The Canada Revenue Agency’s (“CRA”) voluntary disclosure program (VDP) allows taxpayers to correct inaccurate or incomplete information or disclose unreported information. If a taxpayer’s disclosure meets the CRA’s conditions for the VDP, the taxpayer is not assessed penalties or criminally prosecuted with respect to the disclosure and the CRA charges reduced interest (in some cases).
The CRA will only grant relief from penalties, criminal prosecution and will charge reduced interest. The taxpayer will still have to pay any tax and interest owing.
The program is intended to promote compliance with Canada’s tax laws and is not meant to be used as an intentional way to avoid tax obligations.
The program is exercised under the CRA’s discretion in subsection 220(3.1) of the Income Tax Act.
How do you qualify?
There are four conditions for a valid disclosure:
1. The disclosure must be voluntary. Voluntary means that the taxpayer was unaware of any audit, investigation or enforcement action by the CRA with respect to the information being disclosed.
2. The disclosure must be complete. The taxpayer must provide complete and accurate documentation/information for the years or periods where there was previously inaccurate or unreported information.
3. There must be a penalty for the inaccurate or unreported information. If a penalty would not apply to the information being reported, it’s not a valid disclosure.
4. The information disclosed must be one year overdue.
The VDP is open to any taxpayer (ie, an individual, corporation, trust, employer, etc.).
How do make a voluntary disclosure?
There are two ways to make a voluntary disclosure: “Named Disclosure” and “No-Name Disclosure.”
1. Named Disclosure: in a “Named Disclosure” the taxpayer’s identity is revealed on the initial submission.
2. No-Named Disclosure: in a “No-Name Disclosure” that taxpayer’s identity is not revealed on the initial submission. This method is for at taxpayer who is uncertain as to whether they want to proceed with a disclosure.
The initial submission includes general information about the type of information that is being corrected and for what years. All that is revealed about the taxpayer is the first three characters in their postal code, their gender, and age. The taxpayer, or their representative, can have a non-binding, general discussion with a CRA officer about the process. The CRA may advise that, based on the initial submission, there is nothing that would disqualify that particular taxpayer from receiving relief under the VDP.
The CRA will only provide a final decision about whether a taxpayer qualifies for the VDP after their identity has been disclosed to the CRA.
Future changes?
In late 2016, the CRA’s Offshore Compliance Advisory Committee recommended changes to the VDP. The proposed recommendations would make the VDP less generous to taxpayers. The recommendations include:
1. That the taxpayers seeking relief under the VDP be required to disclose the identity of advisors who assisted with non-compliance using offshore structures.
2. Penalty and interest relief should be less generous where a sophisticated taxpayer sought advice from a professional and used complex structures to evade tax over several years; where significant tax is evaded; where there are multiple years of non-compliance, etc.
3. A taxpayer who has made a voluntary disclosure should pay the estimated tax owing or provide security for the estimated tax owing within 90 days of the date of the disclosure (or more if an extension is granted) unless there are extraordinary circumstances or other compelling reasons why payment cannot be made or security given.
4. Large and complex voluntary disclosure applications should be reviewed by specialists before acceptance.
The Minister of National Revenue and the CRA will review the Committee’s recommendations and communicate any changes to the public in 2017.
If you believe you have provided incomplete or inaccurate information to the CRA, have underreported your income or have questions about the voluntary disclosure program, please contact one of our tax lawyers for a free consultation.