This past week, Canada signed the Multilateral Competent Authority Agreement on the Automatic Exchange of Information (MCAA), becoming part of a global coordinated effort to exchange financial account information efficiently and securely with other tax jurisdictions.
Under the MCAA, foreign tax authorities will provide information to the Canada Revenue Agency (CRA) relating to financial accounts in their jurisdictions held by Canadian residents. The CRA will, on a reciprocal basis, provide corresponding information to the foreign governments on accounts in Canada held by residents of their jurisdictions. In order to facilitate the exchange of information, financial institutions would be required to identify accounts held by non-residents and report certain information relating to these accounts to the tax authorities in which the accounts are held.
The MCAA greatly improves the CRA’s ability to detect and address cases of foreign assets and tax evasion. It is part of a broader effort by the Canadian government to combat international tax evasion such as mandatory reporting of electronic fund transfers of $10,000 and over, the Offshore Tax Informant Program, and the creation of a dedicated Offshore Compliance Division.
Canadian taxpayers with unreported assets overseas are encouraged to utilize the Voluntary Disclosure Program before they are discovered by the CRA. The Voluntary Disclosure Program is a second chance opportunity for taxpayers to voluntarily disclose noncompliance in exchange for the removal of interest and penalties. Given the excessive interest and penalties that can apply on errors and omissions (for example, interest currently accrues at a rate of 5% compounded daily and penalties can be as high as 50% of the understated tax), a voluntary disclosure can be incredibly helpful in reducing the overall tax liability. However, it is important to note that voluntary disclosure, when done incorrectly, can have serious repercussions. In the event a taxpayer’s VDP application is rejected for failing to meet the requisite conditions, the CRA can proceed with an audit based on the information included in the disclosure and apply full interest and penalties.
In light of Canada signing the MCAA, taxpayers who have not made full and proper disclosure of their foreign assets to the CRA are encouraged to seek expert advice immediately and to consider the benefits of the Voluntary Disclosure Program.
For more information about this important signing or about the Voluntary Disclosure Program and how to apply, please call Tax Solutions Canada today at 1.888.868.1400.