The Canada Revenue Agency (CRA) has no tolerance for tax cheats and warns Canadians that it has a “robust system” in place to track down those who illegally evade taxes.
One of its weapons is the Offshore Tax Informant Program (OTIP). The CRA says the program’s tip line has resulted in signed contracts with more than 20 informants and more than $1 million in tax reassessments and penalties. The tips have resulted in audits of 218 Canadian taxpayers, some of which have been completed and some of which are still being conducted.
The CRA pays out a reward of between 5% and 15% of the money collected as a reward, but only when the money is collected. National Revenue Minister Diane Lebouthillier says some investigations into tax cheating can be complex and take years to complete. That may explain why the agency has yet to hand out a reward.
The tip line was started in January 2014 as governments around the world found themselves under pressure to curb offshore tax evasion following high-profile leaks of offshore tax records, such as the Panama Papers and banking records from Liechtenstein. That leak shed light on the extent of taxes that weren’t being paid.
Here are some of the ways the CRA hunts down big-ticker tax cheaters:
But, of course, individual tax evaders are in the CRA’s sights too. Among other areas where the tax agency looks for cheating are:
The CRA practices “risk-based compliance,” so for taxpayers identified as high risk, any relevant, publicly available information may be consulted as part of the agency’s fact-gathering. However, Privacy Commissioner Daniel Therrien and former assistant commissioner Chantal Bernier have criticized the practice and say the Treasury Board needs to draft guidelines to ensure no one’s privacy is invaded.
Bottom line: Taxpayers should be careful about their social media privacy settings and what they post online. For example, if they a person files a tax return listing $50,000 in net income and show photos of anew yacht, an auditor may come calling.
The over-contribution penalty on a TFSA is 1% a month on the amount of the excess. On an RRSP, generally, you have to pay a tax of 1 % a month on excess contributions that exceed your deduction limit by more than $2,000 unless you withdrew the excess amounts or contributed to a qualifying group plan.
The CRA also hunts for disparities in retirement income. It can access information on bank account balances and income and match it with previous tax returns. If there’s a wide discrepancy, the agency is likely to start asking questions.
Capital gains from “flipping.” Obviously, real estate flipping isn’t against the law. It’s a method of buying and selling real estate to earn income. Individuals may also use assignment clauses in real estate contracts to flip a property once (or more) before a final sale is made.
The CRA keeps a close eye on potential flipping and unreported capital gains (the difference between the purchase price and sale price). All the money made on real estate flips, including real estate commissions and capital gains must be reported to the CRA. Multiple property ownership where the taxpayer isn’t also declaring rental income is another trigger for investigation.
In another move, the CRA reportedly has started to fingerprint every person charged with tax evasion, which would restrict foreign travel for anyone accused but not necessarily convicted of a criminal tax offence. “The mobility restriction is an important deterrent, especially for people engaged in offshore tax evasion,” an internal memorandum reportedly says. If you have any doubts about the tax implications of your earnings or your investments, consult with your tax advisor to help ensure you stay in compliance with the law.