Tag: voluntary disclosure program
Last year I blogged about some possible changes to the CRA’s Voluntary Disclosure Program (“VDP”). The new VDP rules came into effect March 1, 2018.
One of the concerns that had been raised in relation to the VDP changes in advance of them coming into effect, is that it seemed the CRA was attempting to make the VDP less accessible for taxpayers. For example, the changes created a “tiered” system for VDP applications, meaning that applications would fall under either the “general program” (for more minor non-compliance) and the “limited program” (for major non-compliance). Another example is the apparent elimination of the “No-Name” method for submitting disclosure (which allows the taxpayer to gain some understanding of how their situation may be treated by CRA in advance of officially submitting his or her application).
According to this article, in July and August 2018, the CRA responded to the first round of disclosure applications that had been filed under the new rules. The CRA’s approach in practice was troubling to the article’s authors.
In particular, the CRA appears to be taking the position that it will be rejecting VDP applications if the relevant tax returns aren’t enclosed. This seems to be contrary to the guidelines set out in CRA’s Information Circular IC00-1R6. While CRA takes the position that it will reject applications that do not enclose tax returns, the Information Circular seems to indicate that a taxpayer may submit additional information or documentation to complete the VDP application up to 90 days from the day that the CRA receives the application. The article’s authors are of the view that the language of the Information Circular in this regard would include the relevant tax returns, as these are clearly documents required to complete the disclosure. The position taken by CRA provided confirmation to the authors that CRA was seeking to make the VDP inaccessible for taxpayers.
As we previously set out in this blog, the VDP can be relevant to an Estate Trustee if the deceased was not in compliance with his or her obligations to the CRA, such as failure to file income tax returns, or reporting of inaccurate information. The VDP may allow an Estate Trustee to voluntarily disclose such non-compliance and avoid penalties. Unfortunately, with the new VDP rules in effect, and the apparent uncertainty regarding how the CRA will apply its guidelines, it may be tricky for Estate Trustees to make effective use of the VDP. It will be interesting to see how the new VDP rules develop, and any further feedback to their practical application.
Thanks for reading,
Other blog posts that may be of interest:
Submissions from the Joint Committee on Taxation Regarding Proposed Changes to Voluntary Disclosure Program
Last month, I blogged about some changes proposed by the CRA to the Voluntary Disclosure Program. It was noted that the CRA would be accepting comments with respect to the proposed changes until August 8, 2017.
The Joint Committee on Taxation of The Canadian Bar Association and Chartered Professional Accountants of Canada (the “Joint Committee”) made submissions in this regard in a letter to the Minister of National Revenue dated August 8, 2017.
In their letter, the Joint Committee recommends that the Minister reconsider a number of points, including, among other things, the introduction of a multi-tier system including the “general program” and the “limited program”. The Joint Committee states that part of the success of the Voluntary Disclosure Program is due to the fact that taxpayers applying to the Program are able, to a certain extent, to predict the consequences of initiating a voluntary disclosure. This allows non-compliant taxpayers to assess the benefits of the Program as opposed to the ongoing uncertainty of non-compliance and the risk of assessment and/or prosecution. The Joint Committee submits that the proposed changes may lead to uncertainty, and therefore, may encourage non-compliance, which would be inconsistent with the objectives of the Voluntary Disclosure Program and with encouraging non-compliant taxpayers to become compliant.
The submissions from the Joint Committee also comment that the draft Information Circular setting out the proposed changes apparently provides that the No-Name method of disclosure, wherein certain information may be provided to a Voluntary Disclosure Program officer without identifying the taxpayer, in order to obtain a better understanding of how the taxpayer’s disclosure may be addressed, will no longer be available for disclosures commencing after December 31, 2017. In the Joint Committee’s experience, non-compliant taxpayers are more likely to proceed with a voluntary disclosure if the process is perceived as transparent and predictable. If they are correct and the Minister of Revenue proposes to eliminate the No-Name disclosure method, the Joint Committee urges the Minister of Revenue to reconsider this proposed change.
The letter from the Joint Committee makes a number of other submissions that are beyond the scope of this blog, but can be read in full here.
Thanks for reading,
Other blog posts that you may enjoy:
With a list that includes a dozen current and former world leaders, over a hundred politicians and public officials, as well as many celebrities and professional athletes, the recently leaked Panama Papers have caused quite a stir as they threaten to reveal how many people use banks, law firms, and offshore shell companies to hide assets and evade regulatory oversight or tax obligations.
Beginning in 2015, an anonymous source made 11.5 million records from Panama-based law firm Mossack Fonseca available to the German newspaper Süddeutsche Zeitung (“SZ”). These documents reveal information surrounding the ownership of offshore bank accounts and companies. As a result of the volume of documents, SZ turned to the non-profit organization, The International Consortium of Investigative Journalists (“ICIJ”), to assist with distribution. The first reports were released in early April of this year and the ICIJ has stated that they plan to publish the full list by early May 2016.
Although it is not illegal to have an offshore account (and there are many legitimate reasons why one might have one), they are often associated with attempts to hide assets or to disguise ownership of assets. For those who use offshore accounts for these improper purposes, failure to disclose certain assets can result in tax on unreported income, penalties, and arrears interest.
As the May 2016 release date approaches, many Canadians are considering the benefits of the Voluntary Disclosure Program offered by the Canada Revenue Agency (“CRA”). In the United States, the Internal Revenue Service (“IRS”) is going so far as to encourage any U.S citizens and companies who may be involved to come forward now and participate in their own Voluntary Disclosure Program.
For an Estate Trustee concerned with the possibility that a deceased (whose estate he or she is administering) may have been implicated, this program provides an opportunity that allows a taxpayer (or Estate Trustee) to come forward and voluntarily correct any errors or omissions without being subject to the penalties (or prosecution) that might normally apply. However, among other requirements, it is essential that disclosure be made voluntarily which requires that it be made prior to becoming aware of any compliance actions being taken.
For more information on the Voluntary Disclosure Program and Estate Trustee liability, please see our previous blog post on the subject here.
Thank you for reading.
Engaging the personal liability of an Estate Trustee is always a concern when administering an estate. In particular, Estate Trustees must be cautious to ensure that the deceased’s debts have been paid and that there are sufficient funds to pay any final taxes before any distributions are made.
In some cases, Estate Trustees may inadvertently find themselves in a situation where the deceased was not meeting their tax obligations to the Canada Revenue Agency (“CRA”). This may be the result of simple carelessness resulting in failure to file previous returns, incomplete information, errors and omissions, or it could also be as serious as deliberate tax evasion. Either way, the Estate Trustees must tread carefully because if they choose to ignore these past discrepancies and distribute the funds, they may be held personally liable for the penalties and interest incurred.
Fortunately, CRA has created the Voluntary Disclosure Program which can be especially useful for Estate Trustees in this type of situation. The Voluntary Disclosure Program allows the taxpayer (or Estate Trustee) to come forward and voluntarily correct any errors or omissions without being subject to penalties (or prosecution) that would normally apply. According to subsection 220(3.1) of the Income Tax Act (“ITA”), CRA may also waive a portion of the applicable interest with regard to assessments from the preceding ten years.
In order to benefit from the penalty and interest exemptions, the disclosure must meet the following four criteria to be considered valid. The exemptions are not automatic and are subject to the review of each request on its own merits:
- The disclosure must be voluntary. This means that it must be made prior to becoming aware of any compliance actions being taken;
- A penalty would apply;
- The disclosure must be complete; and
- The information being disclosed must be at least one year past due.
It is also important to note that disclosure can be made anonymously (commonly referred to as no-name disclosure). No-name disclosure is often preferred as it provides the Estate Trustee (or taxpayer) the opportunity to discuss the facts and tax issues with CRA while remaining protected. However, it should be kept in mind that it is not possible to reach any binding agreement under the no-name process. The Estate Trustee (or taxpayer) is given 90 days to release the name which would result in a further extension to submit any materials.
Under a named disclosure, the taxpayer is identified immediately, which prompts CRA to allow for 90 days to submit any additional materials without the limitation clock starting to run.
The Voluntary Disclosure Program can sometimes be a delicate process. As a result, before starting this process, professional legal or tax advice is always recommended.
Thank you for reading.