CRA Confidentiality

It has always been axiomatic that CRA’s records are strictly confidential and not available to other arms of government.  Lately this credo has been significantly undermined both formally and informally.  At the formal level the new US law whose acronym is FATCA requires Canadian (and other) banks and financial institutions to report on US citizens (some of whom are Canadian legal residents) who have bank or investment accounts in Canada to the US Internal Revenue Service.  A recent negotiation between Canadian and US officials produced an amendment that provides that Canadian banks and financial institutions report this information to CRA and that CRA would turn over this information to the IRS.  Pardon?  How does CRA turn over financial information that is the property of Canadian taxpayers to a foreign government? These provisions beg a charter challenge. 

The other area that appears to be grey is the role that the CRA plays in non-tax related fraud investigations by the police.  It has come to my attention that a recent CRA investigation that CRA documents that absolved the taxpayer from any fraudulent dealings wound up in the hands of the RCMP.  The Income Tax Act states, clearly, that tax records can be released only in the case where the CRA is charging a taxpayer with fraud under the provisions of the Income Tax Act.  How did the RCMP get CRA information and files?  This will, I am sure, become the subject of a civil case against the CRA and its assessors. 

Also, what is unclear is the effect of international tax information exchange agreements that Canada has with countries that clearly offer bank and corporate confidentiality.  Such an agreement has been entered into with the Bahamas, Cayman, Nevis and Belize.  All three countries clearly offer strict bank and corporate confidentiality.  The terms under which the CRA and the governments of these countries can release information are unclear.  I have been given unconditional assurances that corporate and bank records such as directorship are strictly confidential and that Canadian “fishing operations” are not allowed.  

The good news is that net after tax income from countries with whom Canada has a tax information exchange agreement can be repatriated to Canada as dividends tax free to a corporate recipient.  While this may open the door to a more widespread use of  low/no tax jurisdictions (such as the Bahamas, Cayman, Nevis and Belize), these countries do not enjoy the benefits of a full blown tax treaty.  Therefore, in the Caribbean, Barbados still remains the jurisdiction of choice.