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Offshore accounts costing Canada Revenue Agency in unpaid tax

Tuesday, 10 July, 2018

A report by the Canada Revenue Agency (CRA) reveals that wealthy Canadians have saved up to CAD240.5 billion in foreign accounts, and estimates the federal revenue loss due to hidden offshore investment income earned by Canadian residents was between CAD800 million and CAD3 billion for the 2014/15 tax year.

The report reflects the CRA’s fourth calculation of the country’s “tax gap”: the difference between what the government should receive if everyone paid the correct amount, and what it actually collects annually. However, it is the first time the Agency has attempted to estimate how much government revenue is lost from individuals keeping money abroad.

International audits of 370 “high risk” Canadian individuals over the three years from 2014-2017 resulted in assessment of an extra CAD1 billion in offshore income, and about CAD284 million in extra federal tax.

The individuals themselves accounted for 23 percent of the additional tax assessed, with their 200 corporations yielding 66 percent of the total, and a small number of trusts the remaining 11 percent.

The report also showed that a further CAD429 billion is held abroad that has been declared by law-abiding Canadian citizens.

Minister of National Revenue Diane Lebouthillier commented on the report, “Most Canadians pay their fair share of taxes. They expect their government to do all it can to pursue people and businesses that try to avoid doing the same. This latest study of the tax gap is evidence of our government's ongoing commitment to better target international tax evasion and aggressive tax avoidance.”

The government has said in response to the figures that new approaches, including be able to automatically review all international electronic funds transfers over CAD10,000 entering or leaving the country, will allow the CRA to “better risk assess individuals and businesses.”

The CRA added: “This year, we are also gaining easier access to information on Canadians’ overseas bank accounts, with the implementation of the Common Reporting Standard. With this new system, Canada and close to 100 other countries will begin exchanging financial account information. This information will help us connect the dots and identify instances where Canadians hide money in offshore accounts to avoid paying taxes.”

The CRA will release the next tax gap study in 2019.

Sources