Canada's Income Tax Act requires Canadian residents to report all worldwide income on their income tax returns. This includes offshore or foreign pension income. Two questions that individuals commonly have with offshore income are:
- Was I a Canadian resident when I had offshore income?
- What if I have not reported my offshore income?
We can help with both of these issues, as we are Canadian Tax Lawyers who have extensive experience in this area having assisted taxpayers in Canada and worldwide with their Canadian tax liabilities and residence determinations.
The information published by the CRA is often contradictory about the penalty relief. This often confuses taxpayers who are thinking of opting for the Voluntary Disclosure Program.
It is important to clarify that generally all foreign offshore pension income must be reported by Canadian residents even if the offshore pension is not taxable in the country of origin or if tax has been paid in the foreign jurisdiction. If foreign tax is paid, normally the Canadian resident will be entitled to a foreign tax credit to avoid double taxation. In some cases this foreign tax credit will reduce the Canadian tax owing on the pension income to nil, however this does not always happen. Depending on the income tax rates in the country that your pension originates, and whether or not Canada has a tax treaty with that country that addresses double taxation, your tax liability under Canada’s Tax Act may still be substantial.
If you have failed to report pension income, speak to our Canadian income tax lawyers about the Voluntary Disclosures Program ("VDP"). Canada Revenue Agency’s ("CRA") VDP allows Canadian taxpayers to come forward and correct inaccurate or incomplete financial information, or to disclose previously unreported information, including unreported offshore pension income. By participating in the VDP, taxpayers can file their previously unfiled T1, T2, T3 or T1135, and other tax returns and eliminate civil income tax penalties and avoid criminal tax prosecution, and may be able to obtain interest relief on the amount they would owe if and when they are discovered by the CRA. The information published by the CRA is often contradictory about the penalty relief. This often confuses taxpayers who are thinking of opting for the Voluntary Disclosure Program.
Briefly, the conditions for a valid disclosure are:
- The disclosure is voluntary
- A penalty applies
- The information is at least one year overdue and
- The information is complete.
You can find more information about the VDP here
An added bonus is that the initial disclosure made through the VDP can be done anonymously to provide further protection for the taxpayer. If you’re interested in taking advantage of the program, contact our office and one of our expert Toronto Tax Lawyers with extensive experience in this area will be glad to assist you.
If you are unsure whether you were or currently are a Canadian resident for tax purposes, we can assist you with that determination. As stated above, Canadian residents for tax purposes are required to report all worldwide income. The determination of whether a taxpayer is a resident of Canada will depend on a wide range of factors, such as significant residential ties to Canada (e.g. spouse, house, etc) as well as secondary residential ties to Canada (e.g. club memberships, driver's license, etc). Notwithstanding these factors, individuals who "sojourn" (i.e. are temporarily present) in Canada for a total of 183 days or more in any calendar year are deemed to be resident in Canada for the entire year.
Residential ties to other countries may also be relevant. There are circumstances under which the CRA will deem a person to be a resident or non-resident of Canada, with resulting tax consequences.
Finally, the CRA has launched a new Offshore Tax Informant Program ("OTIP") for informants to provide information to CRA about foreign and offshore tax non-compliance. This whistleblower program rewards individuals for giving information for CRA to collect on non-reporters; it is another sign that CRA is cracking down on offshore sources of income.
If you are worried or unsure about whether you are or were a Canadian resident for tax purposes, and have unreported foreign pension income or any type of income or property, call our top Toronto income tax law firm for further information. OurToronto tax lawyers are very experienced with VDP applications. We can negotiate for and represent you at all steps in the process.