'Come to CRA before we go to you': International deal designed to expose offshore tax cheats

Canadians with secret overseas bank accounts could soon find themselves at risk of being exposed by a new international agreement designed to help catch tax cheats.

Under the Common Reporting Standard, dozens of countries will share information about bank accounts held by non-residents.

Beginning in September 2018, the information will be sent to the Canada Revenue Agency (CRA), which in return, will send information about Canadian bank accounts belonging to non-residents to their home countries.

According to an update provided to G20 leaders earlier this month, 101 countries have signed on to the agreement. Canada has so far worked out information-sharing details with 42 countries.

• Canada's weak laws hobble identification of tax dodgers
• Deal that sends Canadian bank records to IRS is 'illegal,' lawyer tells U.S. committee

Lisa Anawati, deputy assistant commissioner of CRA's international, large business and investigations branch, said the deal will help the agency find those who have been using bank accounts outside Canada to avoid or evade taxes.

"We will be able to use that [information] to piece together with other information that we already have and get a better understanding as to whether that taxpayer or those taxpayers involved are reporting their taxes appropriately."

One country refusing to participate, however, is the United States, which already receives information about bank accounts held by American citizens through its Foreign Account Tax Compliance Act (FATCA) and other intergovernmental agreements, including one with Canada.

While many governments are lauding the Common Reporting Standard's potential for fighting tax evasion, experts like Queen's University law professor Arthur Cockfield aren't convinced it will be effective.

"The general feeling out there in the industry is that very few of the big fish will be caught," he said. "A few of the small fish, sometimes they are called suckers, may be discovered through this new information-sharing program, but there are just a whole bunch of loopholes so anybody, any crook, who doesn't want his or her identity revealed, can usually find a way to do so."

One such way to hide assets or evade taxes, he said, is the use of shell companies and nominee directors that mask what is known as the beneficial owner of the company. 

Cockfield also questions whether countries like Switzerland, which has refused in the past to co-operate with the Canadian government citing bank secrecy laws, will fully comply with the Common Reporting Standard.

The Organization for Economic Co-operation and Development (OECD) spearheaded the deal as part of the global response to the revelations in the Panama Papers.

That investigation, led by the International Consortium of Investigative Journalists and based on the unprecedented leak of 11.5 million records from the Panamanian law firm Mossack Fonseca, sent shock waves around the world and served as a collective wake-up call about just how much money is hidden in offshore tax havens.

While it's not illegal to have a bank account in another country, the income from that bank account is supposed to be reported on your income tax return.

Automatic sharing

Until now, countries investigating suspected tax evasion had to request information from other countries. Under the Common Reporting Standard, the information sharing will be automatic — regardless of whether tax evasion is suspected.

The first wave of sharing will begin in September between 50 countries, including France, Germany, Greece, Italy, Mexico and the U.K.

In Canada, the Common Reporting Standard legally took effect on July 1. Banks and credit unions across the country are currently going through their files to determine which account-holders aren't Canadian residents. Banks will also begin asking those who open new accounts about their residency.

• How Canada got into bed with tax havens
• Are the days of Swiss bank accounts numbered?

Canadian financial institutions are supposed to begin sending information about those accounts to the CRA in May 2018. Four months later, the agency will begin transferring information about Canadian bank accounts belonging to non-residents to the home countries of the account-holders. At the same time, the CRA will begin receiving information from other countries about bank accounts in their jurisdictions belonging to Canadian residents.

The information will include the name, address and date of birth of the account-holder; their tax information number; their country or countries of residence; the account number; the account balance or value; and the amount of "interest, dividends, gross proceeds and other payments made or credited to the account."

Numbers a mystery

Just how many Canadians and non-residents with bank accounts in Canada could be affected by the new deal is still a mystery.

Anawati says the CRA has no idea how many secret bank accounts Canadians have around the world.

"We can't even estimate at this point because it's information that we don't have. Once we start receiving the information, we expect that there will be many accounts that we will learn about."

When asked how many of their accounts belong to non-residents, each of Canada's six big banks referred the CBC to the Canadian Bankers Association, which said it doesn't know.

The Credit Union Association of Canada was more forthcoming.

President Martha Durdin said her association is largely composed of small, local credit unions based outside Quebec. She said her association's concern about the Common Reporting Standard is that it will put an administrative burden on credit unions even though less than one per cent of their accounts belong to non-residents.

Secure transmission

Some critics are also concerned about privacy.

The CRA says it won't share information with another country unless it can be assured the information can be transmitted securely. It's currently working on a privacy impact assessment for Canada's privacy commissioner, Daniel Therrien.

During the debate over Canada's information-sharing deal with the U.S. back in April 2016, Therrien recommended the CRA inform account-holders when their banking information is shared.

The CRA has no plans to automatically inform people if Canadian bank account information is shared with another country as a result of the Common Reporting Standard.

People who want to know whether their account information is being shared with the CRA should ask their banks, Anawati said.

• CRA offshore tax tip line nets $1M in reassessments, penalties

As for those who have bank accounts outside Canada that they haven't reported to the CRA, Anawati suggests they make a voluntary disclosure.

"The message would be come to CRA before we go to you."