On July 16, 2018, the Ontario Superior Court of Justice delivered a major victory to Canadian charities that devote all or a portion of their resources to non-partisan political activities.
In Canada Without Poverty v. Attorney General of Canada, the Court held that non-partisan political activities constitute charitable activities for the purposes of the Income Tax Act (Canada) (the Act), provided that they are carried out in furtherance of an organization’s charitable purposes. Accordingly, a registered charity may devote significantly more than 10% of its resources to such activities, contrary to long-standing Canada Revenue Agency (CRA) policy.
This decision is of particular interest to registered charities that have been the object of increased audit activity from the CRA for having engaged in political activities. Depending on the specific circumstances at issue, the decision may forge a path to a successful outcome for those involved in administrative audits with the CRA or legal proceedings before the courts.
On November 5, 2017, a massive leak of financial documents referred to as the Paradise Papers was released to the public. The leak involves multiple jurisdictions and contains nearly 13.4 million confidential electronic documents relating to offshore investment. The Paradise Papers comes largely from Appleby, a law firm based in Bermuda, and from the corporate registries of 19 tax havens.
The Paradise Papers cover the period from 1950 to 2016 and involve over 120,000 people and companies across the world, including government officials, entertainment personalities and corporate giants. It also involves more than 3,000 Canadian individuals and corporations, which is five times more than the ones from the Panama Papers.
On November 3, 2017, just a few days prior to this new leak, the Canada Revenue Agency (the “CRA”) delivered a statement (document) to highlight its work to combat tax evasion and tax avoidance. The CRA stated having “currently more than 990 audits and more than 42 criminal investigations related to offshore underway”, 123 of which involve participants and facilitators named in the Panama Papers. In light of the recent Paradise Papers leak, the CRA already announced that it is reviewing the data and promised to take “appropriate action”.
Furthermore, as part of the CRA’s strategy to combat offshore tax evasion and aggressive tax planning, the CRA announced earlier this year that a revised voluntary disclosures program policy would be introduced in 2018. The proposed changes were initially supposed to be implemented on January 1, 2018, but the CRA is delaying the implementation until March 1, 2018. The formal keys changes confirmed by the CRA will :
- eliminate the « no-names » disclosure process;
- require payment of the estimated tax at the time of the application;
- cancel relief if it is subsequently discovered that the application was not complete due to a misrepresentation; and
- create a two tracks system by introducing a « General Program » for minor non-compliance and a « Limited Program » for major non-compliance with limited relief in certain circumstances;
Such circumstances could include, for example :
- Situations where large amounts of tax were avoided;
- Active efforts to avoid detection and the use of complex offshore structures;
- Multiple years of non-compliance;
- Disclosures motivated by CRA statements regarding its intended focus of compliance, by broad-based tax compliance programs or by the reception of leaked confidential information by the CRA such as the Paradise Papers data leak; and
- Other circumstances in which the CRA considers that there was a high degree of guilt in the taxpayer’s conduct contributing to his failure to comply.
What is the “automatic exchange of financial information”
In order to increase tax transparency across the globe, the Organisation for Economic Co-operation and Development (OECD) adopted the Common Reporting Standard (CRS) on July 15, 2014. The CRS initiative calls on each participating jurisdiction to obtain information from financial institutions within their country and automatically exchange that information with other jurisdictions on an annual basis. The objective is to increase tax compliance by providing key information to the participating jurisdictions allowing them to identify whether their citizens accurately report their foreign assets and income. However, since the CRS is not constraining, 90 jurisdictions have also signed the Multilateral Competent Authority Agreement (MCAA) on automatic exchange of financial account information. The MCAA provides a mechanism to facilitate the exchange of information in accordance with the CRS. Such information to be disclosed includes the following :
- The name, address, taxpayer identification number, date and place of birth of each account holder;
- The account number;
- The name and identifying number of the financial institution;
- The account balance or value (including, in the case of a cash value insurance contract or annuity contract, the cash value or surrender value) as of the end of the relevant calendar year or the closure of the account;
- The total gross amount of interest, dividends and other income generated with respect to the assets held in the account.
Qu’est-ce que « l’échange automatique de renseignements financiers »?
Afin d’accroître la transparence fiscale à travers le monde, l’Organisation de coopération et de développement économiques (OCDE) a adopté la norme commune de déclaration (NCD) le 15 juillet 2014. L’initiative de la NCD invite les juridictions participantes à obtenir des renseignements auprès des institutions financières de leur pays et à les échanger automatiquement avec d’autres juridictions sur une base annuelle. L’objectif est d’accroître l’observation des règles fiscales en fournissant des renseignements importants aux juridictions participantes afin de leur permettre de déterminer si leurs citoyens déclarent correctement leurs actifs et leurs revenus étrangers.
Cependant, puisque la NCD n’est pas contraignante, 90 juridictions ont également signé l’Accord Multilatéral entre Autorités Compétentes (AMAC) sur l’échange automatique de renseignements financiers. L’AMAC fournit un mécanisme pour faciliter l’échange de renseignements conformément à la NCD. Les renseignements à divulguer comprennent ce qui suit :
- Le nom, l’adresse, le numéro d’identification du contribuable et la date et le lieu de naissance de chaque titulaire du compte;
- Le numéro de compte;
- Le nom et le numéro d’identification de l’institution financière;
- Le solde ou la valeur du compte (y compris, dans le cas d’un contrat d’assurance comportant une valeur de rachat ou d’un contrat de rente, la valeur de rachat) à la fin de l’année civile concernée ou à la fermeture du compte;
- Le montant total des intérêts, des dividendes et des autres revenus générés relativement aux actifs détenus dans le compte.