Canadian Wtihholding Tax Obligation: Monday morning rant...

I heard a story last week from another accountant about how people think they can get around the withholding rules. 

I really didn't like this story and sincerely hope that this change in administration of foreign account reporting (click here to see third part of the link) will address this unfortunate situation by seeing through the non resident's ownership to the real ownership by the immigrant.

I hope the intent of this change is to force banks disclosure when there is actual interest by a resident in an account. What I heard about how this works, is that new immigrant all claim they sold their business before moving to Canada and have a receivable of about 5 or 10 Million for this sale that isn't going to be realized for a few years.

They move here, under our new immigrant programs, but claim to have no money because it's all receivable.  They arrange with other non residents to open bank accounts, depositing millions into a Canadian bank that earn interest. Then, they have the non resident give them Power of Attorney over the accounts.

Why would they do this? Because as of this year, there was no longer a requirement to withold and issue NR4's to non residents with bank accounts in Canada. So no one is paying tax on the interest earned in those accounts. Even at 3%, that's still a lot of interest income, $30,000 per million and we're talking multi-millions, at least Five Million.

They live in Canada, in million dollar houses, with millions in the bank, with no income to report, because there are no bank accounts in their own name. 

How NOT cool is this?  If this is true, we are allowing people to immigrate here who don't contribute towards the cost of our health care systems, who use our roads and schools, while not contributing to the tax base.  If this is true, who was asleep at the switch?

The other part of this story is these same immigrants are only claiming enough assets to qualify for the immigrant programs and not disclosing the full extent of their foreign holdings.  Heaven help them if they get caught by our foreign reporting rules.  There are huge penalties for not reporting foreign assets.

In Canada, we are not being honest with ourselves.  Our self-assessing tax system is not effective in dealing with dishonesty, and that includes the dishonesty rampant in Canada by ordinary Canadians who don't report all of their income from cash sales, tips, trading and barter.  It's everywhere, so you can't just blame the immigrants, they are just trying to fit in with the population, many of whom don't report all of their income either. Merchants in the malls tell me they don't report all of their income.  If they did, they say, they wouldn't be able to stay in business.

We really need a simplified system that is fair, easy to administer and audit, plus one that people can trust that they are paying their fair share and where they feel like they can comply and still make a decent living.