Will CRA get it right this time?

The Canada Revenue Agency is stating that it won’t be cutting any deals for individuals named in the Panama Papers leaks, which is a welcome change.  One only has to think back to the KPMG scheme that broke last winter to get a sense of how wealthy individuals were given the kid-glove treatment and offered a second chance.  Compare that to the experience of most Canadians who are routinely named by the CRA and the differences are stark.

In case you aren’t aware, the Panama Papers are an enormous amount of leaked documents that detail financial and private information for over 200,000 offshore entities that originated from the Panamanian law firm Mossack Fonseca.  The information, leaked to a German journalist, was available in a searchable database and embarrassed a number of prominent people, including then British Prime Minister, David Cameron and even forced Iceland’s Prime Minister to resign.  The person who leaked the papers hoped to highlight how Fonseca’s shell companies may have been used for illegal purposes, including fraud, kleptocracy (government by those who seek chiefly status and personal gain at the expense of the governed), tax evasion, and evading international sanctions.

Compared to the Panama Papers, the KPMG scandal was small.  In that case the company sought out wealthy Canadians with the promise of no tax being applied to their investments.  When the news broke, the CRA quickly offered amnesty to individuals named in the scandal.  The sad thing is that this amounts to standard operating procedure for CRA making  impossible to know the identity of well-to-do Canadians or corporations who have settled with the agency for schemes like KPMG. The CRA claims to be protecting their privacy. But, again, ordinary Canadians are regularly named and shamed on the agency’s website.

With the Panama Papers, the agency has the chance to turn the corner and apply consistent treatment for tax cheats no matter how much they’re worth, but will they do it?  According to the Minister of National Revenue, they will.  She states that CRA will work to “identify and curb tax schemes and to bring those who choose to participate in such tactics to justice.”  To show they are doing their job the CRA recently announced that they are auditing more than 750 individuals suspected of hiding assets offshore and conducting 20 criminal investigations for the same reason.  They won’t speak specifically about the Panama Papers beyond saying there are audits and criminal investigation being undertaken.

The government has allocated money to hire new auditors, but it is unknown if those will even replace the ones the Conservatives let go.  Even then, the department works at a snail’s pace. To give an example, it took six years to investigate 106 accounts from the 2007 Liechtenstein tax scandal.  In the end they collected $8 million in taxes owed.  Also, if it weren’t for voluntary admissions, the agency wouldn’t be able to boast that it is collecting more hidden money than ever.  Perhaps those admissions have more to do with embarrassing leaks than any fear of the tax man when CRA has been anything but fearsome for a long time - if you’ve got a lot to hide that is.