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Canadian Off-shore Investments are on the Radar for CRA

With increased collaboration between friendly nations, CRA is working to deter and identify those who participate in off-shore tax evasion.  Independent agreements to assist each other are coupled with a membership in the Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC). The information exchange has supplied data on off-shore accounts for years now but due to the exposure of the Panama Papers, there has been an increased focus on tax evasion by most nations, thus the teamwork has intensified.

CRA currently has 990 audits and 42 criminal investigations underway.  The federal government is acutely aware of this multi-billion dollar issue and is investing a billion dollars itself to tackle it.  They have studied the complexity of this global problem and will continue to allocate resources to recoup the lost funds, working closely with provinces and territories as well.  The additional funding is allowing the CRA to move forward with coordinated efforts to ensure that all of those who benefit from Canada’s great lifestyle pay their fair share for it.

CRA’s promise to vigorously pursue those breaking the law and hold them accountable extends from the participants to those that assist them.  One proof of this is the $44 million assessed in 3rd party penalties in 2016 against tax advisors.  Another example would be the long list of criminal tax evasion cases in the federal court queues.  The agency is closely monitoring money transfers over $10,000 heading to specific off-shore destinations regardless of their Canadian source.  They are also evaluating 100% of large MNC’s for tax avoidance risk, analyzing high net worth taxpayers they deem risky for tax affairs and using paid informants to gather information.

Much of this work is done through the JITSIC and its 37 participating nations, each gathering and sharing data and information.  They have a common commitment to find effective and efficient ways of handling tax evasion or avoidance.  Since the Panama Papers went public, the member nations have shared different tools they use to detect criminal acts and trained each other to understand the results of data gathered.  They have established structures and mechanisms to better analyze the data and successfully impede high risk targets’ illegal acts.  In addition, they have secured ways of sharing sensitive information that adhere to legal frameworks and they have increased the speed with which this information passes between member nations.  These enhancements have aided their coordinated responses to locate criminal activities and secure moneys that would otherwise be lost to them.

If you hold any non-Canadian financial assets with an aggregated tax cost of over $100,000 which you never disclosed on your Canadian tax return, please contact us immediately.  We will advise and assist you with tax compliance options to minimize penalties.

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Trump’s Proposed Tax Changes – Mostly Bad News for Americans in Canada

donald-trump-tax-plan

On November 2 the Joint Committee on Taxation released the proposal for the tax reform bill H.R. 1, The Tax Cut and Jobs Act.  It appears that the reform does not eliminate or simplify the Code to the extent we had hoped. On the contrary, certain provisions, as the proposal stands, will result in additional tax and become costlier to comply.

Here is the summary of the proposed changes which impact US citizens if they own an incorporated business in Canada.  These changes will have a greater negative impact than the existing law:

  • Under the new Code section 951A, US citizens with Controlled Foreign Corporations (CFCs) will be required to apply a review test to determine taxability of the current income earned by the corporation.   There is the potential for up to 50% of corporate income to be deemed taxable in the hands of the US shareholder.
  • A revised Code Section 965 will impose a one-time 12% tax on earnings (prior to dividends distributed from them) that were previously allowed to be deferred in a CFC after Dec 31, 1986 and thereby avoid US taxation.  This is intended as a corrective measure to recoup lost tax revenue from the last 30 years.
  • Foreign Tax Credit under Code Section 901 may no longer be available for certain dividends distributed after Dec 31, 2017.
  • No simplification to the existing PFIC or Subpart F rules with regards to passive income held in Canadian corporations will apply.

The following changes will affect all US citizens in Canada.  We have broken them down into two parts – negative and positive developments.  Here is what unfortunately remains unchanged:

  • Taxation of US citizen income would still be world-wide.
  • FATCA would still require Canadian banks to report bank and financial accounts held by US citizens to IRS via CRA.
  • The reduction of US individual tax rates with the top federal rate going down to 25% will have no overall impact, since Americans in Canada are subject to taxation at the greater of the two tax rates (Canadian or US) and the top blended Canadian/Ontario rate is 53.53%.

And very few good developments…

  • The current estate tax exemption of $5.49 mil (for 2017) will increase to $10.98 mil after December 31, 2017 and the estate tax is scheduled to be completely eliminated after 2023.
  • A larger estate tax exemption utilized during one’s life time as gifting means less people will be trapped under the “covered expatriate” definition if they decide to give up US citizenship.

As further information is revealed by Congress, we shall pass it on.

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