Redress Risk Management (post until May 31/19)

Confidential CRA deal status quo for voluntary disclosures

While reports that the Canada Revenue Agency (CRA) has entered into a ‘secret’ deal with high-net worth individuals who participated in an offshore tax shelter may seem shocking, it is consistent with the agency’s policy for voluntary disclosures, Toronto tax attorney David J. Rotfleisch tells

CBC News recently reported that the CRA has offered amnesty to a number of wealthy clients of accounting giant KPMG, who it says were caught using an offshore tax "sham" on the Isle of Man. As the article notes, the revenue agency offered the individuals a no-penalty, no-prosecution deal if they agreed to pay their back taxes and modest interest on the offshore investments, which they had failed to report on their tax returns.

The article says that the offer was made “despite CRA uncovering the KPMG scheme,” however, it also mentions that a letter filed in court in September 2015 by a KPMG lawyer “stated that 15 clients had ‘self-identified’ to the federal tax authorities.”

Rotfleisch, founding tax lawyer at Rotfleisch & Samulovitch Professional Corporation, explains that the CRA’s decision not to prosecute or charge penalties to those taxpayers who accepted the offer is actually business as usual when it comes to a voluntary disclosure.

“The deal offered to the KPMG clients is the deal I would have expected had I acted for them. It is true that CRA was aware that some unknown Canadians participated in an Isle of Man structure designed to continue a tax holiday then available for new immigrants indefinitely. 

“However — and this is key — at the time that the deal was negotiated they did not have those names.”

Rotfleisch explains that the CRA can only deny a voluntary disclosure application if it has undertaken enforcement action against the specific taxpayer at the time that the application is submitted.  

“When CRA made the offer of tax amnesty it did not have any enforcement actions against those taxpayers. So by its own rules it had to accept the amnesty application,” says Rotfleisch.

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