Future Directions
We understand that the CRA’s “Future Directions” initiative is to require “novel tax planning disclosure”.
Question
Could you explain what is being considered?
Response
The CRA’s goal is to develop a useful and cost-effective program to better target its compliance efforts. This includes developing processes that will require businesses to disclose novel tax plans or arrangements that will be used to identify offensive transactions and alert potential users to the CRA’s position. The initiative was first introduced as part of Future Directions. It now falls within the CRA’s Compliance Review Initiative: Aggressive Tax Planning.
Research has begun into other tax jurisdictions’ systems to gain a better understanding of the issues that we may encounter. In particular, we are reviewing the US legislation, the UK legislation and the Australian Tax Office initiatives aimed at Aggressive Tax Planning.
More specifically, we are reviewing how the Internal Revenue Service is combating abusive tax shelters and transactions through a comprehensive strategy aimed at reducing taxpayers’ willingness to invest in abusive tax avoidance transactions by reducing the incentives. This strategy includes the registration of tax shelters and increased disclosure requirements for taxpayer’s and promoters. Significant penalties have been introduced to ensure compliance.
The United Kingdom introduced legislation that requires taxpayers to notify the Inland Revenue when they become party to any arrangements where one of the main benefits that might be expected to arise from the arrangements is the obtaining of a tax advantage. The rules restrict disclosure to schemes based on employment or financial products. The UK also introduced penalty legislation aimed at promoters and taxpayers to ensure compliance.
The A ustralian Tax Office publicizes information about Aggressive Tax Planning and issues Alerts to warn taxpayers and promoters of the types of transactions or arrangements that are considered unacceptable and subject to challenge. In addition, a Promoters Taskforce provides assistance in identifying tax promoters who actively develop, encourage participation in, or sell, arrangements that result in tax avoidance. A number of other initiatives are in place to address Aggressive Tax Planning.
The objective of our Novel Tax Plan Disclosure process is to enhance disclosure and information requirements to assist in identifying areas at the highest risk of non-compliance and enhancing transparency in the Canadian tax system. The legislation and initiatives of the three countries that we are studying is complex. We want to learn from their experiences, and by taking the time to do thorough research we plan to develop a useful and cost-effective program that minimizes the burden of reporting requirements.