Dean Blachford, Tax Litigation Lawyer
Valentine Gurfinkel, Law Student
The Voluntary Disclosure Program (“VDP“) allows taxpayers to avoid penalties, interest, and criminal tax evasion charges by disclosing formally unreported income and paying tax on it. As the Federal Government invests greater resources in tax enforcement, the VDP is becoming a vital tool for accountants in helping their clients stay onside with the CRA.
Currently, if an application is well prepared, the results are typically predictable and uniform. The VDP only has four requirements. The disclosure must be voluntary, complete, relate to a penalty, and address a tax return that is more than one year old. Typically, it’s only the first two that are ever contentious.
However, on June 9, 2017, the CRA released a draft Information Circular outlining several proposed changes to the VDP. The changes are based on the recommendations made in December 2016 by the Offshore Compliance Advisory Committee, an independent panel of legal and tax experts created by the Minister of the National Revenue on the heels of the Panama Papers Scandal to advise the CRA on how to deal with offshore compliance. Currently under public review, the proposed changes are set to take effect in early 2018.
The four most significant proposed changes to the VDP are:
- Mandatory Disclosure of Advisors.
Currently, VDP participants are not required to disclose who assisted them in the original non-compliance. The CRA proposes that disclosure of advisors be a pre-requisite to participation in the VDP. Presumably, CRA would target these advisors for third-party penalties.
- Less Generous Relief in Certain Circumstances.
The CRA calls for scrapping the current one-size-fits-all approach to VDP applications. Instead, it proposes considering various factors when assessing a taxpayer’s potential relief amount, including reason for the omission, taxpayer’s sophistication, amount of tax avoided, use of offshore vehicles, and more.
- Payment of Estimated Tax
The CRA recommends requiring taxpayers to pay the estimated tax and the interest payable on the disclosed amounts as soon as the disclosure is made. Alternative payment arrangements would only be considered in exceptional circumstances.
- No Protection During “No-Name“ Discussions
Taxpayers unsure about their VDP eligibility can discuss their situation with the CRA anonymously, on a “no-name” basis. Traditionally, the CRA granted immunity to taxpayers from being audited while they were in a “no-name” Pre-Disclosure Discussion with the CRA. Under the proposed regulations, no such protection will be available. Taxpayers in a “no-name” Pre-Disclosure Discussion with the CRA could still be audited by the CRA, and could still be charged with tax evasion—even as they are anonymously discussing their situation with the CRA.
How We Can Help
As the popularity of the VDP continues to increase, the process is becoming more stringent. As such, accountants will need to be even more scrupulous with their clients’ VDP applications.
At HazloLaw – Business Lawyers we have extensive experience preparing successful VDP applications. We look forward to partnering with you in preparing VDP applications for your clients that conform to the new regulations and that maximize your clients’ relief.
This article is for informational purposes only and does not constitute legal advice. If you wish to discuss your issue with a lawyer, contact Dean Blachford today. 613-747-2459 ext.310, [email protected]