DO YOU HAVE A LARGE BANK ACCOUNT IN ANOTHER COUNTRY?
If you have a bank account, or a brokerage or other financial account in a country outside Canada, and you have not been reporting the account or income from it on your income tax returns, you need to know about the new “Common Reporting Standard” (CRS) rules.
The CRS represents an unprecedented level of cooperation among tax administrations worldwide. It was developed by the Organisation for Economic Cooperation and Development (OECD) for automatic information exchange between countries to reduce tax evasion, and took effect in July 2017.
The CRS works as follows. In each participating country, banks and other financial institutions must collect information about accounts owned by residents of other countries, following “due diligence” rules, and must report this information to the local tax authority. In general, for an existing client, the institution will not be required to inquire as to residence status if all accounts totalled less than US$250,000 as of June 30, 2017. New clients will be required to “self-certify” as to where they are resident for tax purposes. (This description is highly simplified. There are many special rules and exceptions.)
The tax authority will then split up the information by country of residence, and will automatically provide that information to each foreign country, without needing a request from that country.
So, suppose you immigrated from Italy and you kept an account at an Italian bank branch, which now has EUR 300,000 in it. The bank will report your name, address, the amount of the account and other identifying information to the Agenzia delle Entrate (the Italian tax authority). The Agenzia will then send this information to the CRA, along with that of other Canadian residents with accounts in Italy. If the CRA finds that you haven’t been reporting the income from this account, or haven’t reported the account as “foreign property”, you will be in serious trouble. In addition to being assessed tax, interest and penalties for many years, you may be prosecuted and could be sent to prison.
If you are in this situation, you may wish to make a Voluntary Disclosure to the CRA as soon as possible. The CRA’s Information Circular 00-1R6 (tinyurl.com/ic00-1R6) has recently changed the rules for voluntary disclosures, as of March 1, 2018. If the CRA already has information identifying you, such as from the Agenzia delle Entrate in the above example, you will not qualify for a Voluntary Disclosure even if the CRA has not yet told you it has this information.(See the third bullet in para. 29 of the Circular.)
If your disclosure is accepted as a Voluntary Disclosure, the CRA will not prosecute criminally and will not impose the 50% gross-negligence/fraud penalty. However, you will have to pay the tax up front to qualify, and will be subject to interest and other penalties, such as penalties for unpaid instalments and penalties for not reporting foreign property.
So if you are in this situation, you may wish to act now in the hope that the CRA has not yet received information identifying you and your foreign bank account.