CRA Publishes Draft Changes to Voluntary Disclosure Program
The CRA released its draft information circular which contains proposed changes to the voluntary disclosure program (“VDP”) on June 9, 2017. An online consultation has been launched, and comments on these proposed changes will be accepted up until August 8, 2017. The draft information circular specifically relates to income tax disclosures. Changes relating to disclosures for GST/HST and excise tax purposes are addressed in an updated GST/HST Memorandum.
With respect to income tax disclosures, several changes to the VDP are proposed in accordance with recommendations made by the Offshore Compliance Advisory Committee. The most notable change is that relief of interest and penalties will be limited in certain circumstances. Essentially, major cases of non-compliance will receive less generous relief that what is otherwise offered by the program. The draft circular lists examples of situations that would be considered major cases of non-compliance:
- active efforts to avoid detection through the use of offshore vehicles or other means,
- large dollar amounts,
- multiple years of non-compliance,
- a sophisticated taxpayer,
- the disclosure is made after an official CRA statement regarding its intended focus of compliance or following CRA correspondence or campaigns,
- any other circumstance in which a high degree of taxpayer culpability contributed to the failure to comply.
Where a voluntary disclosure falls into one of these situations, the taxpayer is only granted relief from gross negligence penalties (as opposed to all penalties in other cases). Moreover, interest relief will not be available in such situations.
Going forward, the VDP will require the payment of the estimated tax liability as a condition of eligibility for the program.
The following types of applications will no longer be eligible for the VDP:
- applications involving transfer pricing;
- applications from corporations with gross revenue exceeding $250 million; and
- applications that disclosure income from proceeds of crime.
Also, computation of interest relief will be modified. Where the program used to grant interest relief for the years preceding the three most recent years of returns, the VDP will only provide relief for 50% of the interest in those periods.
If all of the proposed changes are implemented, they will apply as of January 1, 2018.