Without much fan fare during the summer of 2017, the Organization of Economic Cooperation and Development (OECD) developed and ratified the Common Reporting Standard (CRS) rules.
At first read of that statement it is understandable why there was no media hype.
So why should Canadians pay attention?
The OECD is a world organization founded in 1961, currently with 35 member countries. It’s an inter-governmental economic organization with a mission to stimulate economic progress and world trade.
The CRS rules agreed upon by the OECD last July is no less than an “unprecedented level of cooperation among tax administrations worldwide”, so says the OECD.
Why?
Well, it’s an agreed upon obligatory reporting system among member countries to reduce tax evasion. And it’s about to kick in.
How?
Financial institutions must collect information about accounts owned by any resident of another country and must report this information to the tax authority of that person’s residency. This information must be routinely gathered and then automatically exchanged with other OECD member countries. In other words, this information gathering system is not request driven from an outside country. It is participation driven – it is a free flowing two way street of personal financial information among foreign countries.
As a resident of Canada, if you have a bank or brokerage account in a country outside of Canada, that OECD foreign country is obligated to pass that detail to Canada Revenue Agency (CRA).
This includes immigrants to Canada. Once recognized as a resident of Canada, their information about any financial accounts that remain open in their homeland will be shared with CRA.
CRA will do its matching magic with its super computers, and if any income from these accounts hasn’t been reported, CRA may be asking questions of that resident of Canada in the not too distant future.
In fact, a few years back CRA began requiring taxpayers to answer the question “do you own any foreign assets of $100,000 or greater” when filing their T1 tax return. If this fact wasn’t a shot-over-the-bow for people to voluntarily identify and report assets owned off-shore, this new CSR set of rules will likely force the issue - sort of like bringing a canon to someone’s front door.
Besides answering “yes” to the question on the T1 tax return this year and completing the detail needed, if this disclosure should have been given years ago, making a “Voluntary Disclosure” to CRA as soon as possible may be wise when considering the possible punishment upon CRA’s discovery of non-disclosure.
If voluntarily disclosed, CRA will not impose the 50% penalty of taxes owed nor pursue criminal charges. This being said, the taxes applicable to the unreported income do have to be paid immediately or will be subject to other penalties and interest charges.
When it comes to tax dollars, the old adage that it’s easier to ask for forgiveness than for permission may not hold.
Ron Clarke has his MBA and is a business owner in Trail, providing accounting and tax services. Email him at ron.clarke@JBSbiz.ca. To read previous Tax Tips & Pits columns visit www.JBSbiz.net.