to major international tax non-compliance leads to the assessment and collection of additional taxes in excess of C$100,000. A payment for a percentage of the federal taxes collected will be made to the individual, subject to certain conditions, including:

  • all appeal rights associated with the assessed tax have expired
  • the federal tax has been collected
  • the information is not related to tax evasion for which the individual has been convicted

Anonymous submissions will not be accepted, although the identity of the individual who enters into
a contract with the CRA will not be revealed without consent, to the extent possible under the law. The payments will range from 5% to 15% of the federal tax collected, based on the quality and extent of information provided. No payment will be made in respect of penalties, interest or provincial/territorial taxes. Payments will be included in taxable income in the year received and if the individual is a non-resident of Canada, will be subject to withholding tax.

This initiative follows the lead of other tax administrations, including those of the United States, the United Kingdom and Germany, who have been successful in detecting international tax non-compliance by paying for information. The CRA will provide further details regarding SITEP in the coming months.

International Electronic Funds Transfers

Currently, certain financial intermediaries must report international electronic funds transfers (EFTs) of C$10,000 or more to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. The financial intermediaries include banks, credit unions, caisses populaires, trust and loan companies, money service businesses and casinos. The EFT reports must be made within five working days after the day of transfer and contain detailed information.

Budget 2013 proposes that starting in 2015, financial intermediaries will be required to report international EFTs to the CRA in addition to FINTRAC. The CRA will develop a streamlined approach for the electronic submission of the report in consultation with the financial intermediaries.

The information will be used in the administration of the federal Income Tax Act (ITA), Excise Tax Act (ETA) and the Excise Act, 2001 (EA).

Information requirements regarding unnamed persons

Currently, the ITA, the ETA and the EA contain rules allowing the CRA to require third parties to provide information or documents for the purposes of verifying tax compliance by unnamed persons, subject to obtaining prior judicial authorization on ex parte application (i.e., without the CRA being legally required to notify the third party of the application). Budget 2013 proposes to eliminate the ex parte aspect of these applications and to require the CRA to give notice to the third party when it seeks judicial authorization. As a result, the third party will need to make submissions at the hearing of the application, rather than seeking a subsequent review of the original ex parte order. This new measure will apply on Royal Assent to the enacting legislation.

The stated rationale for this change is to speed up the audit process and allow the CRA faster access to information on unnamed individuals for the purposes of civil actions. It also addresses the lack of success of the CRA in such cases as Lordco Parts Ltd.1 and RBC Life Insurance Co.,2 where the Federal Court of Appeal imposed strict limitations on the Crown in ex parte requests.

Foreign reporting requirements

A Canadian-resident individual, corporation or trust that owns, and certain partnerships that own, at any time in a taxation year, specified foreign property (including foreign deposits and shares of foreign corporations) with an aggregate cost in excess of C$100,000 must file a Foreign Income Verification Statement (Form T1135) with the CRA. The purpose of this requirement is to enable the CRA to determine whether the taxpayer's foreign income has been reported correctly. The form is required to be filed even if the taxpayer has no tax payable during the year.

Effective for 2013 and subsequent taxation years, Budget 2013 proposes to extend the normal reassessment period for a taxation year of a taxpayer by three years if the taxpayer has failed to report income from a specified foreign property on the taxpayer's annual income tax return, and the taxpayer has not filed Form T1135 on time, has not identified a specified foreign property on Form T1135 or has improperly identified a specified foreign property on Form T1135. Budget 2013 also proposes to revise Form T1135 to be used in the 2013 and subsequent taxation years so that it requires taxpayers to include the name of the institution holding funds on the taxpayer's behalf outside of Canada, the country to which the property relates and the foreign income generated from the property. Budget 2013 indicates that starting in 2013, the CRA will remind taxpayers on their Notices of Assessment of the obligation to file Form T1135 if they have indicated on their income tax returns that they have specified foreign property in the taxation year with a total cost of more than C$100,000. Finally, the filing instructions on Form T1135 will be clarified, and CRA will develop a system that will allow Form T1135 to be filed electronically.

Treaty shopping

Canada continues to actively negotiate and conclude or amend tax treaties and tax information exchange agreements (TIEAs) to support international trade and investment and to combat international tax evasion and avoidance. In some circumstances, the benefits conferred under Canada's tax treaties are effectively enjoyed by residents of third countries that are not a party to the particular treaty, through the use of intermediaries or other means. This practice is referred to as "treaty shopping".

To date, challenges to treaty shopping generally have been unsuccessful in Canadian courts, whether based on the general anti-avoidance rule (GAAR) (see MIL Investments Inc.,3 discussed in Tax Update August 2009) or the "beneficial owner" of income approach (see Velcro Canada Inc.4 and Prévost Car Inc,5 discussed in Tax Update April 2012). The limitation on benefits provisions of the Canada-U.S. tax treaty as well as the anti-treaty shopping provision in each of the dividend, interest and royalty articles in other recent tax treaties such as the treaties with Hong Kong, New Zealand and Poland, are examples of other tools to challenge treaty shopping.

In Budget 2013, the government acknowledged its lack of success in court cases and announced its intention to consult on possible measures to protect the integrity of Canada's tax treaties while preserving a business tax environment that remains conducive to foreign investment. A consultation paper will be publicly released to provide an opportunity to comment on possible measures.


1 2013 FCA 49.

2 2013 FCA 50.

3 2006 TCC 460.

4 2012 TCC 57 (TCC).

5 2008 TCC 231, aff'd 2009 FCA 57.

To view original article, please click here

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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

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

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
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please 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 (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

To Use 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.


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.


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