CRA taking proactive approach in search for offshore accounts

Following news that a number of Swiss banks have signed up to a U.S. Internal Revenue Service (IRS) program to disclose information about U.S. account holders, Toronto tax litigation lawyer David J. Rotfleisch says Canada is also taking a more proactive role in pursuing undeclared offshore accounts.

Swiss banks had until the end of last year to enter into non-prosecution agreements with the IRS, under which they have to pay penalties and disclose account information about U.S. customers, Reuters reports.

“The IRS has been pressuring the Swiss government and Swiss banks for years to disclose information about U.S. citizens with Swiss bank accounts,” says Rotfleisch, founding lawyer at Rotfleisch & Samulovitch Professional Corporation, a boutique tax and business law firm specializing in tax dispute resolution.

“About 106 of more than 300 banks sought to enter into the agreements, which requires participants to disclose how they helped Americans hide assets, hand over data on undeclared accounts and pay penalties. The expectation is that the Swiss banks will advise their U.S. clients to join the IRS Offshore Voluntary Disclosure Initiative (OVDI),” he adds.

Although the Canada Revenue Agency (CRA) has been much less proactive than the U.S. in going after citizens with undeclared offshore accounts, Rotfleisch says this is changing, with the CRA's recent introduction of the Offshore Tax Informant Program (OTIP), formerly known as the Stop International Tax Evasion Program (SITEP).

“The informant program pays five to 15 per cent of the Canadian federal income tax collected as a result of information provided by whistleblowers,” he says.

However, Canadian taxpayers who have not declared their offshore income or reported offshore assets in excess of $100,000 can self-correct their Canadian income tax returns before they are caught under OTIP, explains Rotfleisch.

“They can submit a formal voluntary disclosure, in effect coming forward and correcting inaccurate or incomplete tax returns previously submitted to the Canadian tax department.”

“The biggest protection of a voluntary disclosure is that the CRA waives tax evasion prosecution against the taxpayer. This is extremely important since a taxpayer who evades taxes faces the possibility of jail time. If a voluntary disclosure is filed, the CRA also removes any penalties that would have arisen had the non compliance been caught pre-voluntary disclosure, and taxpayers may also be provided with some interest relief,” he says.

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