25-year-old internal memo to Canada Revenue Agency predicted foreign money distorting housing market

Pretty outrageous, both the initial non-release and the five-year ATIP battle. Kudos to Ian Young of the SCMP for persisting. David Anderson and Jane Stewart were ministers at the time:

An internal Canada Revenue Agency audit concluded 25 years ago that wealthy new immigrants were buying up most of the priciest houses taken from a sample in and around Vancouver while declaring poverty on their tax returns. But the report was not made public until a five-year access-to-information battle concluded recently.

Housing and immigration academics say the study could have warned the public about the scale of foreign money being parked in Metro Vancouver’s residential real estate – decades before the provincial government began taking meaningful action to slow this trend.

During the federal election campaign, all three major parties have proposed various policies to curb international demand for real estate, which has contributed to rising unaffordability in a number of urban centres.

The Liberals and Conservatives are promising to ban foreign home buyers for at least two years. The New Democrats have pledged to tax those who aren’t Canadian citizens or permanent residents with a 20-per-cent levy – the same penalty imposed in British Columbia’s biggest cities for the past three years.

But critics say the parties need to follow B.C.’s lead to capture even more information about property owners so that they can be taxed more equitably and governments can tamp down international real estate speculation.

The CRA’s analysis from October, 1996, was shared with The Globe and Mail this week after its release to Ian Young, the South China Morning Post’s Vancouver correspondent who first requested the information in 2016 after being leaked portions of the internal memo explaining its findings.

The audit focused on 328 higher-end sales in the suburbs Burnaby and Coquitlam, but the study also analyzed a random sample of 6,060 sales from Vancouver and neighbouring Richmond and discovered “similar demographic results.”

Of the 46 houses bought in Burnaby, staff found 72 per cent were purchased by new arrivals to Vancouver who reported an average total family income of just $16,000. In contrast, the CRA’s chart from the audit showed four buyers who were long-term residents reported average family incomes that were tens of thousands of dollars higher.

This income gap between new immigrants and neighbours who had lived there longer was also observed in Coquitlam, according to the CRA’s chart released in the package of documents.

“It should be noted that an obvious large discrepancy exists between the average total family incomes for long-term Canadian residents and newer Canadian residents,” the author of the memo wrote to his CRA boss. “Furthermore, based on lifestyle and average age of these taxpayers, it is likely that many of these new Canadians still have active business activities, but are not reporting all their sources of income.”

Vancouver lawyer Richard Kurland, who has been helping international clients immigrate to B.C. for 25 years, said the analysis proves the CRA failed to catch those hiding their global income while competing for homes on Canada’s West Coast.

“They knew it was happening and did nothing, so the bleeding continued, taxes were not paid, property was subject to speculation and the end result [is] people in Vancouver are paying many more times than they have to for residential property because the CRA did nothing when it was warned by its own employees about what was going on,” he said.

David Ley, a geography professor at the University of B.C. who studies housing bubbles, said the 1996 report could have spurred politicians to address the anomaly of “apparently poor people buying very rich properties” decades earlier. He said the CRA had long maintained that they it would take too many resources to crack down on home buyers hiding wealth abroad, in large part because other countries they lived in were unlikely to release the pertinent tax information.

“It’s very difficult to pursue foreign sources of income – so they didn’t,” Dr. Ley said.

The CRA told The Globe this week that the study intentionally focused on cases where the buyer may have been underreporting their income and, thus, “was not intended to, and should not be, extrapolated to the whole population.”

But large parts of the internal communications around the release of this document were redacted because the agency said federal access-to-information law allows consultations or deliberations between government employees, a minister of the Crown or their staff to remain confidential.

The federal agency said it takes cheating its system seriously and has stepped up audits in the hot housing markets of Toronto and Vancouver in recent years. Still, the CRA said its five-year battle with Mr. Young over the release of this document is “clearly not normal, nor is it acceptable; we are continuing to take steps to improve [our] performance.”

Andy Yan, a housing analyst and director of Simon Fraser University’s city program, said the federal government has a lot of tools – such as home loan data and analysis of social demographic changes in neighbourhoods – through which it can confirm or refute how widespread these investment patterns have been. But, ultimately, he said, the CRA has not effectively enforced the country’s tax rules, helping create an unfair system where foreign capital is stored in residential real estate.

“There shouldn’t be any free parking,” said Mr. Yan.

In 2015, a Globe and Mail investigation into public data – including land titles, tax reporting and court records – revealed a similar pattern to the 1996 CRA study that suggested the typical wealthy foreign family buying Vancouver real estate pays little or no income or capital gains tax. These family homes were priced out of reach for many locals whose taxes pay for public services.

The Globe discovered that one in three multimillion-dollar homes bought in Vancouver areas popular with foreign buyers was registered to a homemaker, student or corporation – one indicator of how the identity of the person who actually paid can be hidden.

When a spouse or child sells a property that is registered in their name, the real investor can avoid capital-gains taxes – because the relative in Canada can claim it was their primary residence, therefore not an investment.

This and other Globe investigations helped increase public pressure on the provincial Liberal government to enact Canada’s first tax on foreign homebuyers. After the New Democrats were elected in 2017, in part on their pledge to further crack down on expanding real estate speculation, B.C. implemented a host of new taxes and demand-side tools.

Mr. Kurland said more provinces need to follow B.C.’s lead in requiring that homebuyers declare their country of residence for tax purposes as well as create a registry for beneficial owners – which will come into full force at the end of this year to make it tougher for people to hide real estate investments behind corporations, trusts or partnerships.

He said the CRA’s current “whack-a-mole” approach to catching scofflaws in the housing market relies on auditors digging for specific information in individual cases, but it will soon be able to use algorithms to scour all its tax information and these twin data sets to better catch those hiding wealth in B.C.

“It’s equivalent of an abacus versus a spreadsheet,” said Mr. Kurland, who added that he saw a “massive selling spree” among foreign owners in B.C. before each of those two policies became law.

Rohana Rezel, a software engineer who advocates for more affordable housing by using software and data to uncover speculators in Metro Vancouver’s market, said the most effective federal policy on this issue would be to blanket the whole country with a speculation tax on all homes.

Then, owners could offset this two-per-cent penalty against what they pay to the CRA each year, said Mr. Rezel.

“If you’re paying income taxes of a certain amount it doesn’t apply to you,” said Mr. Rezel, who immigrated to Canada from Sri Lanka in 2008.

Source: https://www.theglobeandmail.com/canada/british-columbia/article-25-year-old-internal-memo-to-canada-revenue-agency-predicted-foreign/

If governments want to combat Islamophobia, they will need to take a hard look in the mirror

More on CRA reviewing Muslim charities:

On July 22, the federal government will host a national summit on Islamophobia. All levels of government in Canada will be represented, as will Muslim-Canadian community organizations and leaders, so as to chart a path forward to combat racism and discrimination in Canada.

This path will not be easy. If done in good faith and with integrity, this project will not only require our governments to work on fighting Islamophobia in the broader public, but will also require them to take a hard look in the mirror to face their complicity.

The list of missteps is long, from racial profiling at our borders to disproportionate and highly disruptive surveillance of Canadian Muslim communities in the name of national security. These state practices have permeated our lives at many levels, and have been a drain on our collective psyche for far too long.

Take, as an example, one seemingly mundane and routine government practice: tax audits of charitable organizations by the Canada Revenue Agency (CRA) – a commonplace and needed part of how our government regulates the country’s charitable sector. We embarked on a study of this practice as it relates to Muslim-led Canadian charities when we heard an increasing chorus of fear and anxiety from them that something was amiss in the way such audits were unfolding. Those organizations had a simple question: Is this normal?

What we found was a simple answer: No.

We set to work investigating what was happening, and a year later released our co-authored study, Under Layered Suspicion: A Review of CRA Audits of Muslim-led Charities. The only evidence we had access to were the audit files provided to us by three charities who lost their charitable status after a CRA audit – none of our Access to Information and Privacy (ATIP) requests directed to the CRA yielded any files; in fact, we are still waiting for that information to this day.

Despite the obstacles we faced when it came to government transparency, we were able to glean valuable insights through a deep analysis of the audit files we had in our possession. By examining in close detail how auditors read and research, how they select evidence and how they interpret information, we found that these were no ordinary audits of charities – they were, in one way or another, informed by Canada’s whole-of-government policies on anti-terrorism financing and anti-radicalization.

This, in and of itself, is not an issue. It is imperative that the government undertake activities to combat terrorist financing. However, what we found was that the Canadian government identifies 100 per cent of terrorism-financing risk with groups that map onto Canada’s racialized communities, and 80 per cent (or more) of that risk maps directly onto Canada’s Muslim communities. This fact is drawn directly from Finance Canada’s 2015 assessment report to the global Financial Action Task Force.

We identified a bizarre approach that has been adopted by the CRA that to us signalled deeper systemic problems: mosques that had charitable status yanked through six degrees of alleged fault (for example, an imam who once spoke at an impugned mosque had made allegedly discriminatory remarks years before in another setting); charities that were questioned because they celebrated the Eid holiday at a time that didn’t sync with when the CRA thought they should have celebrated Eid; and humanitarian organizations that came under watch during the Harper regime.

Our findings have since been validated by a second report, issued by the International Civil Liberties Monitoring Group (ICLMG). That report focuses on a bureau within the CRA – the Review and Analysis Division (RAD) – which integrates the CRA with the national-security apparatus. It also attempted to gather statistical data on RAD audits as it mapped a disturbing trend of the disproportionate focus of such audits on Muslim-led charities. While the ICLMG’s findings require further validation, the lack of transparency of these audit processes requires immediate review and action by the government.

The reality is, as we show in our report, government-sponsored structural discrimination creates the conditions for a bureaucratic culture of Islamophobia to fester in the everyday, ordinary activities of government officials. We cannot hope to combat Islamophobia in this country as long as our own government enables it so overtly, without any oversight or appropriate checks and balances.

Source: https://www.theglobeandmail.com/opinion/article-if-governments-want-to-combat-islamophobia-they-will-need-to-take-a/

Shree Paradkar: ‘Random’ tax audits of Muslim charities provide cover for biased terrorism suspicions, report finds

Of note. Can understand why some of the speakers prompted questions regarding charitable status, the point made inconsistency with respect to some Christian charities and institutions is valid:

When the Ottawa Islamic Centre and Assalam Mosque found its charitable status revoked in 2018, it was told it had promoted “hate and intolerance” by hosting four speakers who were found to have previously espoused dubious views elsewhere.

There was no record of what was said at the mosque, which the government found to be a violation of the Income Tax Act.

“The mere possibility that the views of the speakers … could have been expressed” warranted concern, wrote the Charities Directorate, a federal agency that sits within the Canada Revenue agency and oversees compliance with income tax laws. The fear was that the centre might be a hot spot for radicalized Muslims.

A new report titled “Layered Suspicion” released Monday studies three organizations that lost their charitable status to two key policies: anti-terrorism financing and anti-radicalization. The three are the Ottawa Islamic Centre and Assalam Mosque, the Islamic Shi’a Assembly of Canada and IRFAN-Canada.

The report examines how long-standing tropes of Muslims as the menacing outsiders who pose an imminent threat to society influence tax audits of Muslim-led charities. It looks at biases implicit in the audit, what interpretations auditors make and if there was bias in the selection of their evidence.

Authors Anver Emon, a University of Toronto law professor and director of its Institute of Islamic Studies, and Nadia Hasan, chief operating officer of the National Council of Canadian Muslims (NCCM), found that tax audits are often used as a cover for structural biases in policies related to financing terror and radicalization.

These policies operate in the shadows of an otherwise ordinary audit, the authors write, raising concerns about basic fairness, transparency and accountability.

Organizations are often told it’s a random audit. But for years, Hasan said, “we were hearing all kinds of grumblings about the kind of information auditors were asking that didn’t seem right. But nobody could put their finger to what was going on.”

The Ottawa Islamic Centre was created for the purpose of “advancing religion,” which is one of the categories that satisfies the requirement of charitable status. It served a largely Somali Muslim community. Canadian government focus on this community changed from humanitarianism to national security after 9/11, the authors write. Those fears are based on stories of a “small handful of young Somali-Canadians” recruited by al-Shabab extremists as foreign fighters, the report says.

The four speakers were considered to have what the government called “extreme ideas.” Extreme ideas, a nebulous concept based on the belief they can be transformed into violent activities, is key to Canada’s anti-radicalization strategy. It grants Public Safety agents discretionary authority and the power to determine what is extreme and what constitutes a threat to national security.

A BBC documentary reported one of those speakers, the American Abu Usamah at-Thahabi, saying in a Birmingham mosque, “No one loves the kafir (non-believers)” and that “I don’t agree with (Muslim terrorists) but at the same time they are closer to me than those criminals of the kufr (disbelief).”

Others were accused of homophobic and misogynistic attitudes; one of them was banned from multiple countries.

“Our point is even if they have conservative views whether we agree with them or not, they cannot become a pretext for radicalization concerns,” says Emon.

This approach was not applied equally across racial and religious groups, the report says.

“In 2019, pastors from Christ’s Forgiveness Ministries … were arrested in Toronto while preaching anti-gay ideas during Pride Week,” the report says. “At the date of writing this report, Christ’s Forgiveness Ministries remains registered as a charity.”

The report offers other examples: Canada Christian College is registered as a charity with the CRA despite its president Charles McVety’s open homophobia. If the Ottawa speaker was slammed by British broadcasting, McVety was castigated by the Canadian Broadcast Standards Council as “abusive.”

Journey Canada, accused of supporting practices of conversion therapy and Northern Youth Programs, which operated some of the last residential schools in Canada, and is accused of running programs in Northern Ontario that LGBTQ2 members claim are harmful to youth, also keep their status.

The other policy of note for the report is Canada’s anti-terrorism financing policy that involves 13 federal departments and agencies, eight of which receive funding totalling $70 million annually.

The CRA is one of those agencies.

The terrorist attacks of 9/11 and what the report calls “the exaggerated and generally debunked belief” that the wealthy Osama bin Laden was bankrolling al-Qaida brought global attention to the issue of terrorist financing.

In 2015, as part of a risk assessment review process, Canada named 10 groups that posed the greatest threat to terrorist financing.

Out of those, eight are Muslim or Arab including al-Qaida, Hamas, al-Shabab and Hezbollah. One is a vaguely named “Khalistani Extremist Groups” and another is “Remnants of the Liberation Tigers of Tamil Eelam.”

“What’s this risk-based assessment going to do?” Emon says, “It’s going to put the focus on Muslim charities in particular.”

The Islamic Shi’a Assembly’s troubles began in 2011 right after Stephen Harper was elected prime minister, the report says. The Charities Directorate first determined that the organization’s operations did not support “advancing religion” as its purpose. And if it wasn’t advancing religion then it deemed it to be supporting a political purpose.

Its audit began at a time of tense Canada-Iran relations, days after Harper declared it “probably the most significant threat in the world to global peace and security.” The directorate concluded the organization was a Canadian front for an Iranian-controlled global organization that had among its membership people from Hezbollah.

How did the organization run afoul of its “advancing religion” mandate? The audit report said it found the organization hosting Eid festivals for Ramadan two-and-a-half weeks after the recognized religious dates for Eid ul-Fitr. But there are no statutory holidays for Muslim festivals. And because they follow the lunar calendar, the festival sometimes falls mid-week. As with other non-Christian groups, Muslims have to decide whether to take time off work or school to attend religious services. It is therefore standard for organizations to schedule festivities on a weekend at a later date.

The decision “smacked of a protestant Christian bias that manifested as state protection and state oversight,” Emon says.

IRFAN-Canada or the International Relief Fund for the Afflicted and Needy (Canada) also ran afoul of the terrorism financing rules, but via a different route. Its mandate was “poverty relief” not advancing religion. Among regions it worked in was the West Bank and Gaza Strip and it was given charitable status in 1999.

But when Hamas won the parliamentary election in the Palestinian territories in 2006, it sent the world into a tailspin. Depending on a nation’s politics, the social wings and political wings of Hamas were either considered separate or they were collapsed. The report reproduces various arguments in Parliament during question period in the early to mid 2000s to show how “the Israeli-Palestinian conflict became a political battleground for domestic partisan feuds.”

By 2011 the directorate revoked IRFAN-Canada’s charitable status alleging direct links to Hamas. Any of its projects funded through a government ministry in Gaza were automatically deemed to support Hamas after 2006.

The report calls for an immediate suspension of the CRA’s Review and Analysis Division, the agency’s investigative unit of charities and terrorism funding and a review of Canada’s risk assessment model and strategy to combat extremism and radicalization. It seeks transparency from the Charities Directorate to let organizations know why they’re being audited.

It’s calling for the suspension of discretionary use of revocation powers in audits where counter-radicalization policies are involved.

Mustafa Farooq, chief executive officer of the National Council of Canadian Muslims, said these organizations have to constantly second-guess themselves. “If we invite this Imam do we have to search everything this Imam ever said so we don’t someday lose our charitable status? Will it matter if we hold an Eid celebration a week later. What happens when we’re trying to donate to an international cause domestically but that someday might be unpopular with the government?

“There is always this spectre haunting Muslims that animates and weaves its way through this report.”

Source: Shree Paradkar: ‘Random’ tax audits of Muslim charities provide cover for biased terrorism suspicions, report finds

Some CRA systems are ‘systemically oppressive’ towards vulnerable populations: taxpayers’ ombudsman

Systemic but unintentional barriers:

The federal taxpayers’ ombudsman says some of Canada Revenue Agency’s (CRA) processes are “systemically oppressive” towards vulnerable populations as well as indigenous, rural and northern communities.

“These (tax) filers feel they receive conflicting information, the processes are unfair and the CRA does not address their unique circumstances and needs,” Canada’s outgoing Taxpayers’ Ombudsman, Sherra Profit, writes in her 2019-2020 annual report published Wednesday.

“This general belief leads to reluctance to interact with a system much of the population believes to be systemically oppressive and in turn reduces the likelihood people receive all the benefits, credits and deductions to which they are entitled,” the report says.

That belief by indigenous, rural and northern communities isn’t just a question of perception, Profit later specified in an interview with the National Post.

“One’s perception is reality. It is their reality,” said the head of the taxpayers’ watchdog.

Over her five-year mandate that ends on July 5, Profit says she found multiple instances where CRA’s bureaucracy was overly rigid and had significant communication issues with taxpayers.

She says that can be particularly problematic for vulnerable populations who don’t always have quick or timely access to some basic services.

“There are aspects of the CRA systems and processes that will be more oppressive to certain groups (…) For example, so many people don’t have a family doctor. So asking for a letter from a family doctor isn’t going to work from them,” Profit said.

“There are also socio-economic classes of people who are in housing situations where it may be very difficult to get a lease or a letter on a letterhead from a landlord,” she said, adding that these CRA systems are not intentionally designed to be oppressive.

In her report, she highlights one particularly shocking case where a woman who depended on the Canada Child Benefit (CCB) for day-to-day living was suddenly cut off from payments and demanded to reimburse $16,000.

After she reached out to CRA for an explanation, the agency told her the documents she submitted in her reapplication after separation from her ex-spouse were “not legible”.

“Instead of requesting she resend them, the CRA stopped her benefits. The complainant resent the documents and called several times to get updates, without success,” Profit explains in the report.

It took an urgent intervention by the Taxpayers’ Ombudsman’s office to have CRA conduct a review of the file, according to the report. The CRA then understood why it was more difficult for the applicant to reapply for CCB.

“At this time it became known that her living situation was not safe and she was forced into an emergency shelter while trying to find permanent housing. Losing the CCB further complicated finding a suitable home for her children,” the report said.

At that point, the CRA not only quickly approved her new application, but also manually processed a retroactive CCB payment and then sent her the December payment early to assist with holiday spending.

“I do find there is a lot of breakdown in communication,” Profit said. “I know the CRA is making changes to how it administers programs like the CCB, but we’re finding we’re still seeing a lot of these complaints.”

Another issue she’s noted over her tenure as the taxpayers’ ombudsman is that various CRA departments tend to operate in silos.

That would explain why someone could be repeatedly asked by the agency to provide the same information or documentation over and over, for example.

“There are systems that don’t talk to one another, Profit said. That’s something I’ve really been constantly bringing up. (CRA needs) a more horizontal approach to look at things as a whole.”

Overall though, Profit says she’s encouraged by efforts made by the CRA to improve service to Canadians and gradually adopt more client-centric approach.

As an example, she noted the appointment of a Chief Services Officer in March 2018 whose job is to transform the agency’s culture and significantly improve the quality and speed of services offered to Canadians.

“They’re at least starting to talk the talk. They know there are issues, they know they are problems, and they have that Chief Services Officer who is looking at it with a whole-of-organization perspective,” the ombudsman explained.

But in order for her own organization to better do its job, Profit says the federal government needs to increase its budget and make her office report to Parliament.

As of now, the Taxpayers’ Ombudsman reports directly to the Minister of National Revenue, who is in charge of CRA.

“This structure creates an inherent element of conflict of interest in the ombudsman reporting to the Minister responsible for the department or agency the ombudsman is tasked with overseeing. A Minister has a vested interested in ensuring their department or agency is perceived to be operating effectively and efficiently,” Profit agues in her report.

Source: Some CRA systems are ‘systemically oppressive’ towards vulnerable populations: taxpayers’ ombudsman

FATCA: U.S. tax rules raising the stakes for Canadian residents with American citizenship

The ongoing saga of compliance with US tax law and Foreign Account Tax Compliance Act (FATCA) following the end of the grace period January 1:

Many Canadian residents with U.S. citizenship could risk fines or the closure of their banking or investment accounts in the coming months if they don’t provide financial institutions with U.S. identification numbers, officials warn.

Experts say that in some cases, financial institutions may close accounts rather than face fines for not providing U.S. social security or taxpayer identification numbers for clients who could be subject to U.S. income tax, such as dual citizens.

That means the stakes are about to get higher for those who haven’t been filing returns and for “accidental Americans” — Canadians with U.S. citizenship (from being born in the U.S. or to an American parent) who did not realize that, as American citizens, they’re obliged to file U.S. tax returns.

The changes won’t affect those who are already filing income tax returns to both Canada and the United States and who already have provided their financial institutions with U.S. identification numbers.Unlike most countries, which levy income tax based on where taxpayers live, the United States requires all those with U.S. citizenship to file income tax returns, regardless of where they live or how much time they’ve spent in the U.S.

The Canada Revenue Agency, not the U.S. Internal Revenue Service, will be enforcing the requirement and levying any fines.

How FACTA works

In 2010, the United States adopted the controversial Foreign Account Tax Compliance Act (FATCA) in a bid to curb offshore tax evasion. Under FATCA, financial institutions outside the United States are obliged to search their files for customers who could be subject to U.S. income tax and report information about those accounts.

Former prime minister Stephen Harper’s government negotiated an agreement that tasks the Canada Revenue Agency with collecting that information from financial institutions for the IRS.

In September 2019, the CRA sent 900,000 financial records belonging to Canadian residents to the IRS — nearly a third more than it sent the previous year. The records were for the 2018 tax year.

The arrangement with the IRS included a ‘grace period’ that allowed financial institutions to send on records that were missing valid U.S. social security numbers or taxpayer identification numbers (TINs) without being fined. That grace period ended Jan. 1.

The CRA says it expects the records it receives from banks, mutual funds, credit unions and other institutions for the 2020 tax year to include that information. Those records will be sent to the IRS in September, 2021.

CRA has authority to fine

If the social security or taxpayer identification number is missing or invalid, the IRS would flag it to the CRA and the CRA would notify the financial institution, which would have 120 days to get the information. The CRA has the authority to levy fines for non-compliance, although it can also exercise discretion. Officials said that there would be an 18-month delay before the CRA issued a notice of non-compliance to a financial institution.

Canada Revenue Agency officials held a meeting Jan. 29 with more than 200 representatives of financial institutions to discuss a proposed guidance document on how they should proceed. Some industry insiders said they expect that guidance, which should be out by the end of March, to say financial institutions can close accounts if they can’t get the information after making reasonable efforts.

No one seems to know how many Canadian residents’ tax files are missing the relevant information. The CRA says it doesn’t know how many files it has transmitted to the IRS without the identifying information and that its compliance efforts are in the early stages.

The CRA and financial institutions are not obliged to inform account holders before their records are shared with the IRS. That means many Canadian account holders may not know that information about their banking or investment accounts is already in the hands of the IRS.

Higher stakes in Canada

Mathieu Labreche, spokesman for the Canadian Bankers Association, said the association is waiting for more information from the CRA before commenting. He said the banks send to the CRA only what Canadian law requires.

Alexandra Jacobs of the Canadian Credit Union Association said the association is working with stakeholders to ensure that credit unions meet their compliance obligations.

Grace Pereira is senior counsel with the BLG law firm in Toronto, specializing in advising investment funds. She said the stakes are higher in Canada than in many other countries.

“We did have the largest number of accounts with missing TINs,” she said. “I think we’re in this lull where we don’t know what is going to happen to those particular account holders.

“I have a lot of empathy for the financial institutions because, at the end of the day, how can they force somebody to get a Taxpayer Identification Number? … Which is essentially sticking up your hand and saying, ‘Yeah, I’ve not been complying for all these years.'”

Kevyn Nightingale, a partner with the accounting firm MNP, said his contacts in financial institutions have told him that they’re already implementing the new rules. He said he expects banks to start refusing to open accounts for those who may be subject to U.S. income tax but who can’t provide a taxpayer identification number.

“The big guys, to my understanding, have not turned people away yet, but I wouldn’t be surprised if that’s ultimately where they go because it’s just easier to do that than deal with the hassle of a recalcitrant U.S. taxpayer,” he said.He said some institutions could accept a client while remitting money to the IRS on the account holder’s behalf, said Nightingale.

While income taxes paid in Canada usually wipe out the taxes due in the U.S., Nightingale said the two systems have different provisions and individuals sometimes still end up owing U.S. tax.

“The choice is now down to either lying about your U.S. status to the financial institutions that you deal with or telling the truth,” he said. “If you tell the truth and don’t provide a social security number, you’re either going to have withholding or they simply won’t accept you. If you provide a social security number, then eventually you’re going to get letters from the IRS that will become gradually more and more insistent.

“And if you continue to ignore those, then it may no longer be feasible to enter the United States.”

Nightingale said the IRS has a program for those who didn’t realize they were supposed to file U.S. income tax returns. Under the program, a taxpayer can come back into compliance by filing three years worth of tax returns and six years of Foreign Bank and Financial Accounts reports.

Source: U.S. tax rules raising the stakes for Canadian residents with American citizenship

Revealed: how Canada border agency tried to conceal Chinese immigration mega-fraud files from tax collectors

More good reporting from Ian Young of SCMP:

Last year, Canadian tax collectors and border officers were hailing their cooperation on the biggest immigration fraud case in Canadian history – that of unlicensed consultant Xun “Sunny” Wang, who helped Chinese millionaires fabricate evidence needed to maintain residency and obtain citizenship in Canada.

“The CRA [Canada Revenue Agency] works closely with other law enforcement agencies and departments, including the CBSA [Canada Border Services Agency], to help maintain the integrity of the tax system,” said Elvis Dutra, Assistant Director of Criminal Investigations for the CRA, in a press release about the sentencing of Wang’s staff for their role in the scam. “Tax evasion costs all of us,” Dutra added.

But in contrast to that depiction, a 2013 court ruling reveals how the CBSA resisted the CRA, and tried to conceal the vast haul of evidence about Wang and his wealthy clients, hundreds of whom have since been blacklisted from the country for fraudulent behaviour.

The failed effort to impede the tax collectors is described in a judgment by Associate Chief Justice Austin Cullen; listed as the applicant in pursuit of the files in the Supreme Court of British Columbia is the CRA, while the CBSA is listed as a respondent alongside Wang himself and his firm, New Can Consultants.

Cullen’s April 8, 2013, ruling describes the respondents attempting to withhold from the CRA 90 boxes of files and 18 computers that were seized from Wang by the CBSA in 2012 raids. The CRA’s demand for the material was an invasion of privacy, the respondents said, and the tax agents should be required to demonstrate probable grounds for suspicion of an offence – but not based on the contents of the actual documents being sought.

The respondents also offered an alternative argument – that handing over the files would amount to a breach of a sealing order imposed on “records pertaining to [the] search warrant”.

Cullen was dismissive.

“I conclude that the CRA is not obliged to demonstrate the existence of reasonable and probable grounds to be permitted to examine the materials seized by the CBSA pursuant to a valid warrant. Nor do I find that the provision of information from CBSA to CRA implicates a reasonable expectation of privacy on the part of the respondents in the circumstances.”

Cullen also said the sealing order on the search warrant did not cover the actual material seized in the searches, which were conducted on Wang’s home and offices on April 17, 2012. “It is apparent from reading the sealing order that what it refers to is ‘the records’ comprising the basis for obtaining the search warrant and the search warrant itself, not the fruits of the search,” he said, as he ordered the CBSA and Wang to relinquish the files to the CRA within 14 days.

‘Protecting taxpayer information’

In response to questions lodged separately with the CRA and CBSA, the agencies issued a joint statement to the SCMP, saying that “the opposition of an action does not reflect on the level of cooperation between the two agencies.”

“Federal partners must exercise due diligence when exchanging information with each other, and ensure they do so in accordance with the legislation and policies in place,” the response said. “At times, requests for information exchanges will not be covered by these policies and as such, could be subject to specific rules or require that requests be made to the courts to support transparency and to protect taxpayer information.”

It added: “In cases in which another Government Department or entity are seeking access to evidence seized through a warrant execution it must apply for a court order to obtain copies.”

In a response to a follow-up question, the CRA refused to describe what actions it was taking against Wang’s clients, saying “the CRA does not comment on other compliance actions related to this case that it may or may not be undertaking”.

However, a large number of possible tax offences are outlined in court cases and immigration hearings resulting from the demise of Wang’s scam (Wang was sentenced to seven years’ jail in 2015 but was freed late last year after serving a third of his time).

“In fact, 146 [of Wang’s] clients received a total of almost C$188,000 in Working Income Tax Benefits meant for working taxpayers with low incomes,” wrote immigration tribunal panellist Susy Kim in a November 2017 ruling, that imposed an exclusion order against Wang’s client Rui Zhang, husband Zhe Li and their minor son.

Other cases involving Wang’s clients feature immigration tribunalists loudly flagging a core problem – the clients’ failure to properly declare worldwide income.

One such client was Ying Wang, who was deemed “vague and evasive” about her millionaire husband Pi Long Sun’s business activities and earnings in China.

Sun’s “nominal income tax returns in Canada” did not represent his global income” and “he was evasive about his actual income,” wrote tribunalist Craig Costantino in a 2017 ruling that the couple be excluded from Canada for five years. “On a balance of probabilities, Mr Sun was not reporting his worldwide income to the Canada Revenue Agency,” Costantino added.

Another Wang client – whose exclusion order was overturned last year, and who the SCMP has therefore decided not to name – lived in a C$10million Vancouver mansion, on which he was paying a C$2 million mortgage on his son’s behalf. But he too was deemed to have filed “only nominal” tax returns in Canada.

“[These] I find do not represent his global income. I find that he was evasive about his actual income,” wrote the tribunalist. “I find that it is clear that his business activities in China generate significant income as nothing he or his family have done in Canada can account for the value of their properties in Canada, let alone the C$6 million worth of assets that the appellant stated he currently holds in China.”

Current and former CRA auditors have previously complained to the SCMP about a historical lack of cooperation from immigration officials. CBSA was carved off from the immigration department and other agencies in 2003.

In 2016, one former veteran auditor, who acted as a go-between for the SCMP and a current auditor, said “there was/is no cooperation between CRA and Citizenship and Immigration Canada [the former name of Immigration and Refugees Canada] that we are aware of.

“If there is, then a memorandum of understanding would have to exist. There may in fact be one – but no one I talked to knows of it,” the ex-auditor said. “And even if there is then you have to go through an intergovernmental affairs officer to get anything – red tape and time. There is no bulk data that we ever knew of, no database easily accessible by an auditor.”

Both the current and former auditor requested anonymity to discuss CRA matters without authorisation.

This month, the SCMP reported that 860 of Wang’s clients had already either lost immigration status – resulting in expulsion and five-year bans from entering the country – or been reported for inadmissibility. The CBC has separately reported that more than 200 others face the potential loss of their Canadian citizenship.

Source: Revealed: how Canada border agency tried to conceal Chinese immigration mega-fraud files from tax collectors

Political activity audits of charities suspended by Liberals

A significant roll-back of the previous government’s approach:

The Liberal government is suspending the few remaining political activity audits of charities after an expert panel report recommended removing a political gag order imposed on them by the Conservatives five years ago.

As an immediate first step to respond to the panel’s recommendations, National Revenue Minister Diane Lebouthillier “has asked the CRA to suspend all action in relation to the remaining audits and objections that were part of the Political Activities Audit Program, initiated in 2012,” a release Thursday said.

The panel report, also released Thursday, and the suspension together appear to end a long chill for charities that began in 2012, when the Conservative government launched 60 political activity audits, starting with environmental groups that had criticized federal energy and pipeline policies.

A spokesperson for the minister, Chloe Luciani-Girouard, said Thursday’s suspension affects 12 audits, of which seven have resulted in an intention to revoke charitable status.

The program cost environmental, anti-poverty, human-rights and religious charities significant staff resources and legal fees, and brought an “advocacy chill” to the sector, with many groups self-censoring lest they be caught in the Canada Revenue Agency’s net or annoy their auditors.

The Liberal Party campaigned in the 2015 election to end the “political harassment” of charities, but once elected did not quite end the program. Instead, the new government cancelled six of the political activity audits that were yet to be launched, but allowed audits already underway to continue.

That left groups such as Environmental Defence and Canada Without Poverty, which were deemed too political by CRA, still under immediate threat of losing their charitable status. Thursday’s announcement lifts that threat, at least until the government responds to the panel recommendations.

The five-member panel, chaired by Marlene Deboisbriand on the board of Imagine Canada, says Canada’s charity law and regulations are too restrictive and vague. It calls for changes to the Income Tax Act to delete any reference to “political activities” with regard to charities.

Would change enforcement

The change would be “to explicitly allow charities to fully engage, without limitation, in non-partisan public policy dialogue and development, provided that it is subordinate to and furthers their charitable purposes.” The CRA would also dramatically change its enforcement activities.

The panel report, based on wide consultations last fall, also said there was broad consensus in the charity sector that partisan activities — endorsing particular candidates or parties — should remain forbidden.

The panel recommended that a charity’s political activities, whether pressing for a change in government policy or buttonholing a politician, be judged on whether they further the group’s charitable purpose.

The proposed changes would eliminate current rules that restrict a charity’s political activities to 10 per cent of their resources. Critics have argued the rules are unclear on definitions of what constitutes a political act.

Source: Political activity audits of charities suspended by Liberals – Politics – CBC News

Political-activity audits of charities being wound down by Liberal government

Expected and welcome:

The Liberal government is winding down the political-activity audits of charities that were begun by the Harper government — but there’s no amnesty being offered to the two dozen charities already caught in the program.

Revenue Minister Diane Lebouthillier announced the reversal today, saying results so far indicate that charities have largely been following the rules restricting political activities.

“The results of the political-activities audit program have shown that the charities audited have been substantially compliant with the rules regarding their involvement in political activities,” she said in a release.

“In light of these outcomes, the program will be concluded.”

The controversial program was launched with fanfare in the 2012 Conservative budget, with funding that grew to $13.4 million and was supposed to ensnare 60 charities over five years. The program was launched as two Conservative cabinet ministers, Joe Oliver and Peter Kent, vilified environmental charities for interfering in the government’s pipeline and energy policies.

The first wave of audits hit environmental groups but later waves expanded to include poverty, human-rights and international-development charities. Critics said the audits not only were costly for poorly funded groups to defend themselves, but created an “advocacy chill” as some charities self-censored to appease auditors.

Violations not generally political

Lebouthillier said only five of the charities caught by the program were notified they would lose their charitable status — but said their violations of charity rules generally didn’t result from their political activities but from other violations the auditors discovered.

The Canada Revenue Agency never released the names of all the targeted charities, though many came forward to identify their troubles in the news media.

The announcement Wednesday is good news for six unidentified charities who had been targeted for audits that had not yet begun. But the 24 charities still in the throes of unfinished political-activity audits will continue to be scrutinized until the auditors’ work is finished.

The minister said in making that decision she was respecting the arm’s-length relationship between her office and the Charity Directorate.

“The independence of the Charity Directorate’s oversight role for charities is a fundamental principle that must be protected,” she said in a release.

“The minister of national revenue does not and will not play a role in the selection of charity audits or in the decisions relating to the outcomes of those audits.”

Source: Political-activity audits of charities being wound down by Liberal government – Politics – CBC News

Tories call for probe of public servants who aided report on tax agency

Valid concerns regarding the breach of the impartiality of the public service, not just leaking of documents (which also is problematic):

The Conservatives are calling for an investigation into claims that Canada Revenue Agency employees teamed up with an advocacy group for a report that alleges mismanagement and political interference in tax investigations that cost billions in uncollected revenue.

Conservative MP Ziad Aboultaif, the party’s national revenue critic, said the involvement of public servants in such a report during an election is “disturbing” and shouldn’t be ignored just because a new government was elected.

“I would hope that the Minister of National Revenue realizes the seriousness of this and is investigating the supposed wrongdoing, not ignoring it because the incident took place under the previous government,” said Aboultaif.

“There is a principle involved here; it is not about party politics. Canadians expect their public service to be both professional and neutral.”

The report, by Canadians for Tax Fairness, was based on 28 interviews with former and current auditors and other tax specialists. They alleged the agency is mismanaged, undermined by major budget cuts, and that it targets ordinary taxpayers over the “big-time tax cheats” hiding money offshore.

Public servants are supposed to be non-partisan and loyal to the elected government. They face even stricter limits on their behaviour during an election.

Aboultaif argued neutrality is part of the job and that public servants give up the right to criticize government policies when they join the public service.

“Public servants take an oath of office and agree to abide by a code of ethics while employed in the civil service,” he said.

….So far, the Canada Revenue Agency has rejected the report’s allegations as unfounded. It said it was unable to determine if the ethics code was breached because it didn’t know who the employees were.

Donald Savoie, Canada Research Chair in public administration and governance at the University of Moncton, has written books on how the traditional “bargain” or relationship between public servants and politicians is broken. He says this case is one of the most blatant violations yet.

“If public servants become political actors, which is what is happening here, that is just not how the Westminster system was conceived. We are reshaping fundamental tenets of the system on the fly without any reflection or debate.”

Savoie argued this is an issue that warrants the attention of Prime Minister Justin Trudeau to clarify what is expected of public servants today.

“This is a government issue, not a CRA issue. It should be raising alarm bells in the Privy Council Office and Treasury Board because it goes to the heart of the fundamental role of the public service.

“I think the prime minister, cabinet and head of the public service should be responding.”

Source: Tories call for probe of public servants who aided report on tax agency | Ottawa Citizen

The earlier article ICYMI:

Source: Public Servants ‘blow the whistle’ on tax system shortfalls | Ottawa Citizen

Silence of the charities – Renzetti

Elizabeth Renzetti on what appears to be selective criteria in CRA charity audits:

If you look at the 52 groups that have been targeted for audits since the Harper government’s 2012 crackdown on political activity by charities, it’s not hard to see what joins them: advocacy of causes that the Conservative government thinks are, by its own admission, “radical.” I don’t actually know the full list, because it’s not been revealed, but last year the CBC revealed the names of seven environmental charities, including the David Suzuki Foundation and Tides Canada. The free-speech group PEN Canada and human-rights advocates Amnesty International were also targeted. Some 400 academics signed a letter denouncing the audit into the political activities of the progressive think tank Canadian Centre for Policy Alternatives.

The CRA swears up and down that there is no political motivation to the audits, but how is the public to know? The agency doesn’t reveal who is the target of its audits, nor how they’re prepared. Charities live in fear of catching the eye of Sauron.

“Among environmental groups right now there’s a broad reluctance to speak out,” says Calvin Sandborn, director of the University of Victoria’s Environmental Law Centre. “It’s kind of like in Nixon’s America where you didn’t want to be the enemy that he’d sic the IRS on.”

The law students working with Prof. Sandborn recently released a report on the troubling legal underpinnings of the current audit system, and its need for reform. (Mr. Harper’s government may not have been the first to target charities, but it was certainly one of the more vehement, setting aside $13.4-million for audits shortly after adding “environmentalists” to the roster of threats Canada faces.)

Canada’s charities are hobbled in a bunch of ways, the report found. The CRA’s rules around what constitutes “political activity” are murky and confusing; there is little transparency about how those rules are applied; charities subject to audit often have to spend precious resources putting together documents for auditors and providing legal training for staff; and most important, many charities are self-censoring for fear of breaching the 10 per cent rule and facing shutdown by the CRA.

Although the report does not come to any conclusions about whether the current spate of audits are politically motivated, it does find the threat alone has a sinister chilling effect: “The important thing is that the audits themselves – and the mere perception that they may be targeted – are clearly silencing charities that have much to offer society.”

Other countries around the world don’t hobble the political advocacy of their charities the way Canada does. In some countries, like the Netherlands, lobbying by charities is encouraged. In others, like England, the body that oversees charities is an independent entity at arm’s length from government (in Canada, the CRA falls under the remit of the Minister of Revenue.) In the U.S., charities that spend too much on political activities (already set at a far more generous level than here) are taxed rather than shut down.

Silence of the charities – The Globe and Mail.