Canada Revenue Agency gets more teeth to catch potential tax cheats

The federal government is cracking down on potential tax cheats by introducing new measures to track cryptocurrency transactions and givingthe Canada Revenue Agency more teeth to penalize taxpayers who refuse to disclose information it wants.

The budget tabled Tuesday also includes provisions to hold tax planners who help clients engage in tax evasion and aggressive tax avoidance as well as shed more light on donations to certain foreign charities registered in Canada and how that money was used.

In recent years, the CRA has come under fire for its track record in catching and prosecuting tax cheats. While the agency has successfully prosecuted small cases, critics say it hasn't done enough to catch larger cases of tax evasion and aggressive tax avoidance.

At the same time, governments around the world have been taking steps to share information with other jurisdictions in a bid to catch those who move money between countries or who use newer technologies to avoid taxes.

In her budget Tuesday, Finance Minister Chrystia Freeland moved to implement new international rules requiringmore transparency in cryptocurrency transactions.

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"Just as crypto-assets pose financial risks to middle-class Canadians, the rapid growth of crypto-asset markets poses significant risks of tax evasion," said the budget.

"Regulation and the international exchange of tax information must keep pace with tax evasion threats in order to ensure a fair tax system."

Starting in 2026, Canada will implement the Crypto-Asset Reporting Framework developed by the Organisation for Economic Co-operationand Development to require crypto-asset service providers located in Canada or which do business in Canada to begin annual reporting to the CRA.

Under the provisions of the budget, those service providers will have to reveal information on each customer and each crypto-asset including exchanges between the crypto-asset and government-issued currencies like the Canadian dollar, exchanges for other crypto-assets and transfers of crypto-assets such as when crypto-assets are used to purchase goods or services worth more than $50,000 US.

Name, address, date of birth

Crypto-asset service providers in Canada would also be obliged to provide the CRA with information on each of their customers such as their name, address, date of birth and what jurisdiction they live in.

The requirement will apply to transactions starting in 2026 and the first exchange of information collected in Canada with other countries will take place in 2027. Under the new reporting system, Canadian authorities are to receive information about transactions involving Canadian residents that took place using crypto-asset service providers in other countries.

The budget also provides $51.6 million to the CRA over five years to implement and administer the new reporting system, starting this fiscal year, and $7.3 million per year ongoing.

At the same time, the budget is calling for feedback on whether crypto-backed assets are "appropriate as qualified investments for registered savings plans."

Crypo-assets aren't the only area where the government wants the CRA to get more information.

One tactic sometimes used by those avoiding taxes or re-assessments by the CRA is to delay providing information that the CRA is seeking as long as possible months or even years.

The current limits on information gathering"impede the effectiveness of the CRA's compliance and enforcement actions," according to the budget.

While the CRA can seek a contempt order from a court, that process can be long and cumbersome.

Provisions in the budget will allow the CRA to issue a "notice of non-compliance" to someone who has failed to provide information it requested. Those who ignore that notice could face a penalty of $50 for each day they fail to comply, to a maximum of $25,000.

If the CRA goes to court and obtains a compliance order for someone to provide information, they could face a penalty of 10 per cent of the aggregate tax payable if tax owing in one year exceeds $50,000.

Similar provisions will apply to a number of other laws including the Underused Housing Tax Act, the Select Luxury Items Tax Act and the excise tax that imposes duties on alcohol, tobacco, cannabis and vaping products.

A separate provision of the budget aims to make clients of tax planners who counsel clients to evade or aggressively avoid taxes more liable for the consequences of their actions. The change would make the client liable for all of the tax debt avoided, including any portion retained by the tax planner.

The CRA will also get more insight into foreign charities that can receive donations from Canadians because they engage in activities such as humanitarian aid, disaster relief or "activities in the national interest of Canada."

The time period for foreign charities to qualify for Canadian donations will be extended from two years to three years. However, they will now have to submit an annual return that includes "the total amount of receipts issued to Canadian donors, the total amount of gifts received from qualified donees and information on how those funds were used" all of which would be made public.

Three foreign charities are currently registered with the CRA the Aga Khan Foundation, the Council for Canadian American Relations and the Canada-U.K. Foundation.

Katrina Miller, executive director of Canadians for Tax Fairness, said her group welcomes any strengthening of anti-avoidance law, including the new rules for tax planners who counsel tax evasion and aggressive tax avoidance plans.

She said her group is looking forward to Parliament passing Bill C-59, which includes an update and tightening of Canada's General Anti Avoidance Rules (GAAR).

"Canada loses potentially tens of billions [of dollars] every year due to dubious tax avoidance," Miller said. "Stronger rules can empower the CRA to go after tax cheats and win."

Miller said it's also good to see Canada updating its tax information rules to include cryptocurrency companies.

"As new sectors of the economy grow, it is necessary to update our domestic and international tax and reporting frameworks so as to not fall behind," she said.