The Office of the Auditor General of Canada has just released a report on a number of topics including "Aggressive Tax Planning". The report is interesting and provides some additional information on a number of points. Although generally positive there is no question that recent cut backs at CRA are going to make it more difficult to stop tax evasion.
For example on Third Party Civil Penalties:
The Canada Revenue Agency applies penalties to third parties
3.35 Third-party civil penalties came into force in 2000. They are meant to deter third parties from making false statements or omissions in relation to income tax or goods and services tax / harmonized sales tax matters that result in non-compliance with the Income Tax Act or Excise Tax Act.
3.36 It is the Canada Revenue Agency’s responsibility to determine whether to apply third-party penalties. In determining whether these penalties are applicable, a tax auditor may refer to the Agency’s guidance materials, such as an information circular on third-party penalties. When a case for such penalties is established, the file is sent to the Third-Party Penalty Review Committee. Its members include senior representatives from the Agency, the Department of Finance Canada, and the Department of Justice Canada. The Committee reviews each case and endorses or rejects a recommendation to apply the third-party penalty.
3.37 For the period from the 2009–10 to the 2012–13 fiscal years, the Agency recommended the application of third-party penalties in 118 cases to the Third-Party Penalty Review Committee. The third parties included some promoters of RRSP strips. Of the 118 cases,
48 cases were approved to apply third-party penalties,
22 were denied, and
48 were still being assessed at the end of the audit period.
Of the 48 cases in which third-party penalties were approved, the total value of penalties assessed was $63.3 million (the median penalty was approximately $440,000). Although it is not possible to measure the extent to which penalties were a deterrent, their use probably has had some impact on the behaviour of promoters and tax preparers.
The report does not identify how much of the $63.3 million was collected.
There is also a brief discussion about the difference between aggressive tax planing and criminal activity:
3.11 Although participating in ATP is not a criminal activity, in the course of its ATP program work, the Agency may come across cases that have crossed the line into tax evasion. Tax evasion is a deliberate contravention of the law, whereas tax avoidance arguably arises from legitimate differences in interpretation with no deceit involved and full disclosure. The scope of our audit did not include tax evasion or other activities subject to criminal investigation.
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Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.