Big rewards offered for busting tax cheats

$300M forecasted in government gains over next fiscal year

Finance Minister Jim Flaherty has deputized the nation, as Budget 2013 promises lucrative rewards for anyone who helps the Canada Revenue Agency bag a major international tax cheat.

In a proposal that almost looks designed to encourage wealthy spouses to rat out their tax-avoiding partners, the “Stop International Tax Evasion Program” will see the CRA enter into a contract that will pay out up to 15% of the federal tax collected, but only if the information provided by the fink — sorry, the honest Canadian tipster — results in a new assessment exceeding $100,000 in federal tax.

“In this way,” the budget document says, “the CRA will target high-income taxpayers who attempt to evade or avoid tax using complex legal arrangements.”

In this way, it could also be called the Wealthy Divorce Starter Kit. It’s quite the proposal. Take the example of an individual — or a company — that has skirted a million-dollar tax bill on the sale of property located outside Canada. If the CRA was able to assess that amount thanks to the help of Joe Tax Fighter, then Joe (or Jane) would be in line for a $150,000 reward.

There are some caveats. You can’t collect if you are also guilty of the same tax evasion about which you are providing information — so business partners wouldn’t be able to bury each other and save themselves in the process. “We’re not looking for rogues to turn in rogues,” Mr. Flaherty told reporters on Thursday. And any reward would also be subject to income tax — so in all likelihood the CRA would get back half the money it pays out to members of its citizen army.

But as much as the international tax evasion program looks to be aimed at the rather narrow band of Canadians who drive Bentleys and the like, Budget 2013 makes the closing of tax loopholes one of the government’s central means of raising new revenue.

The document is sprinkled with references to improving “tax integrity” and “strengthening compliance” and “eliminating unintended benefits.” There are measures aimed squarely at corporate boardrooms and their clever accountants — ending the practice of hiding income by buying the assets of a money-losing company, for example — but there are also simple changes such as making public-sector bodies such as hospitals and schools collect GST or HST when they charge for the use of parking spaces.

The government isn’t talking about small amounts here. The budget forecasts loophole-related gains of more than $300-million in the coming fiscal year, growing to more than $1.2billion in 2017-18. In total, it expects to capture just under $4.4-billion in additional revenue under the banner of improving tax fairness.

Many of the measures are highly dry and technical, such as the proposal to eliminate the tax-planning trick called synthetic disposition. The budget even included an example of such trickery involving the hypothetical Acme corporation. In that scenario, Acme sought to avoid triggering capital gains taxes by selling shares in a different company, so it took out a bank loan and pledged to pay it off using the shares at a later date. It’s all quite complicated and not worth explaining in detail here, but the key is that Budget 2013 will introduce a new rule to prevent such a thing.

The number of Canadians for whom most of this stuff would have any meaning is undoubtedly small. But the Conservatives are still counting on big results.