Offshore Tax Problems

Offshore Banking and Business is a Recipe For Big Tax Problems that require Tax Audit Solutions

The world of offshore has changed, and using offshore as a means of tax reduction is no longer practical or safe. If you think that being off shore will somehow protect you, it means that you remain uninformed of what is going on in the current world wide tax regimes.

There is nothing wrong with having offshore corporations and bank accounts, however if the business or money is there, driven by a desire to pay less tax then you are already offside with the tax man.

It is a matter of fact that there are practical reasons to be offshore, such as asset management, business strategy, hiding assets from disgruntled spouses, law suits and having a rainy day nest egg.

In the old days a lot of people used offshore to avoid taxes, and all too often for tax evasion under the guise of tax avoidance.

Tax avoidance is legal, tax evasion is not. That old adage of “they will never find out” is over. Secrecy laws are dropping like flies from poison bait, so the cover is off the secrecy formula and now Canadians with offshore accounts are in the cross hairs of the tax man.

What we are finding is that a lot of people are coming to us because they are correctly afraid that the tax man is going to be coming after them. Those people are right it is coming and the more money or assets you have offshore, the sooner they will come.

It is not just the tax that was not paid that is the problem, it is the penalties of which there are many. For instance there is the 1135 form that carries heavy penalties if it is not completed annually on the income tax form.

All offshore wealth has to be reported, even inheritances , which are non-taxable for Canadian taxpayers, regardless of whether the inheritance comes from a Canadian or a foreign resident. It doesn’t matter if the inheritance was cash, property, or company shares, it still has to be reported on one’s tax returns.

If one has unreported wealth offshore, now is a really good time to come forward before the tax man comes for you.

There are four options, 1. Do nothing and hope for the best. 2. File tax return adjustments. 3. Do a voluntary disclosure. (VDP) 4. Be caught by the tax man.

Currently CRA seems to be pretty acceptance of voluntary disclosures. From a risk management perspective, if the amount is large, the fines will be large too, so it is a good time to discuss this with a tax professional to decide on the best strategy.

Because doing a VDP allows CRA to open up ten years of tax returns, this risk needs to be seriously looked at. In all probability there are more than one right answers to consider.

You also have to look at the amount of tax liability you are going to have and whether or not one can actually pay the final bill. Therefore there needs to be a strategy plan on how to get through the mess.

The avoided tax can be handled by way of filing tax adjustments. They are often processed without penalties, but because the penalties are so high, and that CRA is co-operating, the VDP can a good bet.

Offshore bank accounts are in the news a lot these days and for good reason.

As tax regimes are going after the lucrative world of hidden tax wealth, if you have unreported offshore income, it is time to consider a corrective plan of action.

One layer of privacy at a time, those who were offshore tax avoiders and tax evaders are getting nailed and those who advised and helped them, get exposed, so now is the time for tax remedial action.

Now with the KPMG disaster, it is a political quagmire for our politicians from the last conservative government. The fact that Stephen Harper penned made big splashes in the news at a time when media investigations were going on, really makes one wonder… as in “what’s big deal?” Well… it is a pretty big deal in my mind. You can realistically expect to have the proverbial maneur to hit the fan and some very prominent politicians and financial people to be in the media sights and there will be resulting court cases.

It is a very big deal when politicians are offshore under the guise of who knows what explanation, are placing their wealth in tax reducing structures.

I don’t believe the concept of gifting money back and forth, or secret directors, or certain family trusts will stand the scrutiny of GAAR. As a matter of fact the collapse of these structures is already happening in the courts.

How can we expect the population to stop looking for ways to reduce taxes if our politicians and the rich get away with tax dodging? In order to ensure overall tax compliance, we need to ensure that every one pays their fair share. The only way to ensure that is for the tax man to make sure no one gets away with it. Now that there is no privacy, that is not such a dauntable task for the taxman.

Now that things are really heating up for those who chose to structure themselves to avoid taxes, they are faced with difficult decisions to make. The fire is heating the water and as in the frog in the pan not jumping out if the pot is heating slowly, unlike jumping out if dumped in hot water from the beginning, everyone should be bailing out now before they are fully cooked! However there are still those who will wait until it is too lateand will be cooked by the time they see that they should have leaped for a safer place.

It is not just the taxpayer who is finding themselves in hot water, it is also the promoters and advisors who recruit clients that they create tax saving offshore structures for. There are third party penalties of 50% plus interest on the tax evaded for those promoters who will get devastating tax bills

It was cool in the good old glory days of offshore banking, prior to 911 to have an offshore bank account. A rainy day nest egg, so to speak. In those days Offshore was an option for people who had legitimate or not reasons to keep their money private, regardless of being associated with tax savings or not. It was pretty safe back in the early days, but now offshore structures can provide privacy, but not without risk. As a tax savings vehicle, it now simply is a bad tax idea.

That fateful day of 911 when the planes crashed the twin towers market the end of the line for privacy. That day was the beginning and the end of off shore privacy and that having money offshore even for legal non tax reasons, would no longer be hidden from the eyes of the taxman. If your offshore bank account is not really private, it means anyone who really wants to, can find out about it. The type of information that is now being leaked demonstrates that you can not count on secrecy from those who have electronic prying eyes.

On that fateful 911 day, it was clear that one needed to immediately take precautions against being caught using offshore to avoid taxes. Being caught became a matter of being looked at sooner rather than later. The question is not “if”… the question is “when” will the spot light shine.

When it comes to offshore, I have seen it all, been there done that. I moved on… Money offshore is not safe from the prying eyes of the governments. If you need to have offshore money, be well advised to report it on your tax returns. There remains a level of offshore secrecy from those who do not possess the power of the taxman. You still get the advantage of offshore privacy laws to protect you from prying eyes and for doing offshore business, but you just better not think you can use offshore to avoid paying taxes on your worldwide income.

The current interest is in The Panama Papers fiasco, where there was a leak of millions of confidential documents from Panamanian law firm Mossack Fonseca that has caused an uproar in international media.

The leak revealed that the firm had spent decades helping wealthy people from around the world set up offshore shell companies and offshore bank accounts. Such companies often have legitimate purposes, but they are often used as vehicles for, evading taxes that a person would otherwise have to pay.

It is important to understand GAAR (General Anti Avoidance Regulations) is a vehicle that CRA can use to overturn any structure that is primarily directed at avoiding taxes. That being the case, it therefore is not a good idea to go offshore for the primary purpose of reducing your tax burden.

Panama has long been known in the tax world for its privacy laws that are in place to protect the identity of its foreign owners. In the days that I was involved in offshore dealings it was more about Belize,the Cayman Islands, Switzerland, and the Isle of Man.

These jurisdictions have given up some of that privacy in recent years, submitting to the pressure to get in line with the Organization for Economic Co-operation and Development on the crackdown on tax havens.

Panama has tried hard to maintain its level of secrecy, so there was a bit of reputation attached to Panama, because tax evaders believed that Panama would protect their secret identity.

The Panama leak exposed information that is normally only available through a leak like this, and not through normal channels.

For many years, people believed that the rich and famous hired expensive help to use offshore to safely reduce their tax burdens. So it is no wonder that the upper middle class got on board too…. Believing that if the rich could do it, it must be safe for them too.

The idea that wealthy people are able to be holding funds offshore, and are not paying their fair share of tax, seems to be a beacon that drew tax savers like bees to honey.

Government Tax policy has to contend with the fact that capital is so mobile now, that tax regimes now need to distinguish money for tax evasion from legitimate offshore business money. This requires more tax staff and a higher level of sophistication and dedicated support for the principle that all people have to pay their fair share of taxes.

These are competing issues, Canada has a wide network of tax treaties which have obligations to other jurisdictions. But it is not that hard to sort our what needs to be done. Be prepared for a mountain of tax audits.

Understand that tax evasion is criminal in nature and as a result one has to keep their related documents forever. There is no time when it is ok to destroy the records. Improper tax avoidance activities become statute barred after ten years. Tax evasion never becomes statute barred. The calendar can help you but it is not an impermeable tax shield against the taxman.

We also need to consider that some people may want to leave the country if they are forced to pay too much tax. Personally I don’t think that makes a lot of sense. Yes you can move to anywhere in the world and often pay less taxes, but it comes with a price. Leaving your home and the things you take for granted can in hind sight be a regrettable decision.

I often hear from people who have moved offshore, and they all say it is not a life of peaches and cream. It comes with its own challenges.

I understand the frustration of payng taxes when you know that there are some who do not pay their fair share.

From an ordinary citizen’s perspective it’s very irritating that they are stuck paying their fair share though source deductions. They don’t have sufficient capital to funnel their money to Panama and see any benefit from it. But the person who has his or her own profitable business, may be able to take advantage of this to arrange their affairs to minimize his tax. The good news is that it is becoming public knowledge that saving taxes is inviting a battle with a powerful bully.

The wise person now understands that they need to structure their affairs in a manner that does not incur the wrath of the tax man.

An insight that has to be seen is; If tax avoidance is legal, then why does GAAR even exist? Well it does exist for the sole reason of capturing tax driven structures. Practically speaking, tax avoidance is only appropriate where it is a byproduct of a higher reason than taxes to conduct one’s affairs offshore.

What needs to be seen and understood is that a tax liability is a good thing. Tax liabilities are a sign of success. The bigger the tax bill the greater was the success!

There is nothing wrong with using profits or borrowed capital in one’s business on shore or offshore, for the intent of earning more money. It that capital reduces tax then that is legitimate tax avoidance as a result and not by design.

In terms of hiring expensive help to reduce your taxes by way of offshore structures, that is no longer a sensible strategy. An example of this wisdom is the situation with transfer pricing. What was once the rage as a tax strategy is now the result of tax audits, along with all the resulting tax problems that need strategic tax audit solutions.

Now with the current media attention drawing politicians into the limelight, look for some exciting news stories. While politicians will want to protect each other, they often eat their own. And then when they do self attack remember that a stuck pig squeals like bloody murder. You can expect to see more of the Mike Duffy type scandals coming up on the news.

The whole realm of offshore banking is highly complex and how to do tax evasion is not something taught in university. It is only something learned from those who do it. In today’s world, those who advise and those who do it – will get caught, sooner or later. Or they will find the right experienced, tax representative to get them off the hot seat and start sleeping well again.


The problem now is… what you did in the past can catch up to you as in the case of Andrew Saxton.

Tories defend MP named in offshore tax probe

From CBC new on Friday, November 5, 2010

CBC News

Andrew Saxton, a former banker who is the Conservative MP for North Vancouver, is entangled in a political controversy over a tax-evasion investigation. (Courtesy

The Conservative government is rejecting opposition demands for the removal of a Tory MP whose name appears in an offshore tax probe.

During question period Friday, NDP finance critic Thomas Mulcair said MP Andrew Saxton “simply cannot continue in his role” as parliamentary secretary to the president of the treasury board during the investigation and “has to step aside.”

Government House leader John Baird dismissed Mulcair’s demand, calling it “a drive-by smear” and adding: “I regret that the member would come to this place and ask that kind of question.”

Saxton, during his previous career as a banker, approved a transfer of funds on behalf of a Canadian taxpayer to an account in Switzerland that the taxpayer set up to help evade taxes, CBC News and the Globe and Mail learned.

The investigation uncovered court documents that show Saxton, now the Conservative MP from North Vancouver, instructing the transfer of $199,975 into a Swiss bank account in 1994 on behalf of a Canadian client of RBC Dominion Securities in Victoria.

Saxton was the head of private banking for the Vancouver branch of Credit Suisse Canada from 1992 until 1994, when he left for a series of HSBC banking posts across Asia. He has been the Treasury Board parliamentary secretary since he was elected to Parliament in 2008.

Later in question period, Bloc Québécois MP Serge Cardin demanded that Prime Minister Stephen Harper fire Saxton, in view of the “very serious” information uncovered in the joint investigation by CBC News and the Globe and Mail.

Pierre Poilievre, parliamentary secretary to the prime minister, said Saxton “has done his work with integrity; he has spoken out about tax evasion.”

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