For Canadians with a secret Swiss bank account, time is running out
Not only is Dec. 31 the deadline for any last-minute, year-end tax planning you may be contemplating, but it may also be the last day to come clean to the tax man if you still have an undisclosed Swiss bank account.
If that's you, consider getting your act together and filing a "voluntary disclosure" with the Canada Revenue Agency, advises Nicolas Simard, a Montreal tax lawyer with Fasken Martineau, in a recent tax note.
Under the voluntary disclosure program, if you come forward to the CRA to disclose unreported income, you are protected from criminal prosecution, the imposition of penalties, interest relief and, in many cases, you can limit your tax liability on the unreported income generated in the offshore account to the past 10 years.
In recent years, Swiss banks have come under scrutiny and have faced billions of dollars in fines for assisting U.S. citizen clients in evading tax. In light of this, Switzerland, along with members of the OECD and the G20, endorsed the new "automatic information sharing standard," which gives tax administrations around the world a powerful new tool to tackle cross-border tax evasion and non-compliance. The signatory countries committed to an annual exchange of all financial information, automatically, on a reciprocal basis with all participating countries. Switzerland will be initiating its first automatic information exchange with Canada by 2018.
In advance of this, however, and to encourage Canadian clients to disclose offshore assets, Simard says that most large Swiss banks have already requested their Canadian clients offer evidence that their Swiss accounts are being reported in Canada, or that a voluntary disclosure has been initiated. For clients who have not filed this evidence by Dec. 31, 2015, some Swiss banks said they will liquidate Canadian-held accounts in early 2016, mailing cheques to the Canadian client's last known address, which, according to Simard, "when deposited in Canadian accounts, should trigger a tax audit."
In addition, earlier this year, the CRA launched its Electronic Funds Transfer (EFT) initiative to crack down on international tax evasion and aggressive tax avoidance.
Effective Jan. 1, certain financial intermediaries, including banks, have to report to the CRA both incoming and outgoing international EFTs of $10,000 or more. According to the CRA, these reports will allow it "to better identify higher risk taxpayers and files and, in turn, more effectively identify taxpayers who participate in international aggressive tax avoidance and attempt to conceal income and assets offshore."
Once the CRA initiates an audit, you are precluded from using the voluntary disclosure program, since one of the conditions to be accepted under the program is that the disclosure be voluntary.
Failure to disclose offshore assets could result in tax on unreported income, gross negligence penalties, failure to file Form T1135, "Foreign Income Verification Statement" penalties and arrears interest. In some cases, depending on the size of the account, the tax liability, penalties and interest can exceed the balance remaining in the offshore account!
As Mr. Simard concludes: "The voluntary disclosure program is the most efficient way to regularize one's unreported offshore accounts. It has never been as simple and cheap to file one, if done properly."