The Canada Revenue Agency is tightening its amnesty program for tax cheats, including a proposed rule that could expose more of the shady advisers who set up dodgy tax schemes to help clients hide their money.

The revamped regime for the voluntary disclosures program was released earlier this month, after MPs, critics and some tax specialists complained the current rules are too soft on crafty and repeat offenders.

The proposed rules, to come into effect Jan. 1, also require applicants to pay their taxes due immediately on entering the amnesty program, and would treat more harshly any sophisticated investors who cleverly worked to keep their assets secret from the taxman.

The changes, outlined in a June 9 circular, are out for a 60-day public consultation before becoming final in the fall.

Dennis Howlett, executive director of Canadians for Tax Fairness, says the CRA is right to tighten up its voluntary disclosures program, but says the agency needs to go farther. (CBC)

"The majority of Canadians feel that there are two tax systems, one for the rich and one for the rest of us," said Dennis Howlett, executive director of Canadians for Tax Fairness, urging citizens to speak up about the proposals.

"It is very important for government to get this right."

The voluntary disclosures program was created largely to flush out more tax cheats by offering a type of amnesty for those who self-identify, usually waiving prosecution, penalties and some interest payments while requiring the taxes owed be paid in full. The program has been aimed at deliberate cheaters as well as those who made inadvertent mistakes in previous tax filings.

Ex-PM Mulroney a beneficiary

There have been some high-profile beneficiaries of the program, including Brian Mulroney.

The former prime minister took advantage of a more generous version of the program when he disclosed $225,000 in unusual cash payments from German businessman Karlheinz Schreiber in the 1990s.

The CRA in 2000 allowed Mulroney to pay taxes on only half the undeclared amount he had received from Schreiber. The one-half rule, which was for Quebec-based claims only, has since been rescinded.

Today, a more urgent concern is Canadians stashing their cash in overseas tax havens, not declaring any income and thus evading tax.

Tax fraud is a crime, just as much as robbing a bank. - Tax expert and Laval University professor Andre Lareau

Leaks of client lists from tax-haven countries in the late 2000s spooked many tax-evaders to apply for amnesty under the voluntary disclosures program, driving the amount of previously unreported income to a peak of $1.8 billion in 2009-10.

The amounts have since fallen somewhat, but were about $1.3 billion in 2014-15, the last reported year, when the CRA processed 18,260 applications under the program. More than half the unreported income was from offshore holdings.

Last December, the CRA's blue-ribbon panel of five independent experts delivered a report on the voluntary disclosures program, saying the rules needed revamping to make it "more fair" and "less generous."

Their report argued for tougher treatment of sophisticated taxpayers, a ban on repeat applications and the forced disclosure of "advisers" — long a demand of critics who say the facilitators are as bad as the cheats.

"The CRA has confirmed that there exists no requirement to disclose the identity of the advisers who assisted with non-compliance by, for example, helping taxpayers set up offshore accounts or structures," said the report from the panel, called the offshore compliance advisory committee.

"Any person making a voluntary disclosure should be required to provide this information."

The proposed rules water down that recommendation, saying that the "name of that adviser should generally be included in the application." Howlett's group says disclosure should be mandatory for all applicants.

CRA spokesperson David Walters says the word "generally" was used "to allow for the possibility of accommodating unusual situations, for example, where the adviser identity may not be known for a structure established in the past by a deceased relative."

Solicitor-client privilege an issue

Any requirement to disclose the identity of an adviser could raise the tricky issue of solicitor-client privilege, which protects legal advice, a principle affirmed in a Supreme Court of Canada ruling in June last year. The CRA lost that case, arguing unsuccessfully it could access certain private legal documents.

Some accounting firms providing tax advice often append the information to communications from a lawyer, thereby taking advantage of solicitor-client confidentiality.

Laval University tax professor André Lareau says the tougher rules for the amnesty program represent progress, but says the courts also need to be tougher. (Parliament of Canada)

Andre Lareau, a professor of tax law at Laval University, says the tougher proposed rules for the voluntary disclosures program are an "improvement."

But he called for even harsher treatment of sophisticated tax cheats under the program, including higher penalties and a stronger requirement for applicants to identify "advisers" through changes in the law and regulations, rather than just policy.

"This is some progress," he said in an interview. "More needs to be done with respect to penalties."

Lareau also said the Justice Department, the Canada Revenue Agency and judges need to change their mindsets about prosecuting tax fraud, including seeking more prison terms for dodgy tax advisers rather than the more commonly applied financial penalties.

"Tax fraud is a crime, just as much as robbing a bank," he said. "It should be considered an important crime."