Voluntary Disclosure Program poised to undergo major overhaul
TAX ALERT |
On June 9, 2017, the Canada Revenue Agency (CRA) requested public feedback on proposed changes to the Voluntary Disclosure Program (VDP).
Generally, the proposals will change who can use the VDP, how much relief they will be entitled to, and which disclosures fall under its purview. Universal access for all taxpayers will no longer exist; companies with gross revenue of $250 million in two of the previous five taxation years can no longer apply. Transfer pricing and proceeds of crime will also not qualify once the new guidelines take effect in early 2018. A significant new condition that must be met for an eligible VDP submission is that taxpayers must now include payment of estimated taxes owing.
The proposals are partially based on recommendations from the Offshore Compliance Advisory Committee (OCAC), a committee set up in April 2016 to advise the CRA on offshore compliance. With these proposals, the CRA intends to change the idea that by providing relief to both an absent-minded taxpayer and one who knowingly intends to shirk their tax obligations, the VDP treated the former in an unfair manner.
Expansion of the original VDP
Over 20 years ago, the VDP guidelines were created to focus on income tax matters. Since then, while there has been no change to the language, the VDP’s coverage has expanded to other taxes.
Income tax and payroll
The CRA intends to create two tracks: The General Program, and the Limited Program.
The Limited Program involves disclosures pertaining more to willful non-compliance as opposed to forgetfulness. Disclosures falling under the limited program have the following qualities:
- Concerted effort to evade detection, either through offshore entities or other schemes
- Significant dollar amounts
- More than one year of non-compliance
- Disclosures coming in immediately following a relevant CRA announcement
- Sophisticated taxpayers
- Disclosures wherein culpability contributed largely to non-compliance.
Subjective measures – including the intangible element of taxpayer intent – introduces vagueness into how the tax system will be carried out. Add to this a list of elements open to interpretation, and taxpayers may struggle to understand which program their disclosure belongs in. Historically, the VDP provided relief not only for penalties and interest but also for criminal prosecution. Under the new proposals, this will not change; what will change is the extent of relief, depending on which track the disclosure lands in.
Full relief from penalties related to the disclosure, in any taxation year that ends in the previous 10 years before the calendar year in question, will still be available.
Limited relief will be available on assessment of a negligence penalty, as well as any others that apply.
Taxpayers with a successful disclosure in either the General or Limited programs will not be forwarded to the authorities for criminal prosecution. Under the new proposals, however, the CRA reserves the right to cancel relief granted earlier, in cases of willful non-compliance.
Interest relief marks a key benefit of a successful VDP submission; the significant interest accruing on unpaid balances often surpass the original amount. Under the General Program, up to 50 per cent relief may be granted for applicable interest. Under the Limited Program, however, no interest relief exists.
Taxpayers contemplating a VDP are advised to contact their tax advisors regarding timing and details of their submission in light of these new proposals.