Lately I've noticed a number of articles regarding bank
accounts held offshore by Canadian residents. Coincidentally, the
increased media attention has occurred while leaks about offshore
account information abound.
While there's nothing wrong with having a bank or investment
account in a tax haven, if you're a resident of Canada, you
must report any income or capital gains earned in those offshore
accounts on your Canadian tax return. Failure to report income on a
Canadian tax return can result in significant penalties on top of
the taxes payable and resulting interest.
In most cases, it's unlikely that much, if any, of the
income or capital gains earned in such offshore accounts has ever
been reported to the Canada Revenue Agency (CRA). With the details
of those accounts possibly becoming public, it can safely be
presumed that a number of Canadian resident taxpayers will want to
come clean with the CRA.
Fortunately, the CRA has a voluntary disclosure program that
provides taxpayers a means of correcting past tax return filings
that were done incorrectly. There are certain conditions that must
be met and not all errors or misstatements will fall under this
program. However, for those taxpayers who do fall under this
program, the CRA has stated that it will waive all penalties and
will waive interest at its discretion. The taxpayer is still
responsible for the taxes that should have been paid.
To qualify for the Voluntary Disclosure Program, four conditions
must be met:
1) The disclosure must be voluntary (made before any compliance
action has been undertaken by the CRA).
2) A penalty must apply to the items being disclosed.
3) The information is at least one year overdue.
4) The information is complete.
Assuming these conditions are met, it is the CRA's
administrative policy to waive penalties related to the errors /
Some of the types of errors / misstatements that will be
accepted under the Voluntary Disclosure Program include:
Failure to report taxable income
Claiming non-deductible expenses on a tax return
Not filing an information return (such as form T1135 related to
foreign assets owned in excess of $100,000)
Failure to report foreign-sourced income that is taxable in
Failure to file tax returns (Income tax or GST)
Note that the CRA is unable to grant relief for a disclosure if
it's more than 10 years from the calendar year in which the
submission is filed.
With the recent activity related to offshore bank accounts,
it's highly likely that the CRA is being inundated with
voluntary disclosures. If you're planning to apply to the
Voluntary Disclosure Program, I suggest you carefully review all of
your facts with your accountant to ensure the specific criteria are
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.
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