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Canada's voluntary disclosure programme to be restricted

Thursday, 15 June, 2017

Canada's federal government has published the long-awaited reforms of its voluntary disclosure programme, which revenue minister Diane Lebouthillier says is allowing some individuals and companies to avoid paying what they owe.

The proposed amendments are based largely on recommendations put forward last December by the Ministry of National Revenue's Offshore Compliance Advisory Committee (OCAC). In particular, the ministry has adopted OCAC’s suggestion that taxpayers should have to pay the estimated tax and interest or provide adequate security before their application to join the programme is accepted. The current acceptance procedure does not require the taxpayer to pay anything on applying.

Another of OCAC's recommendations was that the full amount of relief should not be granted in cases of severe non-compliance by the taxpayer. This, too, has been adopted by the government, conscious that the programme had been publicly criticised for its 'one size fits all' approach to penalties and interest. Limited relief may still be granted in 'major non-compliance' cases, which are defined as those exhibiting:

  • active efforts to avoid detection through the use of offshore vehicles or other means;
  • large sums;
  • multiple years of non-compliance;
  • a sophisticated taxpayer;
  • the disclosure is made after an official CRA statement regarding its intended focus of compliance or following CRA correspondence or campaigns;
  • any other case involving a 'high degree of taxpayer culpability'.

Furthermore, large companies, with gross revenue above CAD250 million (USD186 million), will be excluded from the programme. Applications that involve transfer pricing will also be automatically disqualified, as will applications that disclose income from the proceeds of crime.

Post-assessment requests for penalty and interest relief will also not be considered. These requests will be considered as retroactive tax planning, says the ministry's consultation document. Also, relief under the VDP will in future be cancelled if it is subsequently discovered that the taxpayer's application was wilfully incomplete.

The consultation is open until 8 August.

Sources