On June 9, 2017, Canada Revenue Agency (“CRA”) released draft Information Circular IC00-1R6 concerning proposed amendments to the Voluntary Disclosure Program (“VDP”). The proposed amendments follow recommendations of the Offshore Compliance Advisory Committee and, if implemented, will have a substantial effect on the availability of relief in certain circumstances.
CRA released a separate draft memorandum, GST/HST Memorandum 16.5, on proposed amendments to voluntary disclosure concerning other taxes, including GST/HST.
Highlights of the proposed amendments, as they relate to income tax disclosure, are as follows:
General and Limited Program
The most significant proposed change to the VDP, outlined in IC00-1R6, is the creation of two separate “tracks”: the General Program and the Limited Program.
The General Program will apply when a disclosure does not involve “major non-compliance”, as described below. The General Program will maintain several elements of the current program.
The Limited Program will apply in instances of major non-compliance, offer reduced relief from penalties and eliminate interest relief. Whether a scenario involves major non-compliance will be determined on a case-by-case basis.
Cases of Major Non-Compliance
In IC00-1R6, CRA indicates that the existence of any of a number of situations discloses major non-compliance. That list of situations includes but is not limited to:
- Active efforts to avoid detection through the use of offshore vehicles or other means;
- Large dollar amounts;
- Multiple years of non-compliance;
- A sophisticated taxpayer;
- The disclosure is made after an official CRA statement regarding its intended focus of compliance or following CRA correspondence or campaigns; or
- Any other circumstances in which a high degree of taxpayer culpability contributed to the failure to comply.
Where major non-compliance is found, the taxpayer will not be eligible for relief from interest and most penalties; however a successful taxpayer will receive relief from gross negligence penalties and criminal prosecution.
In addition, under the Limited Program, CRA proposes that taxpayers will be required to waive objection rights as a condition of receiving relief. Taxpayers will still be able to object to calculation errors, characterization issues (e.g. income versus capital gain treatment) and matters not relating to the VDP, but will be barred from objecting to the specific matter being disclosed in the VDP and any related assessment.
Payment of Estimated Taxes Owing and Applications Excluded from VDP
Another significant proposed amendment in IC00-1R6 is the requirement for all taxpayers to pay estimated taxes owing at the time of the application – even if there has not been major non-compliance.
Additionally, the following types of applications will no longer be eligible for the VDP:
- Applications involving transfer pricing;
- Applications involving corporations with gross revenue exceeding $250 million in at least two if its last five taxation years; and
- Applications involving income relating to proceeds of crime.
Under the General Program, interest relief will be limited to a maximum of 50% of the applicable interest for years preceding the three most recent years of returns required to be filed. However, penalty relief remains available.
If implemented, the proposed amendments will take effect on January 1, 2018.
Given the proposed narrowing of eligibility and benefits under the VDP, along with the ambiguity of what constitutes a case of major non-compliance, taxpayers and tax advisers should be mindful of the proposed amendments when considering VDP applications.
Notably, an online consultation has been launched in relation to the proposed amendments and feedback will be accepted up until August 8, 2017. For more information, or to participate, please visit: https://www.canada.ca/en/revenue-agency/campaigns/consulting-canadians-voluntary-disclosures-program.html.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.