Federal Voluntary Tax Disclosure Program Kicks In

Changes to the Canada Revenue Agency (CRA) Voluntary Disclosure Program (VDP) were approved in December 2017, following a 60-day consultation period. An important principal of the new guidelines, which becomes effective January 1, 2018, is that relief is fair and not considered to reward non-compliance.

The guidelines created two tracks for income tax disclosures: a general program and a limited program.

The general program is similar to the current VDP: penalties will be waived, subject to the usual 10-year limit, criminal prosecution will not be considered and interest relief will be considered for years preceding the most recent three years, with 50 percent of interest generally being waived. Interest for the most recent three years will not be waived.

The limited program will apply to disclosures of major non-compliance and provide reduced relief. Examples of situations where the limited program would apply include:

• Active efforts to avoid detection through the use of offshore vehicles or other means
• Large amounts
• Multiple years of non-compliance
• Sophisticated taxpayers
• Disclosure after CRA communications, campaigns or correspondence regarding non-compliance
• Other circumstances where a high degree of taxpayer culpability contributed to the non-compliance

Concerns were raised during the 60-day consultation period that the changes would restrict the VDP and actually discourage taxpayers from making voluntary disclosures.

In response, the federal government announced mid-December 2017 a “tightening of the VDP to ensure greater tax fairness.” New guidelines, effective March 1, 2018, include:

• The creation of a new limited program, which will offer more limited relief to taxpayers who have intentionally avoided their tax obligations;
• A required payment of the estimated taxes owing as a condition to qualify for the program – this payment was not required in the past;
• Cancellation of relief if it is subsequently discovered that a taxpayer’s application was not complete due to a misrepresentation; and
• Elimination of the process for taxpayers and authorized representatives to make disclosures on a no-names basis.

It is important to note the opportunity to take advantage of the current VDP has been extended to March 1, 2018.

For more information, please click here or contact your local MNP Advisor.