Cdn tax cheats come clean amid close scrutiny of #offshore havens soa.li/erGtyKh – Only payment of back taxes no penalties #FBAR
— U.S. Citizen Abroad (@USCitizenAbroad) April 15, 2013
Taxpayers who disclose unreported income under the program not only avoid penalties and legal action, but the Canada Revenue Agency routinely waives partial interest on the overdue amounts as well, under little-known rules.
Perhaps Form Nation could learn something from this.
Simpler, cleaner and better!
The OECD wrote a report in 2010 comparing voluntary disclosure programs in about 40 countries (see summary tables starting on page 27). Most of them, like Canada, only charge back taxes, some also charge interest, some charge penalties on tax, and a few charge penalties on income, but only the United States has the draconian policy of charging penalties on assets. Not even the countries that have a wealth tax do that.
Canada’s pretty smart, imo. They know that if they perceived as inhumane (Draconian, as our friends to the south are) it will just drive people deeper, where they many never see a cent of revenue due to them. I know two people personally who have taken advantage of Canada’s voluntary disclosure program. One was someone who neglected to file a return for several years, the other someone who neglected to declare a relatively small pension from another country. In both circumstances things went well, but the CRA does reserve the right to audit for several years. My suspicion is that their files are monitored for awhile, as one has been notified that they cannot e-file in the year after the disclosure. I don’t know what the CRA’s response is once they have you on their radar, but I suppose that there are degrees of culpability there too, as there are under the IRS’s Internal Revenue Manual.
The IRS would rather have us all crucified before showing any humanity.
It must be HELL, to be crucified in OVD!
Not sure how best to post this video that can be found on YouTube at http://m.youtube.com/watch?v=h5Wt4OVYigY entitled Full Transparency Needed to Close Down Tax Havens, but the amount of inaccurate information on the operation of non US law (i.e. Mexico), the scale of the problem and the effect of FATCA is astounding. If this type of inaccurate picture (i.e. all non US accounts must mean something is not Kosher) is painted, we can only expect the overall situation for overseas US Persons to get worse.
@Uncle Tell, the US approach is that if we were born and/or live outside the US, we are already deemed guilty. The rest apparently is just details – i.e. exactly how much the US will extort and confiscate of our legal post-tax assets – thus how much they will steal from the asset and tax base of the rest of the globe – via FBAR and FATCA.
Take the ‘non-willful’ FBAR penalty, or the mandatory penalty within OVDI for those born duals living ‘abroad’. And that in the entire absence of any actual US tax assessed or owed. After paying in full to the country where the assets were earned, and where we actually live.
And for our children, like Calgary411’s son, born outside the US; they are sentenced to the punitive taxation or confiscation of their education and disability savings – merely for the crime of having one or more US status parent. Sentenced to a lifelong double tax and penalty jeopardy burden merely because of where we were born.
The Monty Python clip is so very apt, because the US citizenship-based extraterritorial taxation system as applied to us has entered the realm of the absurd.
As in the ‘Life of Brian’, Congress, Treasury and IRS ask those ‘abroad’ :
“What’ll it be, Death or crucifixion?”
I think I’d rather be stoned than crucified 🙂
FWIW, I’ve actually been audited by Canada Revenue Agency. One day I found a Notice of Audit in my mailbox. Surprised? You bet. Terrified? Nope. Didn’t lose a minute’s sleep or stop enjoying life in the daytime.
If the audit ruled against me, it would have been a pain in the neck, but not anything major, and certainly not even remotely life-altering.
There was not one mention of penalties, nor any threats, nor the slightest hint of any misconduct on my part, in either the notice of audit or the interview.
I spent about an hour preparing for the audit interview, so I’d know what to expect. The CRA website is very user-friendly and described the audit procedure clearly and non-threateningly. I next sought out information on the particular issue under investigation, both on the CRA website and elsewhere online. I also spoke with an acquaintance who had been audited. I wanted to put my best case forward, but I did not intend to, nor did I, lie about anything.
In the interview, I felt kind of detached, like a witness in an investigation – not like the accused. All questions were directly relevant to the matter being investigated. I was not under oath, nevertheless the examiner took me at my word. She did ask me to send a document, one which, although I’m not really sure exactly what she wanted it for, struck me as relevant and reasonable.
Two weeks later I received a positive ruling in the mail. The entire process, from receiving the notice of audit to receiving the positive ruling, was just under three weeks.
All-in-all, my audit (research, preparation, interview) took less than 2 hours out of my life. It sure didn’t keep me up at night or torment and overwhelm my daytime hours. No psychological or physical problems, and no fear of financial ruin, even if I had made a mistake on my return and the ruling had gone against me.
CRA did not automatically assume that I was guilty. CRA can tell the difference between a whale and a minnow, and they can tell the difference between a sophisticated fraudster and an everyday person who might have filled out their tax return incorrectly. They start with the assumption it’s a misunderstanding, not a crime.
My experience is that CRA is run like a business. It strikes me that CRA’s main interest is simply straightening things out efficiently.
The difference between philosophy and practices of the CRA (and the tax agencies of other countries) and IRS. And, our countries are ready to turn our more humane, intelligent methods over to the US and its IRS.
It seems to me that you had confidence that both parties, you and the CRA, would get down to the truth, and should the truth had been either an error on either of your parts, it would be easily rectified. Therefore you didn’t fear the process. IRS special agents carry handguns.
It’s nice to know that probably in most cases the CRA uses a soft voice to get a tax problem straightened out whereas the IRS likes to use a big stick. However, there have been instances when the CRA has destroyed people’s lives as pointed out in that recent W5 episode on CTV, “Tax Me If You Can”. There is also the case of Irving Leroux, formerly of Valemount, BC, who had his life destroyed unfairly by the CRA. He eventually won his case but as far as I know he did not receive compensation for his million dollar loss.
I have a great deal of faith in CRA, and it’s employees. So much faith, in fact, that years ago, when my family made and sold maple syrup, I would complete my tax forms to the point of business income. As we operated at a loss, I would enclose all financial statements with my return, and submit it for CRA to complete the return. I couldn’t afford professional tax prep. I trusted CRA completely, to do the right thing, and they did.
A few years ago, either I, or Turbo Tax, made a double entry of one of my husband’s deductions. Long after getting the refund, we received a neutral letter, questioning the deduction amount, and requesting copies of his T4s. I had no fear, dug up the T4s, realized the error, and wrote back that I’d made a mistake, please advise on what is owed. Everything was smooth, from start to finish. No rudeness, no threats, no fear, no penalties, not even paperwork.
I have also had many dealings with CRA, while employed as a bookkeeper. I have found they are very pleasant to deal with, give accurate information, and stand behind it.
One of the joys of being Canadian is not being fearful of the tax man.
Many if not most of those with foreign accounts have legitimate reasons for having them. They also have the means to easily conceal those accounts if they wanted to. But they would like to fix past mistakes. A reasonable approach like Canada’s is an incentive. An unreasonable approach (27.5% of high balance as penalty for small unreported interest) discourages them.
The IRS must decide between 1) a reasonable penalty from many taxpayers that also brings them back into the taxpaying fold an results in more money to the IRS, or 2) large penalties from a few, which may make for impressive press releases but results in less money and only makes those who make mistakes become willful evaders. So far the IRS has chosen the second approach.
It would be interesting to compare US and Canadian voluntary disclosure statistics. I would bet that the Canadian approach is more successful.
@south of the border, re;
….”It would be interesting to compare US and Canadian voluntary disclosure statistics. I would bet that the Canadian approach is more successful.”..
And unlike the US currently, I doubt Canada has ever had long line ups of Canadian citizens queuing at embassies and consulates all over the world, willing to pay 450. and jump through expensive and incomprehensible tax and legal hoops – desperate to get rid of their Canadian citizenship, or fearful that Canada would bar them from visiting their family forever, as per the Reed Amendment.
@south of the border
I wish I could remember where I saw these figures, but my recollection is that a year or so ago I saw a comparison between the number of people who came forward under US OVDI and the number of folks who came forward under Canada’s voluntary disclosure program, in the same year (I think it was 2010 but it might have been 2009). My recollection is that roughly the same number (not percentage, but actual number) of Canadians came forward under our program as came forward in the US under their program.
Given that the US population is roughly 10x more than Canada’s, the possible conclusions are: a) Canadians are 10x more likely than Americans to cheat or just make an honest mistake on their tax returns and then fess up later, or b) honey attracts more flies than vinegar (i.e., reasonable treatment and non-life-destroying penalties work better than the reverse). My guess is b). and not a). Especially since our tax code in Canada is not even remotely near 72,000 pages long, and it’s a lot easier to make an honest mistake or overlook something because you don’t have a PhD in accounting (nor the income to afford to hire someone who does) and infinite time and tolerance for turgid prose, that the reverse. If anything I’d think Americans are far more likely than we are to mess up their tax returns, given that encyclopedic tax code they have.
Maybe someone else remembers that source and can post a link if they can find it. It may have been over at Expat Forum, but I suspect those threads have long since been purged … but it might have been a news item in Globe and Mail or Financial Post, not sure.
You might say that the Canadian governments approach to voluntary disclosure is “life restoring” vs the US’s “life destroying” approach.
What can we institute from a government institution that ARMS it’s special agents? They start to think that they are above the law. http://www.reuters.com/article/2012/10/02/us-usa-tax-tigta-idUSBRE89113W20121002
you cannot make stuff like this up 🙂
Ex-IRS agent sentenced to 24 years in prison for hiring a hit man to kill tax clients he defrauded out of $11 million
Badger’s comment on another thread is worth reposting on this particular one, as it spells out what a debacle the IRS has made for itself:
“The AICPA note in an official submission (a MUST READ) to Congress that the use of penalties by the IRS has turned first and foremost into a revenue generating scheme rather than to encourage compliance:
“The AICPA report addresses the following specific issues:
The trend away from voluntary compliance as the primary purpose of civil tax penalties;
The lack of clear standards in some penalties;
The fact that some penalties are disproportionate both in amount and severity;
The fact that some penalties are overbroad, deter remedial and other good conduct, and punish innocent conduct;
The trend toward strict liability;
An erosion of basic procedural due process;
Inconsistencies between penalty standards and the role of tax professionals;
The increase in automated assessment of penalties that can lead to unwarranted assessments;
The need for better coordination and oversight of penalty administration;
The bias in favor of asserting penalties;
The need to improve Internal Revenue Service (IRS or “Service”) guidance and training; and
The need for the IRS to increase its efforts to educate taxpayers and tax professionals. ”
The AICPA report goes on to assert:…..”we believe the real message is that the IRS views
penalties as a revenue source, that a cost-benefit analysis is performed around whether or
not to assert penalties, and that only penalties that have high dollar amounts attached to
them are worth enforcing. This view leads not to a policy based on the deterrent value of
penalties, but rather a policy that says that penalties most likely to be imposed should be
high because the cost of asserting and defending them will be offset by the proceeds of
the penalty……” from pg 5 ‘AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
Report on Civil Tax Penalties: The Need for Reform ‘
Unfortunately, they do not address FBARs, and the other jeopardies commonly confronting those living abroad with legitmate legal local accounts – held where we live and work – outside the US. In fact, they say: ……..”The current civil penalties in the Internal Revenue Code (IRC or “Code”) have become removed from the original purpose of civil penalties, to encourage voluntary compliance. There are areas where civil penalties should be used, such as we have seen with abusive
tax shelters and unreported foreign assets”….
They do not separate or make a distinction between the potential FBAR and 3520 penalties on our legal local accounts with those deliberately unreported by US resident homelanders with Cayman accounts when they say; ‘unreported foreign assets’.”
“.The Director of the Competent Authority Services Division at the Canada Revenue Agency, Sue Murray, noted that Canada has offered a voluntary disclosure program for many years but that the recent publicity of offshore evasion and enforcement is increasing the number of disclosures north of the border to new highs..”