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Question

I’m a Canadian with a Swiss bank/investment account that I’ve yet to disclose to CRA.

What risks am I facing and what are my options?

Answer

The Swiss Government along with Swiss banks have increased efforts to communicate the importance of fully disclosing foreign accounts to their Canadian clients.

Some of our new clients have recently received a letter from UBS with the following request:

Dear client,

Following the recent developments in the area of taxation law, UBS has decided to request additional documentation from its clients. We will require documentary evidence that the taxable income from the assets held with UBS and, as applicable, the respective assets have been disclosed to the responsible tax authorities. This evidence will allow us to continue to offer you our comprehensive range of services and products.

For those not complying with similar requests, banks like UBS have threaten to close foreign owned accounts and send liquidated account proceeds back to their respective home countries. Obviously these actions would attract unwanted attention from CRA and related Canadian banks.

For those Canadians with undisclosed foreign accounts the penalties can be significant. Not only would penalties up to 17% (in some cases in excess of 50% of taxes owing) apply, penalties of a maximum of $2,500 per year could also be applied to the non-disclosure of the account via form T1135.

Let’s use a simple example to illustrate how quickly penalties can rise:

  • Canadian with undisclosed Swiss investment account
  • Established the account 10 years ago
  • The account had an average value of $500,000 each year
  • The account earned approximately $25,000 a year in income
  • Assume a 30% tax rate for the taxpayer

If CRA was to discover this account and reassess the taxpayer for all 10 years this would be the approximate result:

  • $2,500 per year for each late T1135 = $25,000 (plus interest)
  • $25,000 a year in income x 10 years = $250,000 x 30% tax = $75,000 x 17% penalty = 12,750 (plus interest)

In simple terms that’s $37,750 before interest (which could double the tax bill) and not including the actual amount of tax owing. This estimate also doesn’t include any gross negligence penalties discuss above.

So, what are your options?

The only real option, other than continuing to not disclose the account, will be to take advantage of CRA’s Voluntary Disclosure Program (VDP). In most cases, assuming you meet the eligibility requirements, applying for relief under VDP will give you the best chance of declaring your assets and income without having to pay unnecessary and costly penalties. Although you would still need to pay the actual amount of tax owing, and perhaps some interest, the $37,750 of penalties estimated above would be waived.

If you’re a Canadian with an undisclosed foreign account do not wait until CRA asks you about the account. The Voluntary Disclosure Program will not be available to you if CRA has already begun taking action on the account.

In most cases we can file an anonymous application which gives us a 90 day window to file the completed application in full.

Call me today at 250-381-2400 or email me at phil@huthceson.ca to discuss your options for disclosing your foreign account(s) to CRA.

Note to US Citizens:

The process for disclosing your foreign accounts to the US government and the IRS are different than outlined above. If you’re a US citizen (even if you live in Canada) with undisclosed foreign accounts please contact me at the number above and I’ll walk you through the process.

Phil Hogan

Phil Hogan is a Canadian and US CPA working with clients throughout Canada and the US. Phil advises on cross border tax and financial planning matters. Phil can be reached at phil@hutcheson.ca or via telephone at 250-661-9417. You can also read more about Phil at Hutcheson.ca/phil.
Phil Hogan

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Philip Hogan

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The information contained in this article is for general use only and should not be viewed as professional advice. Accounting and tax rules and regulations regularly change and individuals should contact a competent professional to obtain accounting and tax advice based on their specific situation.

Phil Hogan

Phil Hogan is a Canadian and US CPA working with clients throughout Canada and the US. Phil advises on cross border tax and financial planning matters. Phil can be reached at phil@hutcheson.ca or via telephone at 250-661-9417. You can also read more about Phil at Hutcheson.ca/phil.
Phil Hogan

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