Tax Tip Thursday

Some good news for some tax payers!

CRA revamps voluntary disclosures program to encourage more taxpayers to come forward

The Canada Revenue Agency (CRA) will allow taxpayers to access partial relief from interest and penalties under the voluntary disclosures program (VDP), even when they come forward after the agency has contacted them about potential non-compliance.

The change, announced Wednesday and effective Oct. 1, will allow more taxpayers to be eligible for relief under the VDP.

Recently, the CRA has been sending out “education letters” to certain groups of taxpayers about potential non-compliance, the receipt of which “automatically nullified” a VDP application as being voluntary.

The CRA said in documents released on Wednesday that the changes to the existing disclosures regime would “make it easier to correct unintentional filing errors or omissions and make the program more accessible.”

However, the CRA added it would remain focused “on providing relief that is fair and does not reward non-compliance.”

Under the new rules, the CRA would continue to deny VDP eligibility to taxpayers under audit or investigation or those who are “egregiously or intentionally non-compliant.”

Ryan Minor, director of tax with CPA Canada in Sudbury, says he believes the CRA is trying to find the right balance for a VDP regime that may have been too restrictive.
“It’s better to collect, say, $100 in taxes than none at all,” Mr. Minor says. “If you loosen the program a bit, you may get more tax revenue.”
Under the VDP, the CRA grants relief from prosecution – and, potentially, penalties and full or partial interest – to taxpayers who voluntarily disclose non-compliance, such as failing to file returns or report income. There’s no relief from unpaid taxes under the program.

To be eligible for the VDP, the disclosure must involve the potential application of a penalty and information must be at least one year (or one reporting period) past due. The taxpayer must also provide all relevant information for all required tax years and must pay the estimated taxes owing with the application. These requirements don’t change under the revised rules.

However, under the VDP changes, the CRA will introduce two new relief tiers: “unprompted” and “prompted.”

If the disclosure is unprompted, meaning the taxpayer has received no prior CRA compliance notice about the disclosure, the taxpayer will be eligible for “general” relief of 75-per-cent interest and 100-per-cent penalties. VDP applications made after the CRA releases a general education letter will still be considered unprompted.

If the disclosure is prompted, meaning the taxpayer has received communication about the non-compliance (excluding education letters), the taxpayer will be eligible for “partial” relief of 25-per-cent interest relief and “up to” 100-per-cent penalty relief.
The two new relief tiers will replace the two current relief categories: general and limited.

Under the general category, the taxpayer receives relief from prosecution, penalties and full or partial interest. Under the limited category, for intentional non-compliance, the taxpayer gets relief from prosecution and gross negligence penalties, but not for other penalties and interest.

It is uncertain under the revised VDP how the CRA will account for intentional non-disclosure when determining the degree of relief it may provide.

Under the new rules, the CRA is also providing more clarity on how many years of documents a taxpayer must give the CRA when making a VDP application, where the non-compliance dates back multiple years.
For foreign-source income or assets, the CRA will require the most recent 10 years; for Canadian-sourced income or assets, the most recent six years; and for information about GST/HST, the most recent four years.
The CRA stated it may still ask for documents for tax years beyond the given time frames.

The CRA’s new rules still don’t clarify whether a taxpayer must disclose that non-compliance predates tax years outside of the given time frames.
It is recommended to provide disclosure of non-compliance as far back as you are aware. It is a one shot deal and you will not be able to go back to the table for a 2nd round.

“Where possible, you need provide documentation – i.e., amended returns, schedules et cetera – for the past 10 years.

Finally, the CRA says it will update and improve Form RC199, Voluntary Disclosures Program (VDP) Application, “to make it simpler and easier to use.” The CRA says the new form will be available Oct. 1.
If a taxpayer is non-compliant and has never been contacted by CRA, there’s no advantage to waiting until Oct. 1 to make a VDP application as opposed to doing so now.

However, “if there’s non-compliance, and the taxpayer doesn’t fall into the truly ‘voluntary’ category, their only option may be to try to fit in under the ‘partial relief’ category – and they would need to wait until Oct. 1.″

The new VDP rules may help you, find out more by visiting our team! Make An Appointment today!

Disclaimer:

This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal or tax advice nor can it or should it be relied upon. All tax situations are specific to each individual. If you have specific tax questions you should book an appointment for a 1 on 1 consultation.