On June 9th, 2017, the Canada Revenue Agency (CRA) launched a 60-day online consultation with Canadians on the Voluntary Disclosure Program (VDP), in which the CRA is seeking input from the public to ensure that the program is more “responsive, innovative and fairer for all Canadians”.
One of the key asks by the CRA is this question; “We are asking you – when should the VDP apply? Should it apply only to those who knowingly choose to not pay their taxes or also to those who make mistakes on their returns?”
Based on that question, many organizations have been putting out materials stating that the CRA is changing the program and that it is already been decided, however that is not the case, yet, as the consultation period has not even ended.
What Is Voluntary Disclosure?
The Voluntary Disclosures Program (VDP) gives Canadian taxpayers a chance to change a tax return they have previously filed or file a return that should have filed and by making these changes through the VDP, the Canada Revenue Agency (CRA) may give relief from prosecution and penalties.
By applying to the CRA under the VDP, a Canadian taxpayer might only pay the taxes owing plus interest.
The disclosure MUST meet all four of the following conditions to be valid;
1. A penalty would apply
2. It is voluntary, which means it is made before the CRA takes any compliance action against you
3. the information is at least one year overdue
4. it includes all the relevant information – meaning it is full and complete.
Anyone can use the VDP, including individuals, businesses, employers, payers, trusts and estates, whether a resident or a non-resident of Canada.
Why Changes to the VDP?
When the CRA found out that there were Canadian taxpayers hiding money offshore, they began to consider whether the current VDP was fair for all Canadians. Should a taxpayer who forgets to include an income source be granted the same relief as a taxpayer hiding money overseas and failing to disclose that income in order to reduce the amount of taxes they would have to pay in Canada?
The answer clearly is no, it’s not fair, and the CRA wants to change the program to make it easier for actual errors and omissions to be fixed, while making it much more difficult to allow tax evaders to utilize the program to avoid prosecution.
The most meaningful change expected in the VDP is the introduction of a two-track system:
1) the General Program, and
2) the Limited Program.
The Limited Program would limit the availability of the program in certain circumstances or where there is a “major non-compliance” as such relief for penalty and partial interest relief could be seen as “overly generous.”
Under the General Program, taxpayers who qualify for the VDP will not be charged penalties or referred for criminal prosecution with respect to the disclosure, and may be entitled to partial relief for any interest in respect of assessments preceding the three most recent years of returns required to be filed.
Whereas under the Limited Program, applications that disclose “major non-compliance” will not receive the same level of relief as they would under the current VDP. Taxpayers will not be referred for criminal prosecution and will not be charged a gross negligence penalty with respect to the disclosure, however, other penalties will be charged as applicable such as a late filing penalty, a failure to remit penalty, an instalment penalty or an omission penalty. Additionally, no interest relief will be provided.
What Might Constitute “Major Non-Compliance?”
Major non-compliance might look like this:
• Taxpayers who undertook active efforts to avoid detection through the use of offshore vehicles or other means
• Large dollar amounts being disclosed
• Multiple years of non-compliance
• A sophisticated taxpayer, or use of sophisticated tax avoidance techniques under the advice of a sophisticated professional, and
• The disclosure is made the CRA has released information aimed at cracking down on taxpayers failing to disclose all their income
The determination of whether an application should be processed under the Limited Program will be made on a case by case basis.
While determining the status of an application to the VDP, the CRA will also consider;
• If they will require payment in full of the estimated taxes owing as a condition of acceptance
• If transfer pricing cases and applications from corporations with gross revenue in excess of $250 million qualify
• If applications that disclose income from the proceeds of crime will be allowed access to the program
The CRA will continue to cancel VDP applications if they learn that the disclosure was not full and complete, or if was intentionally inaccurate.
The release of the changes to the CRA’s VDP will be announced in the fall, and the above is speculation as to what the new program will look like. If you, or anyone you know has failed to fully or accurately disclosure income, it’s best for them to speak to a professional now, especially before there are changes to the program which might disqualify them.
At inTAXicating, we are always available to discuss the CRA’s VDP and you can find us at http://www.intaxicating.ca, or send us an email to info@inTAXicating.ca.
Since today is Thursday, I thought a Thursday Thirteen themed post might be a good change of pace!
Here are 13 things that should NEVER be said to someone with a tax problem, from someone who claims to want to help (or just your money).
Each quote below was an actual quote uttered by a tax solution representative or accountant to a prospective client in my presence.
Sit tight, and get ready to shake your head in disbelief…
13. “GST, HST, PST… They’re all the same.”
12. “CRA Collectors don’t care about you. They treat their clients like a ‘whack-a-mole’ game. You pop your head up and they smack you on the head with a hammer. We provide you with a helmet or advise you to stay underground until the game is over.”
11. “You’re an alcoholic? GREAT! Substance abuse qualifies for relief!!”
10. “I can tell you for a fact that the Auditor General requires the CRA to close files, NOT collect money. The benchmark is 7-years. We can close your file in 7-years!”
9. “You’re just a little guy! Nobody cares about you.”
8. “If you tell the CRA anything you are shooting yourself in the feet. That’s dumb and it hurts.”
7. “I know the CRA have won in Tax Court, but they are wrong, and this time we have everything we need to prove them wrong!”
6. “Just ignore them and it will all go away.”
5. “You don’t need to speak to a Tax lawyer, or an accountant. They’re useless. You should never talk to the tax preparer. Just pay us $5,000 and we can make it all go away.”
4. “The Taxman…”
3. “I don’t care what the CRA wants, and how soon they want it. They’re getting what I want to give them, when I’m ready to give it to them, AND they’re going to see that I’m right and they are wrong.”
2. “We need to reduce the amount that you owe, so I’m going to create a T2200 for you, and claim a lot of expenses that your employer has not deducted like mileage, phone, and parking. They’ll never know its not true and on the off-chance that they ask, I have hundreds of parking receipts in my car I can give them. It’s perfectly fine…”
- “Don’t even bother opening that envelope… Just throw it out.”
Just missing this list, but barely, is the commonly uttered line; “Quick, transfer the house out of your name before the CRA registers a lien against it!”
Warren Orlans, the Director of inTAXicating Tax Services has completed his Profitable Giving Specialist accreditation which certifies that he is able to demonstrate understanding and proficiency in each of the following 4 areas;
- The Tax Shelter Industry in Canada
- The Regulations: Promoter Liability and Penalties, Third Party, and Civil Liability
- Registered Profitable Gifting Arrangements and the Law
- The Role of the Canada Revenue Agency in Regulating RPGAs
In addition to assisting Canadian Taxpayers who have fallen victim to Tax Shelter scams like the Global Learning and Gifting Initiative (GLGI), the Canadian Organization for International Philanthropy (COIP), the Relief Lending Group (RLG), Mission Life Financial Inc (MLF), Pharma Gifts International (PGI) and Integrated Receivables Management Inc / Integrated RM Inc (IRM).
- Ability to Pay according to you and,
- Ability to Pay according to the CRA.
From there, you have only a few options;
- Do nothing
- Resolve the balance outstanding
- Fight the CRA
Should you choose to resolve the balance outstanding, you again have only a few options;
- Pay the balance in full
- Ask the CRA for a payment arrangement, and prove you need one
- Wait for the CRA to take it from you.
- File a Consumer Proposal
- File for Bankruptcy.
Keep in mind that the CRA does not “settle” debts like the IRS does. The only way to “settle” or pay less than the full amount of tax, penalties and interest, is through bankruptcy or a proposal.
While all of the Collections matters are in process, you are entitled to file for Taxpayer Relief and ask the CRA to return some or all of the penalties and / or interest which it has charged you. This application should be devoted time and effort to complete. It should never be a cookie-cutter application written by someone else because the CRA sees those and mass-denies them. Anyone trying to sell you a cookie-cutter application knows this and is “helping” you for the money and not because it’s the right thing to do.
Taxpayer Relief does not hold back Collections for doing what Collections does – trying to collect a balance owing – nor do CRA Collections care that a Taxpayer Relief application has been submitted.
A CRA review of a Taxpayer Relief Application can take upwards of a year. Be prepared for that delay and the interest that accumulates on your tax account should you wait to pay it later.
Having a trained set of eyes look over and edit a Taxpayer Relief application is a great idea because if you’re taking the time to submit an application, you want to make sure that you are putting your best work forward.
But ultimately, when looking at your options… All of your options, you want to make sure that your interests are being looked after first. You need an expert in CRA Collections, in Tax Shelters, and who can assist you with accounting, refinancing, insolvency and proposals and who can give you the best advice, the most cost effective advice and the advice that they would take if they were in your shoes.
inTAXicating Tax Services is that organization and we’re here to help you with all of that, and so much more. We associate ourselves with like-minded professionals who also understand that you are the client and that you need assistance and service.
If you have any questions about any tax shelter that you may have been involved in, and you need to know your specific options, contact us at email@example.com