Voluntary Disclosures – Time is of the Essence

“the initial submission can be made quickly, on a no-names basis

Under the voluntary disclosures program (“VDP”) the Canada Revenue Agency (“CRA”) has the authority to waive penalties, reduce interest otherwise payable and not lay criminal charges (if applicable) for taxpayers who voluntarily disclose unreported income or file missing information returns. A voluntary disclosure will not be accepted if enforcement action (including a request for a tax return, notification that an audit will begin, or various other actions) has been initiated by the CRA or a provincial tax authority. There is good information about the VDP on the CRA’s website.

In Tax Tip 13-10 we advised that the proliferation of information exchange agreements, cooperation between taxing authorities and increased information reporting requirements will make it easier for the CRA to find unreported income and that use of the VDP should seriously be considered.

Although Switzerland will only be initiating its first automatic information exchange with Canada by 2018,  recent actions taken by some Swiss banks have made it more likely that the CRA will learn about these foreign accounts even sooner.

Some Swiss banks are now requiring that their Canadian clients certify that the income and capital gains earned in the account have been disclosed to the CRA. UBS has gone as far as to advise their clients to provide account closing instructions if this certification could was not made by December 31, 2015.  Failing receipt of the certification, UBS stated it would terminate its banking relationship with these clients and likely mail correspondence rather than retain the mail (as was done in the past). Presumably funds will be mailed or transferred electronically to other bank account(s) owned by these clients. If the electronic transfer is made to a Canadian institution and is more than $10,000 it will be reported to the CRA.  This reporting obligation is described in Tax Tip 14-02.

In cases where assets and/or related income have not been declared we have been able to appease the Swiss banks if we confirm that a taxpayer is making a submission under the VDP. However, now that the December 31, 2015 deadline has passed, this certification may be too late and the bank may be in the process of closing the account and forwarding the funds back to Canada.

If so, the CRA will likely learn about the existence of these foreign investment accounts in 2016. If a voluntary disclosure is not initiated in time, tax penalties, full interest and possible criminal charges and fines could be assessed.

We recommend that taxpayers with unreported income make a voluntary disclosure as soon as possible in order to avoid these results.  In many cases the initial submission can be made quickly, on a no-names basis  if not all the required information is readily available.

TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.

The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.

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Cadesky Tax