Tax season is over, let audit season begin. Canadian taxpayers beware.
The 2013 federal budget increased the emphasis on tax compliance programs. The government intends to increase its revenues by hundreds of millions of dollars in coming years by ensuring citizens pay all the tax they are supposed to.
Every major city in the country with a Canada Revenue Agency audit office has seen a significant jump in its auditing staff.
This gives a strong indication that there will be a corresponding increase in the number and frequency of audits.
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The CRA is also receiving help from foreign revenue agencies. Most western countries are strapped for revenue and are looking for assistance from neighbouring countries to track down their citizens’ hidden funds.
In the past several years, most G20 countries have attempted to stem the leaking in their tax revenues by closing down the ability of foreign countries to operate international tax shelters.
Even Switzerland, the gold standard of banking privacy, has divulged lists of their clients to the U.S. government.
The United States is using these lists to find income that has been placed offshore by Americans looking to avoid paying taxes.
Statistics Canada has reported that Canadian money hidden away in the top 12 global tax havens has hit a new record of $170 billion, costing Canada at least $7.8 billion annually in lost revenue.
Tax treaties between most western countries are working to constrain known tax havens such as Switzerland, the Caymans, Turks and Caicos and the Channel Islands.
These countries no longer provide the foolproof shelter for foreign investors that they once did.
Even the last hold-outs such as Panama and Costa Rica have been forced to comply with international banking rules and now share information.
The governments of Canada, the U.S., Britain and Australia recently agreed to share lists of depositors in foreign financial institutions. Although the U.S., Britain and Australia pay for such lists, Britain in particular has said it will gladly share information with Canada at no cost. Canada has officially requested that the U.S. and Australia share their lists as well.
Canada now has more than 90 tax treaties and 16 tax information exchange agreements that allow for tax information to be shared.
The federal government believes offshore assets are related to potential tax evasion and aggressive tax avoidance.
The penalties and back interest charged on taxes owed and unpaid are significant.
Should you receive a demand for an audit from the CRA, I strongly recommend you not contact them without the assistance of a tax specialist, accountant or lawyer, preferably one who is familiar with the workings of the tax office in your area.
