Voluntary disclosure an option for unreported offshore income

Although the Canada Revenue Agency (CRA) has a new whistleblower program aimed at combating international tax evasion, taxpayers with unreported offshore income still have the option to “self-correct” their tax filings before the agency gets in touch, Toronto tax litigation lawyer David J. Rotfleisch writes in Lawyers Weekly.

“The common offshore tax evasion situation is a Canadian who sets up an offshore bank or investment account and does not report the income or the account to the Canadian tax department. These foreign bank accounts are often funded through untaxed offshore earnings, or through inheritances that are themselves not taxable in Canada,” writes Rotfleisch, founding lawyer at Rotfleisch & Samulovitch Professional Corporation, a boutique tax and business law firm specializing in tax dispute resolution.

The purpose of the new Offshore Tax Informant Program (OTIP) is simple, says Rotfleisch: “By offering a reward for information about major (exceeding $100,000) cases of offshore non-compliance, CRA provides a financial inducement to informants with information about tax cheats to come forward.”

But while OTIP may discourage Canadians from participating in offshore tax evasion, Canadians who currently have unreported offshore income or assets do have the option of filing a formal voluntary disclosure, he writes.

“The biggest benefit of a voluntary disclosure is that the CRA waives its right to have the taxpayer prosecuted criminally. This is an extremely important incentive since a taxpayer who evades taxes faces the possibility of jail time. If a voluntary disclosure is filed, the CRA also deletes 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.”

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