Is your tax confidential?
If you've filed your return over the Internet using the Canada Revenue Agency's
NETFILE service, you can take comfort that the information you submitted was
transmitted in an encrypted format between your computer and the CRA, ensuring
that hackers and other Internet users can't access your tax information. But,
once your data reaches the CRA, how confidential does it remain?
Most tax professionals would agree that a successful self-assessment tax
system is founded on the basic presumption that taxpayers' information will be
kept confidential. In fact, under the Income Tax Act itself, the CRA is not
permitted to knowingly use or provide access to your confidential tax
information except as specifically authorized by the Act itself. Such exceptions
include the disclosure of information relating to the enforcement of other
federal or provincial legislation.
In addition, Canada has signed approximately 80 tax treaties with other
countries, which typically provide relief from double taxation. They also
provide that the taxing authorities of each country may exchange information for
the purposes of avoiding double tax and preventing tax evasion. For example, the
Canada Revenue Agency and the Internal Revenue Service in the U.S. routinely
exchange information on interest income earned in their countries by residents
or citizens of the other country.
Last month, the CRA established a joint task force between Canada, Australia,
the U.K. and the United States to increase collaboration and co-ordinate
information about "abusive" tax transactions. The CRA found that many abusive
tax transactions are promoted globally and use strategies that transcend
international borders. This joint task force will assist each country's tax
administration in attacking these abusive tax structures, with an initial focus
on sophisticated financial products used by both corporations and individuals to
reduce their tax liabilities.
Commenting on the need for privacy, the CRA stated: "the exchange of taxpayer
information will be closely monitored to ensure the respect of all applicable
Canadian laws, as well as the privacy protection provisions in each country's
existing tax treaties."
In a separate announcement earlier this month, the CRA entered into an
information-sharing agreement with the Workplace Health, Safety and Compensation
Commission of Newfoundland and Labrador. The agreement allows the CRA and the
WHSCC to share employer registration information that would help them identify
employers who may be registered with one organization but not the other.
This information will also be used to ensure that an employer is paying the
appropriate workers' compensation premiums to the provincial government and the
income tax and GST to the feds.
According to Revenue Minister Stan Keyes, "the matching of our databases
helps identify those employers who may be required to be registered, and then
levels the playing field by ensuring fairness in the administration of CRA and
commission programs to all employers." A similar program is already in place in
Nova Scotia and one is in the works for Ontario.
This sharing of information may be particularly worrisome for small
employers, including those who employ nannies and other domestic workers in
their homes. Often these employers have registered with the CRA for income tax,
CPP and EI purposes, but may not have bothered registering with their provincial
Workers Compensation Board. The back premiums, penalties and arrears interest
can often be substantial. Consider yourself duly warned.