Potential Modifications to the Federal Voluntary Disclosure Program

For many years now, the Canada Revenue Agency (CRA) has been offering a voluntary disclosure program (VDP) for taxpayers who have failed to comply with their Canadian tax obligations. Under this program, taxpayers can come forward and normalize their situation while benefitting from certain relief granted by the CRA. Any amount of tax payable as a result of the disclosure must be paid as if the taxpayer had initially complied with his tax obligations, but the CRA will generally grant a relief for all penalties as well as a partial relief on the interest otherwise payable.

The Offshore Compliance Advisory Committee (OCAC) recently published its first report which contains a series of recommendations in order to bring significant changes to the VDP. These recommendations will generally reduce the benefits available under the VDP and they could be implemented by the CRA at any time. Therefore, taxpayers who are currently considering making a voluntary disclosure with the CRA may want to initiate the disclosure immediately in order for this disclosure to potentially benefit from the current rules of the VDP and avoid being affected by any modification to the VDP. Below is a summary of the most important recommendations of the OCAC which could lead to changes to the VDP:

1. Less Generous VDP relief in certain circumstances: Reduced relief from interest and penalties where there is deliberate default amounting to gross negligence, where active efforts are made to avoid detection by the tax authorities through the use of offshore vehicles, in situations involving large dollar amounts of tax avoided or multiple years of non-compliance, etc.

2. Complete information: Current VDP rules already require that taxpayers provide complete information. However, this requirement is not always enforced by the CRA. The OCAC is of the view that taxpayers should be compelled to provide the information and that taxpayers who are unwilling to do so should be denied the full benefits of the VDP.

3. Review by Specialists: Today, most voluntary disclosures are accepted by the CRA without the CRA asking a lot of questions. The OCAC suggests introducing procedures to ensure that large or complex cases are reviewed by specialists before being accepted.

4. Information Return T1135: The tax legislation requires taxpayers who own certain foreign assets above a threshold amount to file an information return T1135, or be subject to a $2,500-dollar penalty. In the past, taxpayers have used the VDP to normalize an omission to file a T1135 form. The OCAC recommendations could limit the possibility to use the VDP to file a T1135 form in the case where the taxpayer has failed to report the related income in the income tax return.

On June 9, 2017, the CRA published a draft revised version of its Information Circular on the VPD. Taxpayers can provide their comments on this draft document as it has not yet replaced the current CRA policy on the VDP. It should be noted that this draft document reflects recommendations 1, 2 and 3 outlined above and indicates that it would apply after December 31, 2017.

Contact your Crowe BGK LLP advisor to initiate a voluntary disclosure today.

About the Author:

Isabelle Nadeau, B.C.L., LL.B., LL.M. Tax, is a Tax Manager at Crowe BGK.

Connect with her: [email protected]