Voluntary Disclosure Program

Individuals, businesses of all sizes, corporation and even charities will face tax issues from time to time. You cannot ignore the problem thinking that it will go away.  In fact, ignoring the tax problem is the worst thing you can do.  Any delay on your part will only make the matter worse and will eventually result in a loss of appeal rights and will enable Canada Revenue Agency (the “CRA”) to collect a debt that may not be properly owing. This can lead to stiff pennies, and even criminal prosecution.  Tax disputes are distracting and stressful and should be avoided by solving the problem at the lowest level of the CRA agents and as soon as it arises.  Or better yet, by preventing the problem all together. Voluntary disclosure program (the “VDP”) offers such an opportunity under the current rules.  The program will stay in place, but its rules are changing, so timing may be of the essence.

In the fall of 2016, the Offshore Compliance Advisory Committee issued a report on the CRA's voluntary disclosures program (the "Report"), which Report was endorsed by the Minister of National Revenue (the “Minister”) in December 2016.  The government’s review of the VDP and settlement guidelines was completed by the mandated March 31, 2017 deadline. The CRA made its proposed revised VDP policy available for comments from the community. The CRA’s comment period will be open for 60 days. The CRA will announce changes to the program in the fall of 2017, with effect for 2018.

The proposed changes to the VDP include:

• Narrowing the criteria of who is eligible;

• Ensuring severe cases of non-compliance do not benefit from the same level of penalty and interest relief;

• Ensuring requests that disclose proceeds of crime are excluded from relief; and

• Requiring payment of the estimated taxes owing as a condition to qualify for the program.

Taxpayers considering whether to make a voluntary disclosure should be mindful of the timing. Presumably, taxpayers who have initiated voluntary disclosures prior to an implementation date would be grandfathered.  However, there is no guarantee that this would be the case.

Currently the VDP rules are as follows.  In order to qualify as valid disclosure the following four conditions must be met:

1. Disclosure must be voluntary;

2. Disclosure must be complete;

3. Penalty shall be imminent upon disclosure;

4. The information disclosed must be at least one year overdue.

Taxpayers must send to the CRA a written submission to make a disclosure.  Form RC199, Taxpayer Agreement, should be used to initiate the disclosure.  Failure to use Form RC199 or to provide similar information as per Form RC199, may delay the review of the disclosure.

In order to support a disclosure submission, the following information pertaining to the taxpayer's situation must be submitted:

• name, address, telephone number, social insurance number, partnership number, trust account number, business number, license number, GST/HST registration number or any other identification tax number assigned by the CRA to the taxpayer,

  • if a no-name disclosure, this information would not be required;

• taxpayer's postal code,

  • if a no-name disclosure, only include the first three characters of the taxpayer's postal code (used to determine the TSO that will be responsible for the file);

• address of the taxpayer's authorized representative, including telephone and fax numbers (if applicable);

• gender and age (if an individual and submits a no-name disclosure);

• taxation year(s), reporting period(s) or fiscal period(s) involved in the disclosure;

• amount of the disclosure (where applicable);

• type of return(s) involved: personal T1, GST/HST, corporate T2, trust T3, or other as applicable;

• type of information return(s) and/or slip(s) involved, for example, T3, T4, T1134, T1135 as applicable;

• type of omission, for example, business income, unremitted GST/HST, investment income, pension income, capital gain, as applicable;

• reason for the omission;

• primary business activity; and

• explanation of how the taxpayer considers that each of the four validity conditions have been met.

Each disclosure submission must include enough detail to allow for verification of the facts. Taxpayers are expected to make all documents, records, and books of account, as well as any other required information, available upon request.

It is advisable to use a representative and for the representative to be a lawyer considering usefulness of a lawyer-client privilege, especially in no-name step of the disclosure.

VDP is a onetime deal only, the CRA expects that after becoming “clean”, the taxpayers will not repeat their past mistakes.