written on behalf of Feigenbaum Law
The Canada Revenue Agency (CRA) has announced that, as of March 1, 2018, the Voluntary Disclosures Program (VDP) will be revised. The revisions narrow the eligibility for access to the Program and impose extra requirements on applicants.
What is the VDP?
As we’ve mentioned in a previous blog, the VDP is a program that gives taxpayers who have been non-compliant with filing or paying taxes a “second chance to change a tax return [they] previously filed or to file a return [they] should have filed.” Taxpayers can request relief from prosecutions and penalties.
Who Can Apply?
The VDP program is available to any Canadian taxpayer, including individuals, employers, corporations, partnerships, trusts, GST/HST, and a registered exporter of softwood lumber.
To qualify for relief under the program, an application must be:
- Involve the application or potential application of a penalty or interest;
- Include payment of the estimated tax owing.
Two New Eligibility Tracks
One of the biggest changes to the VRA is the creation of two tracks for disclosure: the limited program, and the general program.
The Limited Program provides limited relief where the facts suggest that there has been “intentional conduct” by the taxpayer or a closely related party. Taxpayers who fall under this category will not be referred for criminal prosecution and will not be charged penalties for gross negligence, but will be charged other penalties and interest.
Applications made by corporations with gross revenue of more than $250 million in at least two of the last five taxation years will be considered under the Limited Program.
Taxpayers under the Limited Program will have to sign a waiver of their right to object and appeal the specific issue disclosed.
Taxpayers who fall under the General Program (i.e. anyone who discloses non-compliance but whose behavior does not suggest any intentional conduct) will not be charged penalties and will not referred for criminal prosecution related to information they disclose. The CRA will provide partial interest relief for the years leading to the three most recent years of returns that are required to be filed.
In addition to the creation of the two separate tracks, there are other significant changes under the revised VRP.
Payment of estimated taxes owing
Payment of any estimated taxes owing will be required as a condition to qualify for the VDP. If a taxpayer cannot make a payment at the time they file the application they may ask the CRA to be considered for a payment arrangement.
Replacement of “No Names” Disclosure
The revised VRP eliminates the ability to make a disclosure on a no-name basis. Now, taxpayers can have an anonymous conversation with a CRA official under a new “pre-disclosure discussion” service, but this does not constitute acceptance into the VDP.
The name of the advisor who assisted with non-compliance should generally be included in the application.
Transfer-pricing applications will be referred to a Transfer Pricing Review Committee instead of the VDP due to their complexity.
Review by Specialists
Applications involving complex issues or significant dollar amounts will be reviewed for completeness by a relevant specialist from the VDP before being accepted by the VDP.
Cancellation of Previous Relief
Relief will be cancelled if the CRA discovers that a taxpayer’s VDP application was not complete because of a misrepresentation.
Taxpayers who want to make disclosure under existing VDP rules, prior to these changes being implemented should apply to the CRA before February 28, 2018.
Contact Mark Feigenbaum for a custom solution to your personal or corporate tax needs. Our unparalleled knowledge of US and Canadian tax makes us leaders in this field. We offer services to clients in the US and Canada. Contact us to learn more about how we can help or call us at (416) 777-8433 or toll free at (877) 275-4792.