New provisions widen federal scope to detect and prosecute for tax evasion and money laundering
Despite the small wins and various forms of tax relief it offers, the latest federal budget has been a disappointment to numerous industry groups. The Canadian Federation of Independent Business (CFIB) said it provides small business owners little relief from a barrage of new and higher taxes, while the Investment Industry Association of Canada (IIAC) called it a missed opportunity to stimulate economic growth and foster positive sentiment.
Other provisions in the budget should also be of concern to advisors, particularly tax professionals. As reported in International Investment, the 2019 budget includes a commitment to “[crack] down on tax evasion and aggressive tax avoidance” and “ultimately bring offenders to justice.”
Aside from “significant investments” to bolster the Canada Revenue Agency’s (CRA) ability to untangle complex tax schemes and collaborate with international partners, the plan includes an amendment to extend the offense of money laundering so that it includes “recklessness” as a criterion for prosecution.
According to a note from law firm Thorsteinssons, the proposals cover not just those who do not pay their taxes as required by law, but also tax professionals “who either intentionally or inadvertently offer services to those who are offside the law.”
“More so than ever, tax professionals should be well acquainted with the definitions of ‘tax evasion’, ‘proceeds of crime’, ‘money laundering’, ‘aiding’, ‘abetting’, ‘conspiring’, ‘willful blindness’, and now, ‘recklessness,’ to ensure that the services and advice that they offer to their clients cannot be construed as the commission or facilitation of a criminal offence,” the law firm said.
Also expected are further amendments to the Canada Business Corporations Act (CBCA), which will provide tax authorities and law enforcement with more ready access to beneficial ownership information on federally incorporated corporations. The CBCA has already been amended with requirements for federally incorporated corporations to maintain beneficial ownership information. The Budget 2018 also included a proposal to introduce enhanced tax-reporting requirements for trusts, which would be effective starting in the 2021 taxation year.
The amendments to the CBCA followed Canada’s unfavourable evaluation in the Financial Secrecy Index last year. Created by the Tax Justice Network in 2009, the 112-country ranking scored Canada as the 21st most secretive jurisdiction in the world as of January 2018. Aside from a concerning lack of transparency with regard to the beneficial ownership of corporations and trusts, it noted “the ease with which one can register anonymous shell corporations.
“Under public pressure, in July 2017, Canadian finance minister Bill Morneau announced measures targeting Canadians who use private corporations to ‘sprinkle’ income among family members, thereby lowering their collective tax burden,” the report went on to say. “The minister claimed to be closing ‘loopholes’ available to Canadians, while continuing to ignore the astonishing phenomenon of wealthy corporations taking advantage of Canadian treaties with tax havens to lower their tax payments.”
