CRA has announced changes to its Voluntary Disclosure Program which will have effect January 1, 2018. The Voluntary Disclosure Program (VDP) provides taxpayers with an opportunity to come forward voluntarily and correct previous omissions in their dealings with the Canada Revenue Agency (CRA). Currently, taxpayers can apply to CRA to ask for relief from prosecution and penalties. The changes were announced alongside new draft documentation, including Draft Information Circular IC00-IR6 and Draft GST/HST Memorandum 16.5 available for public comment.
While the existing program as it relates to income taxes would have application to organizations that are non-profit, tax-exempt organizations (under section 149(1) of the Income Tax Act (Canada)), it does not clearly apply to registered charities. The sector has asked CRA to introduce a similar program for registered charities in the past. It does not appear to have done so with these changes – it continues to be applicable for income taxes, which registered charities do not pay. That said, the payroll or source deductions aspects and the GST/HST aspects of these programs are available to registered charities in addition to non-profit organizations. If such entities realize they have unfortunately failed to comply with the rules in these areas, they can use the VDP to disclose voluntarily their issues to CRA. A voluntary disclosure ensures the avoidance of penalties and sanctions for such non-compliance.
The changes generally appear to be a response to the high profile reports around settlements CRA has entered into with certain taxpayers who structured their affairs in a manner which appeared to be obviously offside the rules. On December 5, 2016, the Offshore Compliance Advisory Committee recommended in its Report on the Voluntary Disclosures Program that the system be tightened to make it more effective and more fair. This announcement by CRA appears to reflect CRA’s acceptance of the report. As stated in the release: “The Government of Canada is cracking down on tax cheats and those who avoid their tax obligations to ensure that everyone pays their share”.
The most substantive change announced by CRA is that the program will no longer be the same for everyone. It will offer less generous relief in situations of major non-compliance. Situations of major non-compliance will include:
- offshore activities intended to avoid payment of taxes;
- disclosure of large dollar amounts of unpaid taxes or multiple non-compliant years; and
- situations structured by sophisticated taxpayers.
In other words, the new less substantive system will be directed at taxpayers who likely understood there was some tax risk with the situation.
Further changes reflect a tightening up of the system overall. For example, the new rules will require the taxpayer filing with the VDP to provide an estimate of the taxes they owe and then to pay that estimated amount upfront rather than after CRA reviews the file.
Submissions on the new program must be made by August 8, 2017.
The VDP is an important element of our self-assessment system of tax. These changes respond to concerns that the current system is too generous. Organizations who are concerned that they may have a liability (whether the liability arose inadvertently or otherwise) are encouraged to consult with us on whether the VDP could be a solution to their concerns.