Canada Revenue Agency’s Voluntary Disclosure Program – Change is Coming!

Canada Revenue Agency’s Voluntary Disclosure Program – Change is Coming!Change is inevitable, and sometimes not for the better. This is the case regarding the modifications made to the Voluntary Disclosure Program (VDP) that come into effect March 1, 2018.

Under the current VDP system, the Canada Revenue Agency (CRA) allows taxpayers to “come clean” and correct any previous errors or omissions or to file returns that should have been filed without penalty or criminal prosecution. It is an effective process, if you come forward before CRA comes knocking on your door.

An opportunity under the current program is an anonymous submission – a taxpayer must eventually provide their identity, however an advisor can initiate the process anonymously. This allows taxpayers to determine if they are eligible for a VDP without giving up their identity. This all changes under the new system, including:

  • The VDP will be unavailable for:
    • corporations with gross revenue over $250 million;
    • transfer pricing matters; and
    • reporting income from proceeds of crime.
  • A requirement to pay estimated tax owing with the VDP application.
  • Potential disclosure of advisors who assisted in the VDP.
  • Introduction of a “two-tier” system – referred to as limited versus general.

The Limited Program applies to applications regarding “major non-compliance” disclosures. According to CRA’s Information Circular IC00-1R6 – Voluntary Disclosure Program (December 15, 2017), the following conditions may be used to determine if there is an element of intentional conduct and therefore the application would be processed under the Limited Program:

  • Use of offshore vehicles or other means to avoid detection;
  • Multiple years of non-compliance;
  • Monetary amounts involved;
  • Sophistication of the taxpayer; and
  • Official notification by CRA regarding its intended focus of compliance.

Pursuant to the Limited Program a taxpayer will not be referred for criminal prosecution with respect to the disclosure and will not be charged a gross negligence penalty, however may be subject to other penalties such as late filing penalties. Unfortunately, no interest relief is provided under the Limited Program.

For those applications that do not fall under the Limited Program, they would be processed under the General Program. A taxpayer will not be charged penalties or referred for criminal prosecution with respect to the disclosure and partial interest relief may be available.

The new system gives CRA the authority to decide whether the application is processed under the Limited or General Program. This is a major concern as the conditions used to make the determination are ambiguous and will likely lead to uncertainty with respect to a taxpayer’s eligibility for relief. If you are contemplating a voluntary disclosure then it may be very prudent to act by February 28th to benefit from the provisions of the current VDP.

For more information regarding the new VDP guidelines, visit CRA’s website.