Tax forms offer insight into offshore accounts
The battle to combat offshore tax evasion by Canadians continues on many fronts, most recently with the release last month of the report of the Standing Committee on Finance entitled, "Tax Evasion and the Use of Tax Havens."
The 50-page report is filled with testimony from a variety of witnesses who spoke to the magnitude of the problem, with Montreal tax lawyer David Sohmer, from Spiegel Sohmer Inc., estimating that Canadians hold assets valued at $100-billion in offshore bank accounts.
Following its appearance before the Committee, the Canada Revenue Agency followed up by providing specific information on offshore assets gleaned from a decade's worth of T1135 reporting.
The T1135, known as the "Foreign Income Verification Statement" must be filed annually if the total cost of all your foreign investments was over $100,000 at any time during the year. On the form, Canadians are asked to specifically state the types of foreign investments owned along with the cost of those investments and their geographical locations. You also need to report the amount of foreign income you reported on your tax return from these investments.
The data released by the CRA is quite eye-opening. For example, the CRA reported that for the 2009 tax year, it received approximately 120,000 T1135 forms reporting a total of $3.7-billion of offshore income or an average of nearly $31,000 per taxpayer. Interestingly, in the prior year, while the number of T1135s was lower at 111,000, the total income reported was $8.1-billion.
The CRA also released data on the number of individuals reporting more than $1-million offshore, as indicated by the T1135. For 2009, the Agency reported receiving 2,877 forms indicating offshore assets greater than $1-million.
Of course, these numbers might be artificially high given that "offshore" also includes U.S. assets, which could include everything from a U.S. bank account balance to shares of U.S. companies held in Canadian non-registered brokerage accounts. Of the 2,877 forms reporting over $1-million of offshore assets, nearly half of them reported the geographical location of at least some of these offshore assets to be the U.S., which could effectively represent the value of shares of U.S. companies held in a Bay Street brokerage account.
The report concludes by listing eleven recommendations for Parliament to consider, including the launch of a Canadian whistleblower program through which the CRA can provide cash rewards to individuals who provide it with information about major international tax noncompliance that leads to the collection of outstanding tax. This program, known as the "Stop International Tax Evasion Program," was formally introduced in the 2013 federal budget.
The report also recommended that the federal government continue to pursue tax information exchange agreements with certain "appropriate countries" in an effort to promote transparency. It suggested that the CRA should use of the General Anti-Avoidance Rule (known as the "GAAR") to attack aggressive international tax planning and that the names of any individuals, corporations and trusts convicted of either tax evasion or a failure to file income tax returns be listed on the CRA's website for a full year, instead of the current six months.