 So let me get us started and say to people to make sure if you haven't yet had a chance to get up and get a copy of it, please do that. I'm sure Jeff won't mind it. If you're on this side, you can always go out and around and put it on this side so you don't feel like you have to walk across the front of the room. I'm Kim Brooks, the Dean here at the Schulich School of Law. It's my pleasure to welcome you to tonight's mini law lecture series. If you haven't been here in one of these series before, and this is your first time, a special welcome, we do these sort of slightly irregular schedule, but every couple of weeks to every month, and so there's a roster of them and there's some forms at the back that you can grab if you think this is interesting and want to find yourself here again. Let me introduce you to my colleague, Jeff Loomer. You are in for a real treat tonight. First of all, Jeff knows something about tax, which is in my view about as interesting as it gets. So you'll enjoy him. He is one of the smartest people I know. He's modest, thoughtful, considerate. He's kind of unassuming. I mean, all these things you wouldn't expect to see in a tax lawyer, maybe. He's enormously well liked by the students who take his classes in droves, even into corporate tax and international tax in the upper year. He's won teaching awards here. He does research in all areas of tax law. He does a bit of work in the secure transactions area. He's an expert in this particular area and is widely sought by the media to comment on things. If you are here to get advice about how to avoid your international obligations, he is not the man for you, so I'm sorry about that in advance. But I have no doubt that you will enjoy tonight's talk. Please press him with questions at the end and enjoy yourselves. Thank you. Thanks. Thanks a lot for that outrageous introduction. And yeah, please feel free to get up and get coffee or whatever you might want during this discussion. I'm just going to start off by showing this picture of the world. The world as we know it, you know, if you could stand up 10,000 feet above the world with political boundaries. You know, so it's nicely colored and we see different countries, different sovereign jurisdictions. Some people may see the world more like this. A big place that's interconnected. There are no political boundaries. They're very wealthy. You see it this way. Some is in the light. Some is in the dark. It may even become shadier than that. And you know, we entered the very shady world of money laundering, terrorist financing, and usually associated with that tax evasion. And that's what we're going to talk about today. The reason this is topical. I mean, it's an issue that's always been of interest to governments and to taxpayers, but it's topical these days because there are grand claims by governments, including the Canadian government, also international organizations like the G20 and the OECD. In particular, the G20 declared in 2009 at the London summit that the era of banking secrecy is over. And there are assertions by the number of NGOs, including Oxfam, Christian Aid, Tax Justice Network, and others that it's far from true that the era of banking secrecy is over, although it may be diminished. We have media coverage, which was really going on in the UK in 2008, 2009, particularly the Guardian newspaper reporting on offshore evasion, also offshore tax avoidance. More recently, we have our own CBC taking people to task for offshore accounts because CBC has had access to some of this leaked information regarding offshore accounts. However, what we see is not a lot of prosecutions in Canada. People are not being prosecuted and convicted for tax evasion. So what's going on? What's the real story? What are the actual legal issues? And as a lawyer, that's what I'm concerned about. There are policy issues that I also am concerned about, and I have views about that, and other people have different views or similar views to me. But it's important to understand what the legal issues are, so that you can read the next story from CBC about someone so who has enormous millions offshore, whether what's going on there is actually arguably legal or is it tax evasion? So that's what we're going to talk about today, and I am going to avoid detailed references to section numbers of the Income Tax Act as much as I enjoy doing that. I don't want to bore people to tears and talk more about the issues from a broader level. Okay, some estimates of offshore assets, so financial assets. So we're not talking about corporate movements of funds. We're not talking about Google's investment in its European affiliates. We're talking about financial assets largely held by individuals, passive investment income, held in offshore financial centers or tax havens. The estimates are all over the place because people have some access to banking data, but you're really just taking a stab in the dark at the amounts. And so you hear estimates. I've heard 7 trillion U.S. of offshore financial assets. Financial assets held by people in the developed world in tax havens or people in the developing world held in tax havens. That 7 trillion number comes from the IMF, the Bank for International Settlements. It's a number of years old now. 11 trillion is another number that the OECD, the Organization for Economic Cooperation and Development in Paris, suggested, but that's again a few years old now. More recently, people have suggested it's around U.S. 20 trillion dollars. That's a number that's getting quoted and re-quoted. It comes originally from James Henry, who's a former chief economist with McKinsey & Co., an investment firm. And if that's correct, I mean it's far more than the annual U.S. GDP. It's an enormous amount of money. And according to the IRS in the United States and Senator Carl Levin, they claim there is lost U.S. taxes of 70 billion to 100 billion a year from what they describe as evasion and abusive tax shelters. Okay, so these numbers are the stock of money or other liquid investments held offshore allegedly. The amount of income you earn from that is what's potentially subject to tax. And so their suggestion is the U.S. alone is losing 70 to 100 billion a year in tax. The EU tax commissioner says Europe as a whole is losing a trillion dollars a year. And it wasn't quoted in euros. I mean I quoted in dollars for some reason, but anyway, a trillion dollars a year through tax evasion and tax avoidance. And like the U.S., they're sort of grouping these two things together and saying look at all this money we're losing. When the CBC last year was reporting on this leak of data that I'm going to say a little bit more about later in 2013, they suggested that Canada could be losing about 7 billion a year. But as far as I can tell, they simply took the U.S. number divided by 9 as our economy is about one-ninth of the U.S. economy. Because I got to the same number too, but I was really just doing it that way. I wasn't really going through any sophisticated analysis. Okay, so whatever the amount is, the amount of lost taxes, if you want to call it that, it's a lot. It's a great deal of money. It means that governments don't have as much funding for schools, hospitals, social services. And plus it's just unfair to the compliant taxpayers who don't have the means to evade or avoid and who may feel, wow, this is really making me angry that those who have the most are paying so little, they're stashing their money offshore, and may even encourage them to evade tax in their own way just because they're upset with the unfairness of the system. Now, in any discussion of this nature, we have to talk about the distinction between tax evasion and tax avoidance, a distinction that is not often acknowledged by the CBC and other commentators, or if it's acknowledged, it's not understood as far as I can tell. So what's the difference between tax evasion and tax avoidance? Dennis Healy, the former U.K. Chancellor of the Exchequer, said it is the thickness of a prison wall. It's just a rather old graphic of some people escaping from prison, some guards outside. And the idea of this metaphor is there is a huge difference in that you are in prison versus not, you are free. But it also suggests it's very close to the line. You know, it's a wall between you and what the avoider is doing, maybe very similar to what the evader is doing, except one is illegal and one is legal. In Canada, tax evasion is a criminal offense, as it is in other parts of the world. I won't get into the sections of the Income Tax Act, but committing tax evasion willfully not disclosing your income, which is what we're talking about here, can lead to fines, it can lead to imprisonment. Officers and directors of a corporation can be charged for this if the corporation is evading tax. If you're convicted, then you have to pay the tax. Plus you might have to pay a penalty, plus you could potentially go to prison. 18-month conditional sentences are not uncommon, but you don't see a lot of people going to prison for tax evasion. Tax evasion can be the roofer who doesn't report cash income from doing a job. It can also be inventing deductions in the course of your business. Or it can be earning investment income offshore that is subject to Canadian tax jurisdiction and not reporting it. Avoidance is different. To lawyers, the term tax avoidance is a neutral term. It's neither good nor bad. I mean, tax avoidance means you have avoided paying tax. Putting money into your RRSP and getting a tax deduction is a form of tax avoidance. It's a kind that most people would say is perfectly fine. It is encouraged by the government, and so you might get into a distinction of legitimate versus illegitimate, which doesn't really say anything. You've kind of reached your own conclusion with those adjectives. Effective versus ineffective is probably the better way to talk about it. Does your tax avoidance strategy work, or does it not? And a lot of the stuff that we see being reported on, I'm afraid to say there's usually some argument that what's going on is tax avoidance that is legal. You might not like that it's legal, and I might not like that it's legal, but it may turn out that it is legal, or at least that there is an argument that what's going on here is an effective tax avoidance strategy rather than tax evasion. Now, in this presentation, I am not talking about multinational enterprises and their corporate tax reduction strategies. I've talked about that before. I've written about it all the time for what seems to last five years of my life, so I'm not talking about Google and Apple and General Electric and Citibank and others who are reducing their effective tax rate in the United States to 3% and that sort of thing through various strategies. What I'm talking about is high net worth individuals putting money offshore. And I've had calls from people at CBC and McLean's and others who say, isn't it just a given that if you are putting money offshore, you are committing tax evasion? Can't I just write a story that says that is always true? And I said, well, you can write that story, but it would be wrong. Because there are strategies that people take advantage of that we may find morally distasteful, but that are not actually tax evasion. So let's give a few examples. I've got a picture there of Al Capone. He's a famous tax evader among other horrible things, a famous gangster who was eventually convicted of tax evasion in the United States. Leona Helmsley was not a very nice person either who was convicted of tax evasion. So just, you know, non-disclosure of income. Clearly subject to the U.S. tax jurisdiction not reported. That's tax evasion. Then you hear of cases of other people who had tax problems, celebrities in the United States, although sometimes that's due to mistake or accounting errors. So people like Martha Stewart, Willie Nelson, Nicholas Cage, Rihanna, you know, other people who've had problems because their accountants aren't reporting their income and so on and so forth. They may be convicted of tax evasion. They may just be assessed for unpaid tax and have to pay a whole lot. And then Willie Nelson has to go on tour across the civilized world to try to raise enough money to pay his taxes. Now that third person there who really shouldn't be on this picture, I apologize. Does anyone know who that is? The third person there? Casey Irving. Casey Irving, yeah. So that's Casey Irving from New Brunswick originally who is sometimes criticized. He was a wealthy New Brunswick businessman, of course, who had lots of tax battles with the Canadian government and who eventually moved to Bermuda. And thereafter would come to Canada less than six months in the year in order to avoid deemed residence status. So he became a non-resident because he was tired of paying Canadian tax. And there are people who lump him in in these discussions with the tax evaders. According to Diane Francis at the National Post, he was the ultimate tax dodger. He's mentioned at the beginning of the story about the CBC leak on offshore data as though the two things are connected. And you may feel they're connected, but as a lawyer it's important to think about the legal issues and we have a country governed by the rule of law. And Canadian tax jurisdiction is different than the United States tax jurisdiction in that we tax on a residence basis. And maybe we shouldn't, but we do. We do not tax on a citizenship basis. So a United States citizen who does what Mr. Irving did moves abroad and still maintains their U.S. citizenship they do not renounce. They are subject to U.S. tax jurisdiction. They are supposed to file a return. They are supposed to report their worldwide income. That is not true in Canada. We do not tax our Canadian citizens. We tax Canadian residents, which is a harder term to explain, but it's not just your physical address. It's a collection of economic and social ties that result in you owning tax to Canada. So my point is only this, that whether what someone has done amounts to tax evasion or not and here we're talking particularly about offshore activities, depends on what the law says. So we should not only look at what people are doing and judge that we should think about whether the law should be improved. Oh, I'm sorry about that. I went the wrong way. Okay. Let's say a little bit about evasion by high net worth individuals, okay? So let's stick with activities that are not legal. So as I was saying, Canada taxes its residents on a worldwide basis. That's what most countries do. Some countries tax people only on their domestic income, but usually worldwide basis. The United States focuses on your citizenship, just slightly different. It's one of the only countries in the world to do so. So if you're a Canadian resident, your foreign source income is part of your income, just like your domestic source income. So you're employed in Halifax, that's part of your income. You've got some investments at the local Royal Bank branch, that's income. You've got some investments in the Cayman Islands, that's income. You're supposed to report all of it, it's not voluntary. You may get a foreign tax credit for taxes you've paid somewhere else, but you're supposed to report that income as a Canadian resident. Now that's always been true in the Canadian income tax system, but in the olden days it was easier to get your income outside of the tax net. In the 1960s through early 1990s, some people say it was the heyday of offshore tax evasion. Various countries would style themselves as offshore financial centers and try to attract capital from high net worth people. They'd offer low or zero taxes, basically bulletproof bank secrecy. And so Switzerland, which this is a picture of Zuggs Switzerland, is an example that people often refer to. People would put money in a Swiss bank account. So if you just put money in a Swiss bank account, earned your investment returns, and did not declare the income, that was tax evasion. It still is, it was, and still is a form of tax evasion. The idea being that someone who earns investment income in Canada is going to pay tax on it. If you choose to put your money in Switzerland and earn investment income, you should pay tax on that too. It's not illegal for you to put it there. You can put your capital in Switzerland because your favorite banker lives in Zurich. That's fine, but you're supposed to report the income. Okay, what if I don't just put my money in a Swiss bank account? I set up a trust in Jersey, which is picture here, one of the Channel Islands, or the Bahamas, or pick another nice island country. I set up a trust. It has to be a common law country that has this concept of a trust. A trust is different from a company, but essentially means the legal ownership of the property is separated from the beneficial ownership of the property. Okay, that trust has a bank account in Switzerland. Now, in the old days, that would have been tolerated. If you had a corporation or trust and a foreign jurisdiction, you'd say, well, it's not the same thing as me, so its income is not taxable in Canada until that income is distributed back to me as a Canadian. It's not as easy anymore. Basically, in the 1970s and 1980s, we added and amended a series of rules to deal with people who use foreign corporations or foreign trusts to earn essentially passive investment income. And we say, yes, we respect the existence of that foreign trust or foreign corporation, but nonetheless, the income is going to be taxable here, because otherwise it's just too easy for the well-advised to stick their income offshore. Now, still, I would say if you look at the non-resident trust rules, as they're called in Canada, and the US has similar rules, so does the UK, the idea is you're not going to be able to avoid your income tax obligations on investment income just by putting it in some foreign trust. You're still going to have to pay tax. The beneficiaries in general are still going to have to pay tax on that income. But the rules were, you know, there were holes in them. People use the term loophole. They just were gaps where you could still escape those rules. And essentially, things improved or worsened if you're taking the point of view of the tax evader, beginning in 1998, 1999. A couple of things were happening. First of all, the OECD was getting very concerned about tax havens, released a report on what they called harmful tax competition and emerging global issue, and it was partly about tax competition, you know, drawing legitimate activities in your country through low taxes, but it was also about tax evasion and encouraging countries to share information. So it was kind of a momentum to get more information sharing, just hide behind Swiss bank secrecy, for example. Also, Canada introduced proposals to enhance our non-resident trust rules, increase reporting of foreign assets at that time. They also introduced something called the Foreign Investment Entity Rules in 1999 that were never enacted, although they did go through a series of revisions before eventually being dropped. So information reporting was getting better in the 90s and 2000s. But frankly, I'm sorry, the real source of information was the media, 2008, 2009, and later, with leaks of various banking data. So there are a number of examples and I'm not going to use all of them, but a quite significant one was in February 2008 when the Germans purchased a whole bunch of information from a former bank technician at Lichtenstein Group, LGT as they're called. It's owned by the Royal Family of Lichtenstein. So it was information about a whole bunch of bank customers. You know, and Lichtenstein is right there next to Switzerland and Germany and is a convenient place because of extreme bank secrecy for people to have hidden their information. The Germans prosecuted a number of people. Some people were convicted for tax evasion. The head of Deutsche Post had to resign. Information about that data leak also went to the U.S., the U.K., France, Australia, Canada, and other places. And the guy who sold the information went into hiding and hasn't been heard from since 2010. The subsequent to that, the Swiss bank, UBS, released a bunch of information. Sorry, the bank itself didn't release information, I apologize. Information was provided to the IRS by Bradley Birkenfeld, who was an American banker working for UBS about the bank facilitating tax evasion by U.S. citizens. Okay, so there were penalties imposed on various UBS bankers. And the CRA, Canada Revenue Agency, made various statements that they were cracking down on unreported offshore account holders based on this Lichtenstein info and Swiss info. But the biggest leak was in April 2013, this is just a screen capture from the CBC website, where the International Center for Investigative Journalists in Washington, D.C. had obtained something like 2 million e-mails and other documents, attachments, and so on regarding offshore accounts, trusts, corporations in various places, including the British Virgin Islands, Singapore, Cook Islands, and according to the CBC, there were 450 Canadians identified in those documents. And the one that they came forward with at the beginning was the case of a Panna Merchant and Tony Merchant, Canadians who apparently had 1.7 million dollars in a Cook Islands trust, which was invested in Bermuda. Now, as far as I can tell, without having seen those documents myself, from understanding what's going on there, they simply had 1.7 million dollars of capital offshore in a Cook Islands trust, where they would have been the set laws and beneficiaries, so the creators of the trust as well as the beneficiaries of the trust. It takes that money and invests it through a bank in Bermuda and they're not reporting the investment returns. That is, as far as I can tell, just straight up tax evasion. They are Canadians. They are supposed to be reporting their investment income. They're not. As far as I can tell from the description and I haven't seen the documents about their file. CBC has asked me to look at some of the other documents and I have done so and I'm under a confidentiality agreement and can't talk about the details, but I mean, having looked at some of these other things, there's often some sort of issue that possibly justifies what's gone on and so that's why I say with the merchant file, I can't say for certain, there's a beeping going on there, okay, I can't say for certain whether what they've done is tax evasion, but it sure sounds like it, based on the description of what went on there. Now, the thing is, based on this 2008, 2009 stuff and also this 2013 leak, which apparently all the information is now in the hands of the Canada Revenue Agency. Unlike the U.S. and Germany, we do not see a lot of people being prosecuted. We don't see people being prosecuted and convicted for tax evasion, so there are people like Senator Percy Down from PEI who's been quite vocal about this, saying what is going on is the CRA incompetent, why is no one being prosecuted? It's all talk, no action by the government. Apparently there have been some people prosecuted and there have been some reassessments, although that's a civil matter and it's not something we can really read about unless it results in a court case, so we don't really know the details, but apparently some people have come forward, they've either paid tax or in some cases been prosecuted, but it's still too early to really know what's going to come out of this, and part of the reason that we may not see much come out of it is because the CRA may conclude in the end when they go through some of these files that as horrible as it sounds that there's all this money in the Cook Islands or the British Virgin Islands, Singapore, et cetera, they may conclude that there actually was nothing illegal going on, especially under the law as it existed in the 1990s, and that may be why we don't see a lot of prosecutions, not because the CRA is incompetent, but because there's no case that they can prove because what's going on is actually not illegal or at least arguably is not illegal. Now aside from media leaks, the US is particularly active in trying to get information on its US citizens. So Canada has enacted some information-sharing measures that I'm going to talk about later, but the US essentially takes the nuclear bomb approach and says FATCA, as in Foreign Account Tax Compliance Act, which they enacted in 2010, and basically imposes information-sharing obligations on the rest of the world. Obviously governments have to sign an agreement with the US to implement this. The US can't legislate for the world as much as they might like to. They have to sign agreements with other countries, but other countries are signing on to this because they really have no choice. They have to supply information about, or their banks have to supply information to the local government that then supplies it to the IRS because otherwise essentially their banks would face a 30% withholding tax on money leaving the United States. So Canada has signed on to an intergovernmental agreement with the US as of February 5th with some exemptions for things like US citizens who hold RRSPs and TFSAs. But the idea is that information is going to be automatically exchanged beginning in 2015. So Canadian banks will have to gather information about US citizens, supply it to the Canada Revenue Agency because of privacy concerns, and that will be supplied to the United States. The UK has done something similar for the Crown Dependencies as in Guernsey, Jersey, and the Isle of Man where a lot of UK residents may have bank accounts. So there are things going on to make the old-fashioned form of tax evasion much more difficult. And so the idea that any of this data that the CBC has is going to illustrate so-and-so stuck money in a Swiss account and didn't report their income. There might be some examples of that. The merchant case seems to be a pretty egregious example of that, but that's really... it's sort of a quaint idea to think that a lot of people are doing that anymore. The reality, I think, is more sinister than that. It's too easy to do that. You'll be caught. That's a 1960s way of doing things. I'm going to stick my money in a Swiss bank account and not report the income. If you have enough income, you can afford advice to do it in a more sophisticated way than that and possibly argue that what you've done is not tax evasion, it's tax avoidance. So there's a lot of confusion about what offshore tax avoidance is, but this is just a quote from the Swiss Life brochure that I was looking at talking about high net worth individuals and how they should put their money into what's called private placement life insurance. I liked their description that as a person of above average means, you probably have a lifestyle that's even more mobile and more international than that of your contemporaries. You may own homes in several parts of the world. By above average means, based on the examples they give later in the document, they mean people with a net worth of $20 million or more. So apparently that's above average. If this is the case, one of your prime concerns will be protection. For yourself, your family needs a structure that complies with the law in your country of residence, but also at the same time gives you advantages of flexibility, security, tax liability, etc. For individuals like yourself, finding a solution, tailored precisely to these needs can pose a problem, and I'm sure it can. So there's a thriving industry of this nature, wealth management, in places like Switzerland, of course, but also Luxembourg, British Virgin Islands, Cayman Islands, Singapore, Hong Kong, and those countries would bristle at the tax haven label, say, look, this is not the 1970s anymore. We're not interested in taking money from drug lords and arms dealers and just hiding it from the rest of the world. That is not our goal. Our goal is to offer, they would say, political stability, honest regulation, a pool of multilingual financial professionals, and I'm sure they do. And so a lot of the activity that goes on there may be look to the outsider as highly artificial, there's several layers, corporations and trusts and so on, but depending on the law of your residence jurisdiction may be perfectly legitimate. It's unlikely in the case of U.S. citizens that you can avoid the tax because of the U.S. exercise of tax jurisdiction over its citizens, but other countries don't have rules like that and there may be ways that you can have security and privacy and defer or avoid tax in your home jurisdiction even though you're not committing tax evasion. So some examples. This document is about private placement life insurance which is a popular way to put money offshore and keep it secure, keep it private, although you still might have to pay tax, especially if you are a U.S. citizen. But other examples of things that you might look at and the CBC might report on, you might say, is that tax evasion or is it not? So I've already mentioned Casey Irving moving to Bermuda. If he really becomes non-resident, he has avoided Canadian tax in perpetuity by becoming non-resident. Becoming non-resident and earning foreign source investment income and not reporting it to Canada is not tax evasion. It is perhaps tax avoidance of the most effective kind because you left the country. The issue, of course, is, and the issue that the CRA would want to look at to someone else such as an Air Canada pilot who decides to emigrate and live in the Bahamas and fly in and out of Pearson every day, is have you really become non-resident? So that's an issue, for sure. And there's a lot of case law about what it means to be resident in Canada and if you're going to become non-resident, you don't necessarily have to sell your house but you have to give up your residential ties. If you maintain a house in the country, you better not be using it as your permanent home. Your family should go with you, that sort of thing. There's a lot of case law on what it means to become non-resident. But if you really have become non-resident, that's not tax evasion. In the United States during the last election, some criticism of Mitt Romney for saying he's very wealthy, he's got millions of dollars of wealth in the Cayman Islands. That was really because the private equity firm that he formerly worked for was based there for more for financial regulation reasons, not really tax reasons. And the reason he was only paying 15% tax is because of US rules that said you only have to pay 15% tax on certain kinds of investment income, so-called carried interest. But actually, the reason he was paying 15% tax is entirely a matter of US law that had nothing to do with the Cayman Islands. And so if you're critical of that, and I am, he shouldn't be paying 15% while the average person is paying 30. That's not appropriate. But the answer is not to criticize the Cayman Islands. It has absolutely nothing to do with it. It has to do with the treatment of investment income out of US law, which is what needs to change. But, you know, tax changes in the US are difficult to get through, of course. Coming back to Canada, I mentioned before how in the very old days you could put money in a foreign trust and you might be outside of the Canadian rules. The income from the trust might not be taxable. Through the 90s, there was still some ability to do that. And those rules have been tightened up. The difference essentially is that under the old rules, if you had an offshore trust and it earned some passive investment income, the income, sorry, the trust would be deemed to be a Canadian resident and thus its income would be taxable in Canada if the set law of the trust as in the person who sets it up and contributes the money to it, if they were Canadian, and the beneficiaries were Canadian. Under the new rules, it's an either or test sort of, but although it still focuses on where the set law was. So if you have Canadian beneficiaries of a trust and the money was put in there by somebody who was never a Canadian resident, that's still not taxable. And without going into the details of the documents that CBC had me look at, all I can say is that these almost always involve offshore trusts and they almost always involve someone who has an argument that they are non-resident. So for example, and I'm just making this up because just hypothetically, somebody is a wealthy individual, they have a home in Canada, but they also have a home in Bermuda. They declare that they are a Bermuda resident. They set up a trust in who knows where, some foreign jurisdiction, Bahamas, let's say. They set up a trust in the Bahamas, so that trust are the children in Canada. Now, if the trust makes money and pays income to the children in Canada to be taxable to them, but as long as the trust is a crewing income in the Bahamas, it's not, then the trust can subsequently make loans to the Canadians. It can make distributions of capital. So the trust relies on the legal form of different movements of money to be able to say that is not taxable income to the Canadian kids. And why is it not taxable in the first place when it's earned by the trust? Because the person who put the money in there is non-resident, allegedly. They are a resident of Bermuda. So if it's true that the person who put the money into the trust resides in Bermuda, then the trust itself, which is also offshore, not necessarily in Bermuda, might be in the Bahamas, and distributions of capital from that trust back to the Canadian beneficiaries. It's also not taxable. And the logic of that is kind of like this. If you're family immigrated to Canada, your parents live here, but your grandmother still lives in New Poland, who knows where. So your grandmother is well off, she's made some money in her life, and she decides to make a gift to her grandchildren in Canada. They're not taxable under Canadian law. Gifts and heritances, they're not taxable. We could choose to make them taxable. We could have more of a U.S. style approach to what should be taxed. We could have an estate tax. We don't. So if she decides, well, rather than make a million-dollar gift to my kids, which would not be taxable, I'm going to invest a million dollars in a Cook Island's trust, and over a few years it becomes 1.5 million. Why should that be taxable in Canada? And then the 1.5 million gets distributed and cannot be taxable to them. Now, you might not like that, and you might not like Canada's concept of income. I've been critical of it myself, but that's the justification for why that kind of trust would not be taxable in Canada, because it doesn't have enough of a Canadian connection. So I sound like I'm saying how wonderful all these transactions are and they are not tax evasion and the CBC should quiet down about complaining about these, that bothers me is that the lawyers and accountants and bankers and the taxpayers involved may say, at each step of this thing we've set up, we have an argument that we are outside, we are compliant with the Canadian rules. So we step outside the avoidance rules, the anti-avoidance rules that would make us taxable. So the argument is the person who put the money in the trust is non-resident, for example. Non-resident. We're within this or that exemption and there's at every stage an argument maybe tenuous but an argument that they are compliant with the rules. But whether they're compliant or not compliant the Canadian government can't find out because you've put it under so many layers of secrecy. So for example having a bank account in Switzerland you know if you're just a Canadian who holds a bank account in Switzerland the income is going to be taxable and Canada could reasonably easily find out that you have that account under current law. Okay, what if you've got a bank account in Switzerland that has a nominee account holder so it's not immediately obvious who the actual account holder is the account is owned by a shell corporation in the British Virgin Islands all the shares of that company are owned by a foundation in Panama or a trust in the Cook Islands and I'm not even making that up okay this is realistic that that sort of stuff would go on now you may say as the person who divides that it's all legitimate you know the no one none of this income is taxable and if the CRA audited this and reassessed we would have an argument as to why the income is not taxable you might but if you're so sure that it would survive scrutiny why are there so many layers to hide it from government scrutiny okay it doesn't make a lot of sense and so there's a tendency to just assume you must be evading tax you may be doing other things too you may be money laundering the source of the money in the first place could be some criminal activity you are running away from your creditors which is a reason why you would put money in a Cook Islands trust because essentially the Cook Islands is one of few jurisdictions that basically won't respect judgments from foreign courts and it's essentially impossible to approve for a creditor to approve like a fraudulent preference or something like that in the Cook Islands so you may be doing it for privacy and avoiding your creditors money laundering but you may also have some tax evasion going on so for the Canadian government to determine whether what someone has done is effective tax avoidance or ineffective tax avoidance or actually amounts to tax evasion they need to be able to get the information and until very recently that was quite hard to do and so I think it's a positive thing that it's now a bit easier for us to get this information that does not necessarily mean that the information will show that the person has done anything illegal so what are we doing the name of the game now is exchange of information so the OECD has something called the global forum on transparency and exchange of information I mentioned before how earlier the OECD had done a report on harmful tax practices and they identified certain tax havens that they said were non-cooperative uncooperative that list of uncooperative jurisdictions is now dwindled to zero because everyone is reasonably cooperative there's been progress reports almost annually on how countries are implementing this exchange of information standard but it was really the 2008 financial crisis and subsequent developments where we saw the information exchange really become more robust the G20 London summit I mentioned before where the G20 leaders declared the era of banking secrecy is over and countries like Luxembourg, Switzerland often identified as a tax haven but had quite strong banking secrecy were pressured to start exchanging information with foreign governments and so we see this phenomenon of tax information exchange agreements or TIEAs these are not the same thing as a full tax treaty so can in the United States we have a full tax treaty can in the UK lots of countries we actually have 92 tax treaties in force a tax information exchange agreement is a smaller international agreement so it tends to be a shorter piece where for example Canada agrees with for example Bermuda that they're going to share information between the two countries on request so Canada started signing these things quite aggressively in 2009 2010 the first one was the Netherlands and Tilly's and then Bermuda, Cayman Islands we now have 18 tax information exchange agreements in force with the Bahamas, Cayman Islands Channel Islands by which I mean Jersey and Guernsey most recent one was Lichtenstein in January 2014 so you can it's not as easy to hide your money in the castle dungeon in Lichtenstein anymore Canada may actually find out and we've signed four more with British Virgin Islands and others and then there's others we are negotiating including with the Cook Islands who I imagine is going to hold out to the end so we've been signing these agreements they're better than they used to be I mean in the old days basically a country like Switzerland or Austria or others would say well we're not going to release information to you about your own residence and show that what they've done is a crime under our law which might not be especially in Lichtenstein and plus we respect our bank's secrecy so we're not necessarily going to penetrate that under the new tax information exchange agreements you can't hide behind that whether it's a crime or not in the source country is not relevant and banking secrecy in the local jurisdiction is not relevant ten years ago some of these countries would not have signed on to that in a million years but the pressure post-financial crisis was to sign these things there are people who criticize and I mean I think the jury's out on whether they are effective or not I mean the OECD in this most recent report here a step change in tax transparency and some of our recent documents boasts about how these things have been quite effective in sharing information there are others who are more critical who say if you look at the typical tax information exchange agreement and this is true of all of Canada's information exchange agreements the information exchange is upon request it's not automatic so with the US FATCA legislation and Canada's agreement to implement that information exchange will be automatic as in Canadian banks must gather banking data for US citizens with some exceptions and supply it to the CRA under our tax information exchange agreement with for example Bermuda the CRA would have to approach Bermuda and say we request banking information about so-and-so so you'd have to have some details about the identity of who you're investigating what tax years 2012 tax year we believe so-and-so from Toronto had an account here what's the purpose you're trying to determine whether they owed tax on that income in Canada so on and so forth so you have to already have quite a bit of information that's the criticism that's made of these information exchange agreements that it would be preferable to have automatic exchange the Canada Switzerland treaty we have a full treaty with Switzerland but it includes exchange of information provisions but a little bit stronger than some of the others it's not an automatic exchange but it's a little bit stronger so the end result is we get some automatic exchanges of information with countries like Denmark that people are not hiding income in Denmark it's one of the highest tax countries on earth so it's the tax havens where we don't have the automatic exchange although we may now have a TIEA what else has Canada done besides these international agreements the budget 2013 included this interesting initiative to pay tipsters 15% if their information resulted in 100 grand or more of tax being collected in respect of offshore income and they opened this hotline apparently it's in effect now as of January 2014 you can call the hotline and report on your friends but it's got to be big money because it's got to be over 100 grand of tax that they would collect so we're talking a few 100 grand of income meaning they've got probably millions of assets that are generating that kind of income if you think about a 10% return that means to get 100 grand you'd have to have a million stashed offshore and then after legal fees and banking fees and all that kind of stuff so anyway there's this hotline I don't know if it's going to result in a lot of good information a lot of funny information that's not actually true but it's something I was encouraged by the budget yesterday on the spending side there's not much going on I'm not here to talk about that but on the tax side the government has proposed a number of changes to our international tax rules they're closing more loopholes as they describe it more to do with corporate strategies of various kinds and they're the government's commitment to tax information exchange agreements and also mention the signing of the agreement the FATCA implementing implementing agreement with the US we have enhanced the obligation on Canadian residents to report foreign assets so even if these assets are not generating income like you own real estate in Florida or something or even rented out there are obligations to report that the cost amount is over 100 grand and so there are exceptions to that but the rules have been I suppose you could say strengthened to get people to report their foreign holdings and that's really just so the CRA is aware it doesn't necessarily mean you have any tax obligation it's only if you generate income that you do all of this information sharing or threat of information sharing has resulted in more offshore voluntary disclosures so the OECD did a document on this sort of comparing different countries programs but Canada has a voluntary disclosure program so the idea is you come forward you come clean it doesn't have to be offshore I mean voluntary disclosure could be at anything I'm running a nightclub and I didn't declare all this cash tips and so on but to report it that's a form of voluntary disclosure but it could also apply to offshore income so the idea is you come forward you give the full facts you agree to pay the tax you agree to pay the interest but you don't get penalized and you don't have to be prosecuted you can't do that if you're already under investigation and about to be prosecuted but there's a process as long as that hasn't happened you can do a voluntary disclosure on those and what the information exchange agreements do if anything rather than actually resulting in Canada getting the information it creates an incentive it tells people out there we're going to get it one way or the other so you might as well just come forward and disclose the income that you had although there is some evidence from a couple of EU economists who looked actually at data from the Bank for International Settlements who actually got access to some data that shows bilateral as in flows of money between two countries that was private but they were given access to this kind of on an aggregated basis and they say between 2007 and 2011 with all these signing of these information exchange agreements what you see is money moving from one tax haven to another you see the money moving from places like Switzerland and Luxembourg into places like Panama and Uruguay and Hong Kong that maybe are not so willing to share so they argue all this is really done is push the money from one tax haven to a less compliant tax haven I think they're being a little bit pessimistic because there have been people coming clean and making these voluntary disclosures not only in Canada ok so to conclude what else could Canada be doing well we could be obtaining information and we're trying to we're signing these tax information exchange agreements they don't really have automatic exchange we could enhance that I suppose the OECD is actually meeting tomorrow to have a presentation on common reporting standard for automatic exchange of information and tax matters tomorrow at noon in Paris I would like to go but I can't so you know there's talk about this model of automatic information exchange which I suppose would be better we could introduce legislation like FATCA in Canada but that's not going to happen we don't have the market power of the United States so I doubt that's going to happen maybe we don't need to if we can just keep relying on the journalists to leak data about what's going on offshore you know it's probably not a great strategy but that's been helpful so far the thing is getting information is great but what are you going to do with it I mean the CRA obviously like anyone else limited resources they're trying to do the best they can they should be auditing and assessing where appropriate as in if they determine you've set up this structure we think your trust is actually resident in Canada because under some recent case law the test for where trust resides has been modified and I guess a little more of a realistic and substantial test so they may say your trust is resident in Canada or the person who you say contributed to the property of this trust the example I gave earlier the person with houses in both Canada and Bermuda who says I'm a Bermuda resident and I contributed the money to the trust my kids are in Canada but it's not taxable because me the person who contributed the money I'm a non resident well the CRA might want to challenge that they might want to audit and say we know what the facts suggest to us you're actually a resident of Canada there's also the issue of investigating and prosecuting so if they believe it's tax evasion they should be prosecuting that's more difficult because of various reasons I mean more likely we're going to see some audits and some assessments based on some of this information that's been leaked less likely we're going to see criminal investigation and prosecution because it's so hard to prove I mean they have to prove it on a criminal standard so beyond a reasonable doubt the person can always argue based on my lawyer's advice and accountants advice we believed the structure was effective you've concluded it's not and maybe a tax court would conclude it's not and the income is actually taxable for various reasons because trust was resident in Canada or so on and so forth but that doesn't mean tax evasion has happened I don't think we're going to see a lot of investigations and prosecutions the last thing is well even if you've got all this information and you look through it and you conclude based on Canadian law there was no tax owing if you're still unhappy about that the answer is you can criticize the people involved and say you should have behaved in a more morally upstanding way we wish you would remain in Canada we wish you would pay tax at the highest marginal rate we wish you would not engage in avoidance strategies but if the strategies work your answer is to rethink the tax laws how do we treat income that accrues offshore how do we treat non-resident trusts how do we treat other kinds of foreign investment entities and there's been talk about that for a decade now and changes have been made yes it is sweet so a couple years ago I sort of was cynical about this and I said does the federal government actually care are they just signing these agreements to give the appearance that they're doing something and they actually don't want to do anything because all these wealthy folks are friends of people in the prime minister's office and so on I'm more optimistic based on the last two budgets that the government is actually concerned about this they're tightening up the non-resident trust rules they're proposing to eliminate this five year exemption for trusts for people who've recently immigrated to Canada which I didn't think they would do and it suggests whatever you might think of the current federal government it suggests they are concerned about maintaining some integrity of the tax system and not letting people have capability either to evade or avoid tax on their investment income by sticking it offshore so I'll leave it there and I'm happy to take any and all questions thanks we're just going to have a drink of water okay, yeah, any questions, yes, at the back it's often sort of put against privacy and I was just kind of curious how you draw a line between privacy and secrecy yeah, I mean Art Cofield at Queens who does tax talks a lot about privacy and he knows more about it than I do and he's writing a paper I think he's concerned about the privacy implications of FATCA because obviously it has privacy implications these banks are I realize like the Canadian banks don't just gather this information immediately hand it over to the IRS they hand it over to the CRA but I'm not really sure what so there's that intermediate step which I guess offers some protection um yeah, the um if you think about it the other way so Canadian residents who have some income in a country that typically had great secrecy such as Switzerland or Luxembourg or Liechtenstein yeah, I mean I think people are right to be concerned about their privacy and that's why I've said when people have people from the CBC have asked me is why on earth would anyone ever have an account in Switzerland unless they're committing tax evasion I said well you know there could be reasons people who have a lot of wealth may just be concerned about their privacy they don't want random people intruding into their private affairs they're still declaring their income they're still paying their tax possibly that's the most positive way of looking at it so there's privacy concerns for sure but all of us have privacy concerns and if our money's in Canada you know the banks automatically send information slips to the CRA on our earnings on our investment returns and we sort of accept that you know it's we have a self assessment system it's up to us to voluntarily disclose our income but we have some of those checks like automatic delivery of information from banks so this is really just saying it has to happen on an international basis and yeah it is it is an intrusion into people's privacy but I think I don't really know I don't really have any views on how you balance them I think the if the information is not shared internationally then it's just too easy for people to evade what else is the government to do when we don't have a globally harmonized system and they have to rely on exchange of information otherwise they'll never have unless it gets leaked yes sure yeah I'll hear the second question then I can remember the first one the legislation these things aren't allowed and then lawyers trying to figure out how to get around those if you switch the method to saying these things are allowed and this is the intent of the law and everything else that doesn't fit the intent is illegal then that makes it much easier for judges to actually follow the intent of the law and makes it much less likely that lawyers will figure out a way to get around it and look at an international tax evasion set up on the first question I can't remember the numbers now but there have definitely been cutbacks to the Canada Revenue Agency and people have said how are we supposed to do these two things at the same time you say we're going to really crack down on offshore evasion and we're also going to have auditors who can really closely inspect avoidance transactions and see if there's an argument of one kind or another as to why it's not effective and therefore more tax should be collected it's I find it strange that the government is cutting back I mean I realize this government's philosophy is to cut back public service generally but it's surprising to me that they would be cutting back on the resources of the Canada Revenue Agency because it's fairly easy for them to show the return on what they do in terms of revenue raised so I do find that surprising I don't know though the details of whether they felt there was there were people who were just doing nothing or something like that which I find is unlikely and so if anything the CRA could use more resources not less and it should pay for itself it seemed to me on the bigger on the other question yeah I mean I've I've heard Neil say that before and I see what you're saying I mean I think you're right that if you sort of reinvented the way we draft our tax legislation then you could stamp out a lot of this stuff I guess I'm a bit of a pragmatist I don't see how we're going to do that on our own and just reinvent I mean we've sort of inherited a legislative style but also the common law of Great Britain and we have a lot of principles that we've inherited from them that people rely on and judges are very keen in tax on certainty and predictability and so on and so forth and just changing everything like that of course the parliament is supreme and it could and I don't see us changing to some system where the income tax act specifically says what's allowed and everything else is not I think there's some room for us to make changes in that direction though I mean I've always felt that I haven't spoken about the general anti-voidance rule today but the problem with that is the legislation is so detailed so many rules on top of rules anti-voidance rules that when somebody does something that exploits a gap and the argument the government makes is it's contrary to the purpose or policy of the legislation it's so hard for the judge to really see what the purpose or policy is because there isn't one anymore it's just a series of obscure rules built on top of each other and that's unfortunate I don't it would be better if we could at least start by having some statements of principle in the legislation beginning of each sort of group of sections about the purpose of this division of the act is to do the following I know they've tried a bit of that in the United Kingdom and in Australia I still think when you look at their legislation it's not much different than ours so I think there's some room to go in that direction and I don't know how we get there easily that's all I can really say yeah, you and me it goes to your last point I'm wondering how what do you think we'll be going along the lines of taxation based on citizenship as opposed to residency I think it's just the U.S. and maybe one other country and whether we'll be doing that as well and the second question I guess along the lines of the U.S. whether you see taxes coming in respecting succession duties or state taxes in the next generation yeah I really doubt that we would move to taxation based on citizenship taxation based on residences again something we inherited from the UK serving grain in our taxes that doesn't mean we couldn't but we'd have to legislate it and I I just I'm not sure that's a desirable thing I'm not sure why the U.S. should tax non-resident citizens on their worldwide income but that's been their approach and I mean when you I mean if you go on Twitter and search for the hashtag fat cut it's like an endless stream of vitriol against that and saying it's the people saying the U.S. is invading our privacy they think they've ruled the world and you know there are legitimate privacy concerns as I already mentioned but there's a lot of negativity about that and tax lawyers obviously the Republicans are critical of it but that could just be for political gain but I think there are also a lot of tax lawyers in the U.S. who say it's just going to cost a ton of money to supply and for the IRS to gather all this info and it's really unnecessary so I don't see us moving to a citizenship based tax system nor do I really think we should I do think there in terms of how we define residents and who's taxed as a resident the rules on individuals and where they reside are pretty decent like the case law you know the judges have been taking a fairly substantive view and they haven't let people just make technical arguments about how they became non-resident with corporations it's different I mean with corporations and trusts I think the rules about where a corporation resides are pretty artificial and that allows a lot of the corporate avoidance that I wasn't really talking about today on the second issue, second question state tax yeah I mean I find the idea of a state tax or inheritance tax attractive a lot of the developed world does have one but I also know the criticism of it is it discourages saving it's also I mean in the UK there's a massive amount of avoidance of that tax it seems to me you can deal with that in certain ways I mean we have a system based entirely on income and when they revised the income tax rules in the early 70's they got rid of the state tax so instead we just have this you know there's a tax on any capital gain when you die and the value that your property has risen except your principal residence I do wonder though if we would benefit from an estate tax for various reasons I really do think it increases the progressivity of the system because the income tax system we have is progressive to a point you know and the idea is as you make more you move up into a higher tax and pay more but when you look at the effective rates that people are paying it rises until you make about $150,000 a year and then it levels off and it starts to go down and the people who've got the million dollars net worth and who are earning a few hundred thousand a year have a lower effective tax rate in many cases than the middle class so one way to deal with that is to have an estate tax with a big exemption like they do in the US or the UK you know where you know the first million dollars or something like that so most people are just completely outside of it but those who have more have some small tax in their estate when wealth is transferred and in places like Germany it's just accepted like you have to have a tax like that but we seem to be pretty opposed to it this idea that it's double tax discourages saving that sort of stuff encourages people to spend all their money during life so there may be something to that the thing is if you're going to have an estate tax it's it's got to be federal like it's got to be Canada you cannot have a Nova Scotia estate tax I mean it just wouldn't work I mean people would move to another province the very wealthy would definitely move to another province to avoid that I think it would have to be a federal tax so we obviously would need a change of federal government if we were ever going to talk about an estate tax so I could see it happening you know I I mean there are people from both sides of the political spectrum who I've seen argue for it so I think it's possible in the generation that we could reinstate that so we'll see yeah yeah Stephanie yeah I I mean the Canadian government seems to be sort of highlighting the fact that we are able to get some of these exemptions for tax deferred accounts or tax so our RSPs our DSPs, our ESPs, TFSAs so so things that you know you don't have to be taxed on on the current basis in Canada but you might have to in the US if you're a US citizen who has such things so your tax obligation might still be there but the obligation to provide the information upon Canadian banks is not there that's good, that's good I mean that's the sort of victory for the Canadians I mean we're not the only country that signed on to that and I guess it is an issue of the market power that the US has and we'll see how that changes we already have information exchange with the US under our treaty but not at the level that FATCA requires and I guess you know we're content to rely on our domestic tax rules to say if you're a Canadian resident and you happen to have some US accounts you know you should be reporting the income we're not worried about Canadian citizens who reside in the US and have US accounts because we don't tax them whereas the US is concerned about that the other way around so yeah it's hard to know you know the I don't think the transparency of what went on in those negotiations the same as with all of our tax treaties there's virtually no, unless you were there or you speak to somebody who is there it's hard to know like why did we agree to this article in our treaty like it's sort of all in a black box and so you can only sort of hypothesize so so yeah I don't know I think it is an issue of market power and maybe we just don't care because we don't want that information we don't want this annual massive dump of info from all the US banks I'm not entirely sure sorry you ever thought yeah yeah yeah come back yeah okay I think I saw it on the hand over yeah yeah sure yeah you were saying they talked about the three sets of weeks that the Germans had a number of prosecutions and then you were talking generally about prosecutions in Canada and you thought it was very unlikely because people would you know they'd argue that their arrangement was effective in the German law and our law is there anything you can mention that yeah I don't know a lot of details of the German law other than other than to say very broadly you know obviously being in Europe it's a more European model and it ours is a British Commonwealth model and although the UK is part of Europe you know it's different legally and so Germany like France and other parts of continental Europe the system is just different the tax rules are different and the ability of a German resident to earn income through a trust in a foreign jurisdiction and claim that it's not taxable under German law without knowing the details I would say that it's just not very likely that they could make that argument whereas successfully whereas in Canada there's still the ability to make that argument if you can fit into a particular exception so it's it's a different legal history, a different legal tradition and without I mean I know that's very vague I'm not giving a lot of details but if you look at who's prosecuting people it's Germany, some in France in the United States you don't see it in the UK and you don't see it in Canada or comparable in that respect you might see a lot of criticism in the media more so over there of not only corporate activity but also like Starbucks doesn't pay a lot of tax in the UK but also high net worth people celebrities and so on who have you know when there's some pretty aggressive structures offshore that they maintain are legal now those people are not charged with tax evasion they may be pressured by public pressure to actually stop doing what they're doing and bring the money back to Canada so we're like the UK in that you know people seem to if they're well advised it's not like you can always avoid your tax but there may be ways if you're wealthy and you have international relations there may be ways that you can have trusts offshore that are not taxable same in the UK what the UK has and what we don't have is I guess more of an attack oriented that's actually going to make people account for this and you know actually come forward and say well what I've done is legal but I shouldn't be doing it and I'm going to stop doing it and in Canada I just find we are too conciliatory you know we're pacifists we don't want to bring don't want to shame people for doing these things and so I mean the CBC stories about various people you know Jim Love and other people who've been involved in some of these things you read the comments afterwards and there's a lot of commentary you know random comments people just criticize the government vaguely but then there's people who say it's quite a bit of people who say why are you criticizing this person for taking advantage of international tax rules that allow them to put income offshore it's completely legal and they almost seem to think it's morally virtuous you know that there I think it's not whether tax avoidance is morally virtuous or not is I think an open question I think there are a lot of difference of opinion on that so we don't seem to have the same I'm actually surprised because I would have said the same in the UK except that they have been quite vocal in attacking some of these high net worth people putting money offshore but like the UK there seems to be a lot of scope to argue that what you've done is not tax evasion I'll just mention very briefly there's a case that you might want to look at called ANTLE that involved people setting up a Barbados trust to have a Barbados spousal trust that produced a capital gain which is allegedly only taxable in Barbados the money eventually found its way back to Canada and there's sort of step-by-step detailed structure to make sure that was not taxable in Canada and it the CRA brought a reassessment and said we think that's actually taxable for a number of reasons and the court, the tax court concluded that the trust was a sham the trust was not actually a trust because it lacked the requirements of the common law of a trust so basically you didn't really intend to have a trust it was all just run from Canada by the people who owned the property and so the trust was a sham now you had to pay tax on the capital gain end of judgment there is no subsequent allegation that the people were involved in tax evasion that the lawyers were unethical advising on that transaction it was a sham therefore you owe the tax and that would be the same I think in the United Kingdom very different from German and US approach did you remember the application? just based on the complexity of the England tax act and the advanced tax planning that you were able to undertake do you think that the lack of prosecutions is anything to do with the fact that we have to prosecute them in criminal court not with, say, tax prosecutors or tax judges who might understand this complexity a little bit better? yeah, I think the fact that you I wouldn't say that the problem is that the judges can't understand it in the provincial courts where you would bring a criminal I think they could but I think the Department of Justice looking at something like this the I mean the the CRE has to make an early determination like are we going to audit? are we going to investigate? because if they're using their audit powers which are broad to get information they're actually using it in the course of a criminal investigation and there's charter violations and all the information they won't be able to use it so I mean obviously something can transform from an audit to an investigation because you're auditing and you realize oh wait I think there's some criminal activity going on here but then it has to be handed over to the people who are going to do an investigation and then they've got to decide you know can they prove the case beyond a reasonable doubt which I've asked that question, I mean I was at a conference and talked to a person from the CRA to you know why, it was a couple of years ago why are we not seeing people being prosecuted and he said to me you know it's just it's really really challenging for me to get the information to prove what happened but even if once we've got the information to prove that the people involved had the mental element you know the mens rea, the criminal intent to defraud is really hard for us to prove because they will say all along the rules are complicated my understanding for my lawyer's advice was that what I was doing was a sophisticated tax avoidance strategy and I think at some you know obviously at some point that could amount to the person being willfully blind and yes they could prove a case of evasion but it's rare and so when you look through the CRA website who's being convicted of tax evasion it's you know the waitress who didn't declare her tips the roofer who didn't declare his roofing income it's you know small businesses who just completely invented deductions or didn't report the receipts to millionaires with money in Switzerland I see we're just about at 8.30 so I should probably let people go and if there are any other questions I'm happy to stay after so thanks a lot for coming out so I didn't have to talk to myself