Foreign governments get access to details of bank account balances?

Question

I have heard a rumor that due to the upcoming Common Reporting Standard the details of bank accounts, including all transactions, will be reported all around the industrialized world and want to know if this is true.

The scenario involved is this:

A person who is a student in one OECD country (for example Australia) has property in his home nation (for example Canada). He sells the property which is located in Canada. This causes a large deposit of money to appear in his bank account in his home country of Canada. The allegation is that the country in which he is a student, Australia, will find out about this deposit, then audit the student for the purpose of determining whether he is a "tax resident" of Australia in hopes of collecting taxes on the cash deposit in Canada.

This scenario seems completely implausible to me, but the source of the claim is an experienced tax barrister so I do not want to dismiss it out of hand.

Is it really true that the Common Reporting Standard is going to cause things like this to happen? (students in one country getting audited because of large deposits to their banks in their home country)

Answer 1

Before this agreement, every country had laws on tax-ability of income [including Global incomes]. Quite a few individuals would get away and did not report such income and pay tax if due. In fact quite a few Multi National banks actively created products that helped US Citizens to move money outside and skip reporting.

U.S. in order to step up this effort enacted FATCA; essentially as a compliance mechanism, it started with US Head quartered banks operating globally and made reporting mandatory. It stepped up efforts with other countries to ensure foreign banks also enhance reporting of US nationals.

See the benefits, quite a few countries joined up together and as part of OECD, came up with CRS. Thus going forward it will enable tax authorities in member countries to exchange financials impacting taxes.

The scope is also for Companies / Organization as quite a few Companies hide away income outside the domiciled country.

I have heard a rumor that due to the upcoming Common Reporting Standard the details of bank accounts, including all transactions, will be reported all around the industrialized world and want to know if this is true.

Yes this is true and it is not a rumor. The exact amount of data and type of data will be agreed between member countries. However a broad framework exists on what needs to be shared.

Is it really true that the Common Reporting Standard is going to cause things like this to happen?

It is very important to note; There is no new Tax Legislation. Even without FATCA/CRS, a honest tax payer was bound to pay legitimate tax due as per the existing tax provisions of the country along with the provisions of DTAA [Dual Tax Avoidance Agreements].

The CRS only enables monitoring and compliance. So if one was already tax compliant, there is nothing to worry. If one was exploiting the loop hole; how will authorities know ... well this will be curbed going forward.

As a note, Canada and Australia will start CRS reporting from 2018.