On June 9, 2017, the CRA proposed changes to the Voluntary Disclosures Program. These proposed changes will impact a taxpayer’s eligibility for the program and impose new conditions on those who apply.
For corporate taxpayers, if the company had gross revenue of more than $250 million in two of the last five tax years, the application would generally not be accepted under the proposed changes. Neither would applications related to transfer pricing adjustments.
The proposal also included two new “streams” for disclosures called the General and Limited programs. However, taxpayer’s would not apply to one program or the other. Applications would be made to the program and, if accepted, the CRA would determine the program/stream under which it would be evaluated.
The main difference between the programs would be the relief provided. Penalty and interest relief would be available under the General Program, whereas no interest relief would be available under the Limited Program.
To determine the stream under which an application should be assessed, CRA would consider the following criteria:
- Were there active efforts to avoid detection (use of offshore vehicles, etc.)?
- Are large dollar amounts or multiple tax years involved?
- Is the disclosure being made after the CRA has made it known that they intend to focus on the area of non-compliance that is being disclosed?
- Is there a high degree of taxpayer culpability in the failure to comply?
There are two significant changes that would affect all applicants. The first that payment for the estimated tax owing will need to be included with the application under the proposed rules and two, a no-name disclosures will no longer be an option. That being said, the CRA has indicated that it would allow taxpayers to have pre-disclosure discussions on a no-name basis to provide them with insight into the process, the risks involved in remaining non-compliant, and the relief available.
Changes have also been proposed to the way interest relief will be calculated. Under the General Program, there are two time periods to consider: for the three most recent years required to be filed, full interest would be assessed; for years before the most recent three years required to be filed, 50% of the interest otherwise applicable would be assessed. As previously mentioned, no interest relief would be available under the Limited Program.
It is important to note that CRA reserves the right to audit or verify any information provided under the VDP application, whether it is accepted into the program or not.
Keep an eye out for an official announcement on the proposed changes, which is expected in the fall of 2017.
I would like to thank Samantha Harris, CPA, CA, Senior Accountant, Tax for BDO Canada LLP for her extensive assistance in writing this post.
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