Overview – Pandora Papers

In October of 2021 the International Consortium of Investigative Journalists (ICIJ) announced that it had obtained 11.9 million confidential files relating to "offshore" accounts and entities. ICIJ and its media partners have begun to publish some information gleaned from these files and Canadian taxpayers should expect that these files will also be shared with the Canada Revenue Agency. Unlike the earlier 2016 Panama Papers leak of documents from the Panamanian law firm Mossack Fonseca, the documents from this leak are from 14 different offshore services firms located around the world, specifically:

  • All About Offshore Limited based in Seychelles,
  • Aleman, Cordero, Galindo & Lee based in Panama,
  • Alpha Consulting Limited based in Seychelles,
  • Asiaciti Trust Asia Limited based in Hong Kong,
  • CCS Trust Limited based in Belize,
  • CIL Trust International based in Belize,
  • Commence Overseas Limited based in British Virgin Islands,
  • Demetrios A. Demetriades LLC based in Cyprus,
  • Fidelity Corporate Services Limited based in British Virgin Islands,
  • Glenn D. Godfrey and Company LLP based in Belize,
  • Il Shin based in Hong Kong,
  • Overseas Management Company Inc based in Panama,
  • SFM Corporate Services based in Switzerland and United Arab Emirates, and
  • Trident Trust Company Limited based in British Virgin Islands.

Canadians named so far in the Pandora Papers have included Jacques Villeneuve, Elvis Stojko, Firoz Patel, Alexandre Cazes, and Frederick Sharp.

Are Offshore Accounts and Entities Illegal? – Pandora Papers

It is not illegal under Canadian law to have a foreign or offshore bank or investment account. Similarly, it is not illegal to own an interest in a foreign or offshore corporation or other entity.

Canadian Income Tax Law requires two main things from taxpayers, that they pay tax to the government based on their income and that they provide CRA with information through returns or during tax audits. The way that Canadian taxpayers can end up at odds with Canadian Tax Law with offshore property is if they fail to provide the Canada Revenue Agency with information about the offshore property as required or fail to pay tax that they owe in respect of all of their income, including income associated with offshore property.

Canadian resident taxpayers are required to file tax returns on an annual basis that among other things requires to report their world-wide income, which includes income from offshore property including offshore bank accounts, offshore corporations and offshore trusts. In addition, there are special additional reporting requirements for taxpayers that relate to foreign property. Taxpayers with specified foreign property (which includes offshore accounts) with an aggregate cost amount of $100,000 during a tax year are required to file form T1135 with their tax returns which provides CRA with information regarding their foreign property. Other similar requirements exist in other circumstances, such as a requirement for Canadian tax residents who own shares in a foreign affiliate to file form T1134 with their tax return. Failure to comply with these reporting requirements can result in substantial penalties..

Similarly, taxpayers who misrepresent the amount of tax they are required to pay, or refuse to pay the amount of tax they owe can be subject to substantial penalties or criminal prosecution for tax evasion. Signs of intentionally trying not to pay tax will often lead to worse penalties or make criminal prosecution more likely. The Canada Revenue Agency will typically interpret the use of offshore accounts or entities as a sign of intentionally trying to evade taxes owing unless a compelling alternative explanation is available.

Pro Tax Tips – Pandora Papers

If you have offshore property and are not fully compliant with Canadian tax law it is essential to consult with an expert Canadian tax lawyer to determine if a voluntary disclosure is appropriate. A successful voluntary disclosure can stop the Canada Revenue Agency from pursuing criminal prosecution, eliminate penalties, reduce interest owing. A voluntary disclosure application will not be successful if CRA has already contacted you regarding your non-compliance or in certain other circumstances.

Complying with Canadian Tax Law when offshore entities or accounts are involved can be highly complex. It is always a good idea to consult with an experienced Toronto tax lawyer when setting up an offshore structure to ensure that you comply with Canadian Tax Law on an ongoing basis.

If you are aware of offshore non-compliance by others, it may be possible to get a substantial reward from the Canada Revenue Agency's offshore informant program if you provide a useful tip. Our experience Canadian tax lawyers can provide further advice and assist you.