The Canada Revenue Agency (CRA) have announced that effective March 1, 2018, changes will be made to the Voluntary Disclosures Program to narrow its eligibility criteria.
What is the Voluntary Disclosure Program (VDP)?
The VDP provides Canadians a second chance to change a tax return which has been previously filed with the Canada Revenue Agency (CRA), OR to file a return(s) which you should have filed with the CRA.
Your application under the VDP – if approved – allows you to file or amend a return without the CRA prosecuting you, or assessing penalties.
Who Can Apply?
Taxpayers can be;
• GST/HST registrant / claimants
• Registered exporter of softwood lumber products
You can apply, or you can have an authorized representative – like an accountant, or tax professional like inTAXicating, submit the application on your behalf.
How Many Times Can You Apply?
The CRA would prefer you use VDP once and stay up-to-date on filings from that point onwards, however should circumstances warrant it, you can apply again.
Conditions of a Valid Application
To qualify for relief, the application must:
• Be voluntary – You come to the CRA before the CRA gets to you.
• Be complete – You cannot file for one year, for example, you have to file everything and disclose everything.
• Penalty: Involve the application or potential application of a penalty and, for GST/HST applications, the application or potential application of a penalty or interest
• Time: Include information that is at least one year past due for income tax applications and, for GST/HST applications, at least one reporting period past due; and
• Include payment of the estimated tax owing.
Submit an application to the CRA, and if the CRA approves it, the returns in question are filed or amended and there is no penalties or fear of prosecution (unless you are engaged in criminal activities).
The CRA then expects you to pay the balance owing – or make arrangements to pay – because while there is no penalties, there is still interest accruing on the account.
* The above information applies until February 28, 2018.
The CRA will update their VDP guidelines as of March 1, 2018, so in order to be considered under the existing VDP, the CRA must receive your application, including your name, on or before February 28, 2018.
What Changes March 1st, 2018?
On March 1, 2018, when the new VDP comes into effect, it narrows the eligibility criteria to access the Program and imposes additional conditions on applicants, making it more difficult for those who intentionally avoid their tax obligations to benefit from the VDP.
Income Tax Disclosures
With the changes to the program, two tracks will be created for income tax disclosures:
1. Limited Program
The Limited Program provides limited relief for applications that disclose non-compliance where the facts suggest that there is an element of intentional conduct on the part of the taxpayer or a closely related party.
Under the Limited Program, taxpayers will not be referred for criminal prosecution with respect to the disclosure and will not be charged gross negligence penalties, however, they will be charged other penalties and interest as applicable.
2. General Program
Under the General Program, taxpayers will not be charged penalties and will not be referred for criminal prosecution related to the information being disclosed. The CRA will provide partial interest relief for years preceding the three most recent years of returns required to be filed.
GST/HST, excise tax, excise duty, softwood lumber products export charge and air travellers security charge disclosures
For GST/HST, excise tax, excise duty, softwood lumber products export charge and air travellers security charge disclosures, three categories will be created:
1. Wash Transactions
Wash transactions are generally transactions where a supplier has failed to charge and collect GST/HST from a registrant entitled to a full input tax credit. This category provides relief only for applications involving GST/HST “wash transactions” that are eligible for a reduction of penalty and interest under the policy set out in GST/HST Memorandum 16.3.1, Reduction of Penalty and Interest in Wash Transaction Situations.
Registrants will not be charged penalties nor interest and will not be referred for criminal prosecution related to the information being disclosed.
A registrant must now disclose information on any non-compliance during the four years before the application is filed.
2. Limited Program
This category provides limited relief for applications that disclose non-compliance where the facts suggest that there is an element of intentional conduct on the part of the registrant or a closely related party.
Under the Limited Program, registrants will not be referred for criminal prosecution with respect to the disclosure and will not be charged a gross negligence penalty, however, they will be charged other penalties and interest as applicable.
3. General Program
All of cases fall under the General Program where registrants will not be charged penalties and will not be referred for criminal prosecution related to the information being disclosed.
The CRA will provide partial interest relief and a registrant must now disclose information on any non-compliance during the four years before the application is filed.
How to Determine if a Disclosure Falls under the General or Limited Program?
For both income tax and GST/HST disclosures, the determination of whether an application should be processed under the General or Limited Program will be made on a case-by-case basis and in doing so, the CRA may consider a number of factors, including but not limited to:
• The dollar amounts involved;
• The number of years of non-compliance; and
• The sophistication of the taxpayer/registrant.
Other Significant Changes to the VDP
Payment of estimated taxes owing: Payment of the estimated taxes owing will be required as a condition to qualify for the program (When a taxpayer does not have the ability to make payment at the time of filing the VDP application, they may request to be considered for a payment arrangement.)
2. Anonymous Disclosures Eliminated
The “no-names” disclosure method has been eliminated and replaced by a new pre-disclosure discussion service.
The process for taxpayers and authorized representatives to make disclosures on a no-names basis has been eliminated. Under the new “pre-disclosure discussion” service, taxpayers or their authorized representatives can have a conversation with a CRA official on an anonymous basis, but that discussion does not constitute acceptance into the VDP.
3. Large Corporations
Generally, applications by corporations with gross revenue in excess of $250 million in at least two of their last five taxation years, and any related entities, will be considered under the Limited Program.
Due to the complexity of transfer pricing issues, applications will now be referred to a specialized Transfer Pricing Review Committee, which will review the applications instead of the VDP.
For efficiency, taxpayers may send their applications directly to this committee.
5. Review by Specialists
Applications involving complex issues or large dollar amounts will be reviewed for completeness by the relevant specialist from the program area prior to being accepted.
6. Disclosure of Advisors
The name of the advisor who assisted with the non-compliance should now be included in the application.
7. Cancellation of Previous Relief
The new VDP regulations provide the CRA with the ability to cancel relief which was previous provided to a taxpayer if it is subsequently discovered that a taxpayer’s application was not complete due to a misrepresentation.
8. Mandatory Waiver of Rights of Objection and Appeal
Under the Limited Program, participants will have to sign a waiver of their right to object and appeal in relation to the specific issue disclosed.
If you need assistance with a Voluntary Disclosure – at any time – we can help!
On the phone: 416.833.1581 (If you are outside of Toronto, and would like to speak to us live, please email us, and we will gladly call you at your convenience)
On our website: http://www.intaxicating.ca (Portal coming soon – currently under construction).