Make Voluntary Disclosures Before March 2018?

In June 2017, the government proposed radical reductions in the scope of the voluntary disclosures program (VDP), which provides relief from penalties and interest for taxpayers who voluntarily come forward to correct previous errors or omissions in their tax affairs. The final rules were released on December 15, 2017 by way of a new information circular (IC 00-1R6, "Voluntary Disclosures Program"). It is perhaps surprising that the program survived at all, given its unpopularity with the general public and the perceived decrease in value of the program to the CRA in determining areas requiring more audit attention. Further, Canada is highly unusual (in comparison with other countries around the world) because it has a disclosure program that is not temporary. Applications under the previous (current) VDP, which must be received by February 28, 2018 and must include the taxpayer's name, can be advantageous because
  • there is currently no requirement to pay the estimated tax owing at the time of making the application (although it may still be prudent to do so);

  • the taxpayer may qualify for additional interest relief (because the amendments limit such relief under the general program to 50 percent of applicable interest for the years preceding the most recent three years of returns, and no interest relief is afforded under the limited "track" of the program); and

  • if the taxpayer is a corporation with gross revenue exceeding $250 million, it has access to broader relief.

The amended program includes the following changes from the current system:
  • Elimination of the no-names disclosure process. Informal "preliminary discussions" with a CRA official may be held on an anonymous basis prior to the VDP application, but these are now non-binding.

  • The creation of a "two-track" VDP program (see below), with each track unlocking access to different forms of relief.

  • A requirement that disclosure be provided for all non-compliance tax years, even those years that fall outside the 10-year limitation period for relief.

  • Mandatory payment of estimated tax at the time of making the application.

  • The taxpayer must "generally" (paragraph 44 of the IC) disclose the identity of the (past) adviser who assisted the taxpayer in respect of the tax matters that form the subject matter of the voluntary disclosure, presumably to allow the CRA to undertake focused audits.

The government has separated the program into two "tracks," or streams. When an application is made, the government decides which track the application fits into. The first track is the general program, which qualifies a taxpayer for penalty and partial interest relief, along with protection from criminal prosecution. The second track is the limited program, which applies to taxpayers that disclose non-compliance where there is an element of intentional conduct (for example, a sophisticated taxpayer: see paragraph 20 of the IC): such applications are only entitled to reduced relief under the VDP. In the initial proposed amendments to the VDP, the government had planned to prohibit access to the VDP by corporations with gross revenue in excess of $250 million in at least two of the last five taxation years. In the final amendments, such corporations are eligible for relief (albeit reduced relief under the limited program).

Clearly, there are risks as well as rewards in applying for the VDP. Paragraph 12 of the IC states that the CRA may audit or verify information provided in a VDP application whether it is accepted or not. The CRA can also cancel VDP relief if there is a misrepresentation; the misrepresentation can trigger a reassessment for all years to which it relates, not just those in the VDP application. Further, when a VDP application is rejected, the information submitted may still be used for assessment and reassessment; penalties and interest may be levied; and an investigation and prosecution may be initiated.

Amanda S.A. Doucette
Stevenson Hood Thornton Beaubier LLP, Saskatoon

Canadian Tax Focus
Volume 8, Number 1, February 2018
©2018, Canadian Tax Foundation