April 21 2016 Robert McMechan, Senior Tax Litigation Lawyer
What are the Panama Papers?
The Panama Papers, which have caused public outrage, have been the topic of much news lately. They are confidential documents containing information such as the identities of the holders of offshore accounts that were leaked from Mossack Fonseca, a law firm based in Panama. The people identified in the Panama Papers include politicians and individuals around the world.
What do the Panama Papers mean for you?
Governments make many efforts to track down people who evade tax. It goes without saying that the CRA will carry out tax audits in response to the recent scandal and this potential increase in tax audits could not only affect the people named in the documents but also those that have nothing to do with it.
Last month, the federal budget was announced and it proposed an investment of $444.4 million over five years to support the CRA in improving tax compliance. This means that the CRA will hire additional auditors and specialists to increase their audit activities and other investigative activities. The CRA also has other programs in place to ensure tax compliance. One such program is the Offshore Tax Informant Program (OTIP) which encourages and rewards whistleblowers who provide information on tax non-compliance.
In addition, Canada has been working towards cooperating with countries around the world to fight international tax evasion by exchanging financial account information. Canada has made a commitment to adopt the Organization for Economic Co-operation and Development (OECD) Common Reporting Standard by 2017 and the first exchange of information is set to begin in 2018.
It is not illegal to hold foreign bank accounts. However, you must comply with Canada’s tax laws and must report any income earned outside Canada to the CRA. If you have made mistakes or left out details on your tax returns, the CRA gives you a chance to correct them through the Voluntary Disclosures Program. In order to qualify for the Program, you must voluntarily come forward before you become aware of the CRA taking any audit action against you.