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The Voluntary Disclosure program: the solution for those who have not complied with their tax obligations

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Tax litigation

What is the voluntary disclosure program?  One could see it as a way for a taxpayer to say to the tax authorities: "Forgive me, I have sinned!"

In fact, the federal and provincial governments have set up the voluntary disclosure program to encourage taxpayers who have not met all of their tax obligations in the past to report and pay the tax amounts that would be due.

The relief provided

At the provincial level, when voluntary disclosure is accepted, no penalty will be imposed on the taxpayer, no action will be taken against him, and some interests may even be avoided.

At the federal level, the conditions have been tightened and the relief provided depends on the program in which the disclosure will be processed. Since the introduction of the new rules of the Canada Revenue Agency's (CRA) Voluntary Disclosure program on March 1st, 2018, voluntary disclosures related to income tax are treated according to one of following programs:

 1.     The Limited Program

The limited program offers limited relief as its name implies. Taxpayers whose applications are dealt within the framework of this program will not be prosecuted in criminal proceedings with respect to disclosure and will not be charged with gross negligence penalties. However, they may be subject to other types of penalties (ex: for the delay). Moreover, no relief will in principle be granted for interest.

The applications dealt within the framework of this program are those for which the facts suggest that the taxpayer or a party closely related to him, has deliberately evaded his tax obligations.

Same thing for the applications made by large companies (whose gross revenue exceeds 250 million for at least two of their last five taxation years) or their related entities which will also be examined as part of this program.

2.     The General Program

The General Program will apply in all other cases. Here too, the taxpayers whose request for disclosure will be accepted will not be prosecuted in criminal terms regarding the information disclosed. However, this program provides better relief than the first because taxpayers whose application is accepted will not be subject to penalty and partial relief of interest may be granted by the CRA.

It is the CRA that determines, on a case-by-case basis, whether an application should be dealt within the scope of the limited program or the general program. It takes into account the following factors listed in the IC00-1R6 information circular – Voluntary disclosures program:

  • The dollar amounts involved;
  • The number of years of non-compliance;
  • The sophistication of the taxpayer;
  • The level of development of the techniques used by the taxpayer;
  • Efforts were made to avoid detection through the use of offshore vehicles or other means;
  • Whether or not the disclosure occurred after an official CRA statement regarding its specific objective of observation or following a broad-based correspondence of the CRA.

The conditions to be satisfied to benefit from a relief

The CRA requires that the following four conditions be satisfied in order for voluntary income tax disclosure to be accepted. Generally, it must:

  • Be complete;
  • Be voluntary;
  • Involve the application or potential application of a penalty;
  • Include information that is at least one year past due;
  • Include payment of the estimated tax owing.

The requirements are more or less the same within the framework of voluntary disclosure to the Quebec Revenue Agency (RQ).

Other factors to be considered

Finally, it would be good to note that the processing times vary considerably depending on the tax authority and the complexity of the files. The process is much longer at the provincial level whereas at the federal level, reassessments can be issued even before an officer is assigned to the provincial record.

It should also be recalled that in the event that a taxpayer is reluctant to disclose his or her identity to the tax authorities, he or she can make a voluntary disclosure on an anonymous basis with RQ only. Indeed, this type of disclosure is no longer permitted by the CRA since the changes to the VDP that occurred on March 1, 2007. It is now replaced by a pre-disclosure discussion service that allows the taxpayer who is not yet certain whether or not to make an application for voluntary disclosure, or to his or her authorized representative, to discuss anonymously with an agent of the Canada Revenue Agency to better understand the risks associated with continuing non-compliance and the relief offered in the taxpayer's particular circumstances.

In conclusion, it should be clarified that in general, a taxpayer can only benefit from the relief provided by the VDP once. Tax authorities expect the taxpayer who has benefited from the benefits of the VDP for the first time to comply with its tax obligations in the future. This is a way for the tax authorities to tell the repentant taxpayer  ' Go! And don't sin anymore! ».

 

Me Véronique Armelle Kuemo, Attorney-at-Law
Alepin Gauthier Avocats Inc.


This text contains legal information of a general nature and should not replace legal advice with a lawyer or notary who will take into account the particularities of your situation.

The Voluntary Disclosure program: the solution for those who have not complied with their tax obligations
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