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Canada Tightens Voluntary Disclosure Rules

by Mike Godfrey,, Washington

19 December 2017

The Canada Revenue Agency (CRA) is to tighten the rules around its Voluntary Disclosures Program (VDP), to prevent the scheme being used as a way to avoid the consequences associated with aggressive tax planning.

The VDP provides taxpayers with an opportunity to voluntarily come forward and correct previous omissions in their dealings with the CRA. If the disclosure satisfies the CRA's conditions, the taxpayer will typically face a lower interest charge on the unpaid tax, and will not be liable for criminal prosecution or civil liabilities.

In June, the Government consulted on proposals to narrow the eligibility criteria and make the regime less generous.

The Government has now announced that it will overhaul the regime, to ensure that it fulfils its purpose of allowing Canadians to come forward and correct honest mistakes. At present, the Government is concerned that the program has been used by certain wealthy individuals and corporations as a way to avoid the consequences arising from aggressive tax planning strategies.

Under the changes, the Government will:

  • Create a new Limited Program, which will offer more limited relief to taxpayers who have intentionally avoided their tax obligations;
  • Require payment of the estimated taxes owing as a condition to qualify for the program (this payment is not currently required);
  • Cancel relief under the VDP if it is later discovered that a taxpayer's application to the VDP was incomplete due to a misrepresentation; and
  • Eliminate the process that allows taxpayers and authorized representatives to make disclosures on a no-names basis.

From March 1, 2018, a limited VDP will apply to taxpayers who have intentionally avoided their tax obligations. When determining if taxpayers have intentionally avoided their obligations, the CRA will consider: whether efforts were made to avoid detection through the use of offshore vehicles or other means; the total dollar amounts involved; the number of years of non-compliance; and the sophistication of the taxpayer.

Corporations with gross revenue in excess of CAD250m (USD194.3m) who apply to the VDP will be considered under the limited program.

The CRA will continue to restrict participation in the VDP if it has already received information on a taxpayer's (or a related taxpayer's) potential involvement in tax non-compliance.

Revenue Minister Diane Lebouthillier said: "The Government of Canada is committed to cracking down on tax evasion and aggressive tax avoidance to ensure a system that is responsive and fair for all Canadians. The changes to the Voluntary Disclosures Program are part of these efforts, which will allow the Agency to crack down even further on those who are intentionally breaking the law."

The new VDP is expected to remain in place for at least two years. An additional tightening of the rules may then be proposed, based on results and feedback. The CRA will continue to review the regime.

TAGS: individuals | compliance | tax | tax compliance | tax avoidance | interest | revenue guidance | law | tax authority | offshore | tax planning | Canada | tax reform

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