The Canada Revenue Agency’s (the “CRA’s”) voluntary disclosure program permits taxpayers to disclose information not previously reported to the CRA in relation to the taxes payable by them for a prior taxation year. Taxpayers may also rely on the voluntary disclosure program to correct inaccurate information previously submitted to the CRA. As explained by the CRA in Information Circular 00-1R4 (March 2014), in general, the voluntary disclosure program enables taxpayers to come forward and disclose taxes owing to the CRA without the risk of the penalty or potential criminal prosecution that the taxpayers could have otherwise faced under, inter alia, the administration and enforcement provisions of the Income Tax Act (Canada) and/or the Excise Tax Act (Canada).
Taxpayers who voluntarily disclose information not previously submitted to the CRA or who rely on the voluntary disclosure program to rectify inaccurate information previously filed with the CRA will be responsible for paying the taxes and interest owing as a result of their disclosure, while otherwise applicable penalties will be waived if the voluntary disclosure is accepted. However, the taxpayers may, as part of their voluntary disclosure submissions, request the CRA to use the discretion provided to it under, inter alia, subsection 220(3.1) of the Income Tax Act (Canada) to request a full or partial waiver of the interest arising as a result of their disclosure. Any such waivers are discretionary and there is no assurance that interest will be waived in a particular taxpayer’s circumstances.
Voluntary disclosures may be initiated on a “named” or on a “no-name” basis. Named voluntary disclosure submissions generally include the name, social insurance number and contact information of the disclosing taxpayer. No-name voluntary disclosures, on the other hand, presently do not provide any details as to a taxpayer’s identity, other than the first three characters of the taxpayer’s postal code. If the taxpayer in a no-name voluntary disclosure is an individual, the CRA may also request the individual’s gender and age.
Changes to the Voluntary Disclosure Program
During the spring of 2014, the CRA announced certain changes to the voluntary disclosure program, including during the CRA Roundtable session held during the Canadian Tax Foundation’s Prairie Provinces Tax Conference. The changes to the voluntary disclosure program that have now been implemented or that are sought to be implemented by the CRA in the near future seek, in particular, to enhance efficiency by centralizing the processing of voluntary disclosures in two Canadian Tax Centres: Shawinigan, Quebec and Surrey, British Columbia. Taxpayers resident in provinces and territories other than British Columbia and the Yukon will now be required to file voluntary disclosures with the CRA’s Shawinigan Tax Centre. Similarly, for taxpayers resident in British Columbia and the Yukon, voluntary disclosures are now to be filed and reviewed by the Surrey Tax Services Office.
If there are complex issues present in a voluntary disclosure, a meeting may need to be held between or among a taxpayer and his or her advisors and a CRA representative. It is understood that any such meeting will be able to be arranged at a local CRA Tax Services Office, but that approval to hold the meeting will need to originate from the CRA’s Shawinigan or Surrey Tax Centre, as applicable. It is further understood that each Tax Services Office will have a member of its Audit Division assigned to review voluntary disclosures and to attend meetings with taxpayers and/or their representatives, as required. The Shawinigan or Surrey Tax Centres will continue to have oversight and supervision of all voluntary disclosure matters, notwithstanding that taxpayers and/or their representatives may, at some point, be meeting or dealing with a CRA auditor at their local Tax Services Offices.
The CRA has also indicated its intention to revise the administrative procedure applicable to voluntary disclosures made on a “no-name” basis by assigning a number to such applications. In general, in the past, “no-name” disclosures have been referenced only by the first three digits of a taxpayer’s postal code, leading to the potential for confusion. For example, for taxpayers living or operating a business in central Toronto, a large number of “no-name” disclosures identified only by the “M5H” postal code digits can lead to confusion both for the CRA and for tax advisors handling a large volume of voluntary disclosures.
It remains to be seen if the CRA’s new initiative will, in fact, cause voluntary disclosures to be reviewed and processed in a more efficient and consistent manner across the country. It also remains to be seen how effective taxpayer meetings with CRA auditors in local Tax Services Offices will be, given that the auditors are likely to be reporting back to, and taking instructions from, the Shawinigan and Surrey Tax Centres. Nonetheless, efforts by the CRA to enhance efficiency in the processing of voluntary disclosures may be welcome news to taxpayers currently dealing with a backlog in the processing of their applications.
Taxpayers who are concerned with a potential error in their Canadian tax reporting and remittance obligations should consider the benefits of making a voluntary disclosure and discuss the possibility of making a voluntary disclosure with their tax advisors. Depending on the legitimacy of the taxpayer’s concerns, a voluntary disclosure which is accepted by the CRA may be an effective way of dealing with a tax reporting error without the incursion of potentially burdensome penalties and/or the possibility of a criminal prosecution by the CRA.