Legal Update: Voluntary Disclosures Program May Offer Relief for Tax Non-Compliance
April 11, 2013
By Karen Stilwell, at McInnes Cooper
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As a result of recent events focussing the public spotlight on international tax compliance issues we anticipate increased scrutiny by international revenue agencies, including the Canada Revenue Agency (CRA), of offshore holdings and accounts. CRA’s Voluntary Disclosures Program (VDP) may provide some taxpayers with relief. The VDP gives taxpayers the opportunity to apply to the CRA to correct past non-compliance with Canadian tax obligations, including those related to offshore holdings and accounts, without threat of prosecution or penalties – but only if they do so before CRA starts any enforcement action.
Focus on Tax Evasion
Two key events recently focussed media and public attention on international tax compliance issues, including international tax evasion. We anticipate this will lead to increased scrutiny by international revenue agencies, including the CRA, of Canadian and non-resident offshore holdings and accounts:
- CRA’s Stop International Tax Evasion Program. Canada’s 2013 budget, tabled March 21, 2013, included several proposed measures intended to address issues related to international tax evasion and noncompliance. Among them was notification that the CRA plans to launch the “Stop International Tax Evasion Program”. This program is intended to give people with knowledge of international tax evasion and other international tax noncompliance an incentive to inform CRA: when information provided to the CRA leads to the collection of $100,000 or more in federal taxes, CRA will pay the informant a commission of 15% of the federal tax collected (not including penalties, interest, and provincial taxes).
- International Financial Data Leak. On April 3, 2013, the Washington D.C.-based International Consortium of Investigative Journalists released to the global media financial data it obtained with the offshore financial details of more than 100,000 people world-wide – including approximately 450 Canadians.
CRA’s Voluntary Disclosures Program
CRA’s VDP may provide relief for some taxpayers faced with previous non-compliance with Canadian tax obligations:
- Avoid Prosecution and Penalties. Under the VDP, taxpayers (including trusts and corporations) can voluntarily come forward to the CRA to correct previous errors or omissions in their tax returns, including any omissions related to offshore holdings and accounts. Taxpayers accepted into the VDP avoid prosecution and the financial penalties that would otherwise apply.
- Initial Anonymity. Under the VDP, taxpayers can apply to the CRA on an initially anonymous basis, through a legal representative. This allows the taxpayer to obtain preliminary feedback from the CRA about eligibility for the program and other expected outcomes. Negotiation regarding any uncertain aspects of the application can also take place at this stage. The taxpayer can then make the final decision to come forward with an additional degree of comfort that CRA will approve the application and with an additional degree of certainty regarding the financial result.
- Eligibility. Eligibility for the VDP depends, among other things, on the voluntariness of the disclosure. In most cases, CRA will consider a VDP application to be voluntary unless the CRA has initiated an audit, investigation, or other enforcement action against the taxpayer (or a person or entity related to the taxpayer) likely to uncover the noncompliance.
Click here to read what the CRA says about its VDP.
The window of opportunity for a taxpayer to start a voluntary disclosure application remains open – but only unless and until CRA has initiated an audit, investigation, or other enforcement action against the taxpayer (or a person or entity related to the taxpayer) likely to uncover the noncompliance.
Please contact your McInnes Cooper lawyer or any member of our McInnes Cooper Tax Team to discuss this topic or any other legal issue.
McInnes Cooper has prepared this document for information only; it is not intended to be legal advice. You should consult McInnes Cooper about your unique circumstances before acting on this information. McInnes Cooper excludes all liability for anything contained in this document and any use you make of it.
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