CRA wants names of Canadians in Panama Papers

Amid revelations of offshore financial dealings involving prominent figures worldwide, the Canada Revenue Agency says it’s looking to get its hands on the leaked records to zero in on the activities of Canadian residents.

In a statement yesterday, the CRA said it continues to pursue audits related to offshore tax evasion, including Canadian clients associated with Mossack Fonseca.

“The agency is actively pursuing the co-operation of its tax treaty partners and the International Consortium of Investigative Journalists to obtain all of the leaked records that pertain to Canadian residents,” the CRA said.

 “The Minister of National Revenue has instructed CRA officials to obtain the data leaked through the Panama Papers in order to cross-reference this information with the data already obtained through the Agency’s existing investigation tools.”

Canada is closely watching the cases of citizens found to have set up offshore companies in Panama and elsewhere and will refer cases to prosecutors if necessary, said Chloe Luciani-Girouard, a spokeswoman for National Revenue Minister Diane Lebouthillier.

But a Toronto-based tax lawyer says it’s unlikely the CRA will be surprised by what it finds in the Panama Papers. While the agency is sure to find some cases of criminal tax avoidance, Vitaly Timokhov of Tax Chambers LLP says a significant portion of the documents will reveal either “clear stupidity” by those who don’t know the rules or those who have been taking their money offshore in “perfectly legal” ways.

While it’s possible, Timokhov says it’s unlikely those who want to set up criminal structures would go to Mossack Fonseca, which he describes as “the Cadillac of offshore firms.”

“You really wouldn’t deal with a law firm that serves governments and heads of states” to accommodate a criminal intent, he says.

Timokhov also says the CRA has the tools to track every financial transaction between Canada and any other country in the world, adding most of the information the agency needs is likely already available to it. The CRA also knows a significant portion of people who have moved their money offshore are not breaking any laws, he says.

“They know about every cent that leaves Canada. It’s a huge amount of information, I agree, and they have to use it selectively. But do they know about funds going to Panama? Oh my god, of course. Absolutely,” says Timokhov.

RBC, Canada's biggest bank, and its subsidiaries were associated with 378 shell companies registered in the Mossack Fonseca data, the Toronto Star reported.

RBC said that it worked within the legal and regulatory framework of every country in which it operates and had an extensive due diligence process to understand what its clients' intentions were.

A spokesman for federal Finance Minister Bill Morneau said that “at this point, we have no reason to believe Canadian banks have acted unlawfully.”

Last month, the Liberal government last month promised to invest almost $450 million over five years to gather more information about tax evasion and tax avoidance.

Since January 2015, Canada had already been monitoring all international transfers of funds worth more than $10,000, including those from Panama, said Luciani-Girouard.

According to Timokhov, what is common are Canadian residents who purchase a property in a foreign country, say Panama, for personal use without knowing the consequences of incorporating that property.

Since the buyer’s permanent residence is in Canada, they’d typically incorporate the property in order to appoint a local nominee shareholder or director who can manage the property on their behalf, says Timokhov. When the buyer then visits Panama and stays in that property, they must pay rent to the corporation. In other words, their usage of the property counts as benefit from their corporation for income tax purposes.

“This property now belongs to the corporation. There’s provision in the Income Tax Act, s. 15, which basically tells you if you move into the condo, you actually use corporate property. You’re actually receiving a benefit from your corporation,” says Timokhov.

If the Canadian resident did not pay rent on such property, they must self-assess the benefit they’ve received from the corporation equal to the fair value of the rent they’ve failed to pay. Whether individuals who don’t do so are wilfully ignorant of the rules is of course part of the question for the CRA.

With files from Reuters.

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