“relief from penalties will be significantly curtailed”
The Voluntary Disclosures Program (VDP) is a CRA administrative program that allows taxpayers to voluntarily come forward and correct up to 10 years of errors or omissions in their Canadian tax affairs with relief from prosecution and penalties. There can also be relief from interest for amounts owing for statute barred years.
In Tax Tip 16-01 we recommended that taxpayers with unreported income make a voluntary disclosure (Disclosure) as soon as possible. Now there may be more reason to act quickly. Under proposed changes to the VDP (Draft Information Circular IC00-1R6), the relief from penalties will be significantly curtailed in certain common scenarios after December 31, 2017.
Under the new VDP program, there will be two tracks for income tax disclosures, being the General Program and the Limited Program. If a Disclosure is accepted under the General Program, the Taxpayer will be eligible for penalty relief and partial interest relief, in a way similar to what is provided under the current program. Although not stated in draft IC00-1R6, it appears that non-compliance that could result in criminal prosecution will not be eligible for the General Program.
VDP applications that disclose “major non-compliance” will be processed under a new “Limited Program” and, if accepted, relief will only be provided from prosecution and gross-negligence penalties. All other penalties such as late-filing penalties will be applicable and no interest relief will be provided.
The Limited Program will be applicable in any of the following situations:
- active efforts to avoid detection through the use of offshore vehicles or other means
- large dollar amounts (not defined)
- multiple years of non-compliance
- a sophisticated taxpayer
- the disclosure is made after an official CRA statement regarding its intended focus of compliance or following CRA correspondence or campaigns
- any other circumstance in which a high degree of taxpayer culpability contributed to the failure to comply
For example, the CRA has sent letters to taxpayers regarding receipt of funds reported by banks and the letters provide a note for the taxpayers to consider reporting income and Form T1135 under the VDP. If the disclosure is made by such a taxpayer after 2017, it will come under the Limited Program with no relief for late filing penalties or interest. In addition, it would appear that any late filing of foreign reporting forms will also be subject to late-filing penalties of $2,500 per year per form under the Limited Program from 2018 onwards.
The new VDP program eliminates the protection provided under the current no-names disclosure process and replaces it with a no-names pre-disclosure discussion process that does not protect the Taxpayer if they are approached by the CRA before filing a “named” voluntary disclosure, with a completed and signed Form RC199 to mark the Effective Date of Disclosure.
Taxpayers and their advisors should consider whether a voluntary disclosure is desired, even if it is for something as simple as not filing Forms T1135 for required years. If a voluntary disclosure is required, it should be made before the end of 2017 before the new limitations become applicable.
TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.
The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.
