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SUCCESSion: Tax & Estate Matters

Jun 7, 2017

Changes to CRA's Voluntary Disclosures Program Expected

In order to promote tax compliance and incentivise taxpayers to disclose previous tax reporting omissions and inaccuracies, Canada Revenue Agency ("CRA") administers a Voluntary Disclosures Program ("VDP"). If CRA accepts a taxpayer's disclosure under the VDP, the applicant will be required to pay any additional taxes arising from the disclosure, but will be granted relief from applicable penalties and will not be prosecuted with respect to the non-disclosure; in addition, CRA has discretion under the VDP to allow partial relief of interest.

Historically, the administration of the VDP has been favourable to taxpayers, as applications which have met the broad requirements of the program have generally been accepted. However, there is reason to believe that the requirements for relief under the VDP may not be as generous in the future.

Earlier this year, the Minister of National Revenue (the "Minister") formally requested that CRA complete a comprehensive review of its VDP. The Minister expressed her expectation that CRA's review would result in proposed changes to tighten the criteria for acceptance into the VDP, and specifically requested that CRA refer to the December 2016 report of the Offshore Compliance Advisory Committee on the VDP (the "OCAC Report") in the course of its review.

Some of the specific recommendations referred to in the OCAC Report include:

  1. Reducing relief from penalties and interest in cases where the circumstances warrant it, including where: (a) there was deliberate default; (b) active efforts were made to evade tax; (c) large dollar amounts of tax were avoided; (d) there were multiple years of non-compliance; (e) the taxpayer was sophisticated; and/or (f) there was a high degree of taxpayer culpability;
  2. Better emphasis and enforcement should be given to the general rule that a taxpayer cannot access the VDP more than once;
  3. The estimated tax and interest should be payable within 90 days of the effective date of disclosure (i.e. the date upon which the a complete VDP application is made);
  4. Taxpayers making a VDP application should be required to provide the identity of advisors who assisted in their non-compliance;
  5. Taxpayers should not be allowed to object to VDP agreements once they are made; however, the ability to object to other issues in their returns or contest the adjustments arising from the VDP agreement should remain; and
  6. Offshore and onshore (i.e. domestic) non-compliance should generally be treated similarly, if the surrounding circumstances are similar.

To date, the CRA has yet to release the results of its review or publish any recommended changes to the VDP; however there is every reason to believe that changes are coming and that these changes will result in a VDP that is less favourable to taxpayers seeking relief – both in terms of the types of disclosures that will be accepted and in terms of the extent of the relief that will be granted.

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Keywords

onshore  |  Offshore  |  VDP application  |  OCAC Report  |  Minister of National Revenue  |  taxpayers  |  CRA

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