The federal government announced that it intends to double down on combatting tax evasion and tax avoidance in Budget 2018, delivered on Tuesday.
Specifically, the government is aiming to improve the fairness and integrity of the tax system by investing $90.6 million during the next five years to the Canada Revenue Agency (CRA) to address cases of tax avoidance and tax evasion that have already been identified as well as $41.9 million over five years, and $9.3 million a year ongoing, to beef up the courts system as it deals with “a growing and increasingly complex caseload,” according to budget documents.
The government has already placed a significant focus on this area as the CRA has targeted non-compliance in the highest-risk areas, including wealthy individuals with offshore accounts, in recent years.
Notably, the CRA reviewed all large money transfers between Canada and eight countries of concern during the past two fiscal years — representing a total of 187,000 transactions worth more than $177 billion — that merited closer scrutiny. As a result, there are now more than 1,000 offshore audits and more than 40 criminal investigations with links to offshore transactions, that the government has identified by working closely with partners at home and around the world, the budget documents state.
In addition, Ottawa is going after those who promote tax-avoidance schemes aggressively. Thus far, it has imposed $44 million in penalties on these third parties.
Thanks to these and all other audit efforts, the government has identified $25 billion in fiscal impact from the past two fiscal years — and Ottawa is expecting a further revenue impact of $354 million during the next five years.
Meanwhile, the investment into the Courts Administration Service includes support for new front-line registry and judicial staff, most of whom are expected to support the Tax Court of Canada.
Among other measures, Ottawa is proposing to introduce legislative amendments to the Canada Business Corporations Act to strengthen the availability of “beneficial ownership information” on who owns which legal entities and arrangements in Canada “to effectively counter aggressive tax avoidance, tax evasion, money laundering and other criminal activities perpetrated through the misuse of corporate vehicles,” according to this year’s budget.
To do this, the government plans to introduce enhanced income tax reporting requirements for certain trusts to provide additional information on an annual basis — applicable for the 2021 and later taxation years.
“Right now, there’s no obligation for certain trusts — if a trust has no income nor distributions in a year, for example — to file returns. So, there may be very little information that the CRA has on some trusts,” says Jamie Golombek, managing director of tax and estate planning with Canadian Imperial Bank of Commerce’s financial planning and advice group.
“Starting in 2021, most trusts will have to start reporting specific information such as the identify of the settlor [the person who created the trust], the beneficiaries, and each person who has the ability to control the decisions, including protectors,” he adds.
Protectors, who are individuals who oversee the conduct of a trustee on a settlor’s behalf, are often employed when trusts are located in offshore jurisdictions.
Ottawa is also aiming to fight aggressive international tax avoidance by introducing measures to protect the integrity and improve the fairness of Canada’s international tax system.
This system includes rules to prevent taxpayers from avoiding Canadian income taxes by shifting property income into foreign resident corporations as well as ensuring that non-residents pay their fair share of taxes on income derived from Canadian sources.
To strengthen these rules, the government is proposing measures to ensure that the rules cannot be avoided through the use of “tracking arrangements” that allow taxpayers to “track” to their specific benefit the return from assets that they contribute to a foreign resident corporation. Ottawa is also proposing measures to prevent unintended, tax-free distributions by Canadian corporations to non-resident shareholders through the use of certain transactions involving partnerships and trusts.
With files from Rudy Mezzetta