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John
Leopardi |
Alexandra
Carbone |
On June 9, the Canada Revenue Agency (CRA) released for
discussion purposes significant administrative changes (the
proposed changes) to its existing voluntary disclosure
programme (VDP) that if implemented, would apply as of January
1 2018.
The proposed changes include the introduction of a new
two-track system for income tax disclosures that groups
applicants into one of two streams – the general
programme or the limited programme – depending on the
status of the applicant and the type of non-compliance being
disclosed.
Under the general programme, eligible applicants would be
granted penalty relief as well a partial interest relief, and
would not be referred for criminal prosecution for tax
offences.
Under the limited programme, which is intended to apply in
cases of "major non-compliance", eligible applicants would only
be granted relief from gross-negligence penalties and criminal
prosecution. The limited programme could apply in a variety of
circumstances, including disclosures involving large dollar
amounts, multiple years of non-compliance, sophisticated
taxpayers and active efforts to avoid detection through the use
of offshore vehicles or other means.
Other proposed changes include limiting the type of
taxpayers and subject matter that can be eligible for relief
under the programme, whether under the general programme or the
limited programme. Notably, a corporation with gross revenue in
excess of $250 million in at least two of its last five
taxation years would no longer be eligible for relief under the
VDP. This proposed change in particular has been criticised for
targeting one category of taxpayer for no reason other than the
taxpayer's revenues.
Furthermore, the proposed changes list a number of
applications that would no longer be accepted under the new
programme, for example, applications relating to transfer
pricing adjustments and penalties, and applications that depend
on an agreement being made at the discretion of the Canadian
competent authority under a provision of a tax treaty.
Other notable proposed changes include the requirement that
the estimated taxes owing be paid at the time of the
application, and the expectation that the name of any adviser
who assisted in respect of the subject matter of the VDP
application should be divulged in the application.
The purpose of the VDP is to encourage taxpayers to
voluntarily correct any previous non-compliance with their tax
obligations by providing relief from penalties and interest. By
restricting access to the VDP, the proposed changes will likely
frustrate this objective, leading to a reduction of revenue
from the programme. In their current form, the proposed changes
will render the VDP virtually unusable by many taxpayers who
use the programme in good faith to rectify inadvertent
non-compliance. A large number of taxpayers will likely end up
thinking twice about voluntarily disclosing errors to the
government, thereby causing the CRA to allocate additional
audit resources to identify non-compliance.
John Leopardi (john.leopardi@blakes.com)
and Alexandra Carbone (alexandra.carbone@blakes.com),
Montréal
Blake, Cassels & Graydon
Tel: +1 514 982 5030 and +1 514 982 5034
Website: www.blakes.com