Canadians are racing to disclose their offshore assets as the CRA steps up its war on tax cheats

The number of voluntary disclosures of offshore income and assets to Canada’s tax authority nearly doubled in the year ended March 31 from the previous 12 months, the first time such figures have been gathered since the Canada Revenue Agency put in a whistleblower reward system to root out tax cheats. The amount of previously unreported income more than doubled to $780 million.

The figures obtained from the Canada Revenue Agency by the Financial Post illustrate a sharp increase in a growing trend of self-reporting. More than 10,000 voluntary disclosures of offshore activities were made in the past year, up from just 1,215 in 2006-07.

That number had grown to 5,248 by March of 2014, a year in which $303 million in previously unreported income was identified.

Taxpayers who use the CRA’s voluntary disclosures program must pay taxes owed, plus interest, but they may avoid heavy penalties and prosecution under the law that could result if their offshore activities are discovered by Canadian tax authorities.

Self-reporting may have climbed sharply in the past year, at least in part, because of a program instituted by the CRA in January of 2014 that offers financial rewards for tips about Canadians using offshore financial transactions or mechanisms to avoid taxes in this country.

Informants whose tips lead to the collection of at least $100,000 in additional federal tax are eligible to collect between 5 per cent and 15 per cent of that amount.

The Offshore Tax Informant Program, or OTIP, has already generated more than 2,000 calls, with 543 of those identified as coming from potential informants.

Of those, 208 have followed up with written submissions and more than 100 cases are being reviewed by the CRA, which “has entered into a number of contract with informants,” according to spokesman Philippe Brideau.

He said it could be several years before any money is awarded since the tax would have to be collected and any affected taxpayer’s appeal rights would have to have expired.

“The CRA will report to Canadians on results of the OTIP, including the amounts recovered and paid out to informants, through the Agency’s Annual Report to Parliament,” Brideau said in an emailed statement.

Brideau declined to comment on what was behind the surge in voluntary disclosures of offshore activities in the most recent fiscal year, noting that the figures won’t be reported to Parliament until the fall. However, last year, he told Bloomberg News that clients of Switzerland’s UBS AG were behind a big surge in voluntary reporting of offshore income.

Thomas Brook, an associate at Fasken Martineau DuMoulin LLP in Toronto who specializes in tax law, said greater co-operation between international banks and tax authorities is at the root of many of the voluntary disclosure cases he has seen.

“It’s typically because there is disclosure made at the bank level,” Brook said, adding that financial institutions generally tell clients before disclosing information about offshore property or income that might find its way to their home tax authority.

Regulators around the world have been cracking down on tax cheats who have taken advantage of strict bank privacy rules in so-called tax havens. And the United States, a rare jurisdiction that taxes based on citizenship rather than residency, has recently stepped up efforts to extract taxes from its citizens living abroad.

Brook said the CRA’s offshore tax informant program could be leading to more voluntary disclosure in Canada, but many people he encounters aren’t yet aware of it.

However, Jordan A. Thomas, a lawyer who advises whistleblowers in the United States and helped develop a rewards-based informant program at the U.S. Securities and Exchange Commission, said the initial numbers reported by the CRA on the informant program are “remarkable” when judged against similar programs in other jurisdictions.

“As awareness continues to grow, I predict the program will easily surpass the far broader and long-established IRS Whistleblower Program,” Thomas said.

Based on the early figures from the CRA, and the number of Canadians who have used the SEC’s whistleblower program, “it appears that Canadians are eager to report possible wrongdoing, if given proper protections and incentives,” he said.

Thomas, who is chair of the whistleblower representation practice at Labaton Sucharow in New York, was in Toronto this week to participate in consultations for an incentive-backed whistleblower program being considered by the Ontario Securities Commission.

Source: Financial Post