Gone are the days when offshore bank accounts and assets were outside the tax authorities' reach. Lack of transparency between tax authorities in different jurisdictions, and between tax authorities and financial institutions of different jurisdictions had historically allowed taxpayers to hide their assets and income. The Common Reporting Standard ("CRS") was developed to address this problem.
Following the 2008 financial crisis, tax agencies around the world turned their attention to the problem of tax evasion. Over 150 countries, including Canada, Hong Kong and China have signed on for the CRS. In essence, CRS is an information standard for automatic exchange of information on financial accounts between the tax authorities of various jurisdictions.
An important change from the past is that the requirement for exchange of information is on the financial institutions (not you voluntarily) and it's done automatically without the need of your consent.
Example
If you are now a resident in Canada and you have financial accounts in Hong Kong and China, these financial institutions are required to disclose your financial information to the appropriate tax authorities, in this case, IRD in Hong Kong and the State of Administration of Taxation ("SAT") in China, In trun, the IRD and SAT will automatically direct the information to the Canadian Revenue Agency ("CRA") in Canada, and vice verse.
Penalties, Interest and Possible Criminal Prosecution – Consequences of Failure to Report
Canadian taxpayers who fail to report their foreign income or certain offshore assets can face significant penalties and accrued interest charges if caught by the CRA.
Prosecuting the taxpayer for the crime of tax evasion is another option in the CRA’s arsenal. If convicted of this crime, a Canadian taxpayer can face up to two years in prison.
Tax Planning and Remedy
You should consult an advisor on the importance to you and in most cases tax planning can be an effective way to minimize the tax liability if done legally and properly.
Next Steps...
Leave your problems to the professionals and sleep worry-free!