In recent years, the popularity of the Canada Revenue
Agency's voluntary disclosures program – which enables
taxpayers to correct any mistakes or omissions in their previous
tax filings – has ballooned.
When taxpayers come forward, their tax problems get solved, the
CRA reduces the accrued interest and, most important, waives all
penalties and potential criminal prosecution for tax evasion. For
the CRA, it is found money – well into the hundreds of
millions of dollars annually – that might not otherwise make
its way into the government's coffers. It's a win-win.
It has been estimated that Canadians have more than $100-billion
in offshore bank accounts. If you have unreported offshore
investments and are considering making a voluntary disclosure, here
are six reasons to do it now:
If the CRA starts enforcement action,
it instantly becomes too late to make a voluntary disclosure. Any
kind of inquiry or audit could disqualify you. Horror stories
abound of how the agency came knocking while a taxpayer dithered
over whether to make a voluntary disclosure.
Once it becomes too late to make a
voluntary disclosure, the CRA can impose extremely onerous and
harsh penalties for investments held offshore. This is because, in
addition to penalties based on unpaid tax for unreported income,
there are penalties for not filing the required disclosure form for
foreign property that are based on a percentage of the amount
invested. Those penalties, including interest, can easily become
almost as much as the total amount invested offshore.
In recent years, the risk of
detection has significantly and constantly increased– from
well-publicized foreign bank leaks handing governments a treasure
trove of information and enhanced intergovernmental exchange of
information policies to the CRA issuing warning letters to
Canadians whom they have identified as high-risk and launching a
whistle-blower program to reward informants. This trend is bound to
continue. For years, the revenue agency's tip line has been a
fertile source of audits. CRA recently upped the ante with its
bustling offshore tax informant program, agreeing to pay tipsters 5
per cent to 15 per cent of the tax collected. Beware of your
disgruntled former spouse, business colleague or neighbour.
The door may close. If international
information exchange agreements spell the demise of offshore
banking secrecy, the CRA may no longer want or need to give
taxpayers incentives to come forward. Instead, it may simply
prosecute, imposing full penalties. The CRA has said the recently
signed Multilateral Competent Authority Agreement will help set the
stage for the automatic exchange of information, beginning in
Our law firm routinely helps elderly
clients clean up their affairs and avoid saddling their children
with their tax messes. Before distributing your assets, your
executor will need to get a clearance certificate from the CRA,
which essentially means the executor must advise the agency that
there are no unresolved tax issues. If your executor is aware of an
unreported offshore account, it will be legally impossible to get
Finally, it is the right thing to do.
Our clients who regularize their tax affairs through a voluntary
disclosure invariably tell us later that they feel better. It is
one less thing to keep you up at night.
Overall, the voluntary disclosures program is balanced and
proportionate. It provides taxpayers an opportunity to correct
previous tax deficiencies proactively and favourably, and, if the
disclosure is not too late and is accepted by the CRA,avoid drastic
consequences. Remember the ancient proverb: "Whoever conceals
their sins does not prosper, but the one who confesses and
renounces them finds mercy."
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