getting applications in before March 2018

On December 15, 2017, CRA announced the final rules for the revised Voluntary Disclosure Program. The new program applies to applications received on or after March 1, 2018 (previously indicated to be January 1, 2018). The final version of the program reflects most of the changes as originally proposed and discussed in VTN 431(9), with some rephrasing.

First, the original proposals would have made submissions in respect of proceeds of crime ineligible. This restriction has been removed. Also, although transfer pricing issues were proposed to be ineligible, the new Circular provides that they may be referred to the Transfer Pricing Review Committee for consideration under Subsection 220(3.1).

The revisions also clarify that the Limited Program is intended for situations where there is an element of intentional conduct on the part of the taxpayer or a closely related party. The initial draft indicated it was intended for disclosures of “major non-compliance”. The factors used to make this determination have been updated to:

• whether efforts were made to avoid detection through the use of offshore vehicles or other means;
• the dollar amounts involved;
• the number of years of non-compliance;
• the sophistication of the taxpayer; and
• whether the disclosure is made after an official CRA statement regarding its intended specific focus of compliance (for example, the launch of a compliance project or campaign) or following broad-based CRA correspondence (for example, a letter issued to taxpayers working in a particular sector about a compliance issue).

The existence of a single factor will not automatically result in a disclosure being ineligible for the General Program, rather than the more restrictive Limited Program.

The revisions indicate that applications by corporations with gross revenue in excess of $250 million in two of their last five taxation years will generally be considered under the Limited Program, where the prior version indicated these corporations would be restricted to the Limited Program.

The requirements that a submission be voluntary, be complete, involve the potential application of a penalty and include information at least one year past due remain.  The revisions note that a submission will not be considered voluntary if an enforcement action has commenced, if the taxpayer is aware that it is set to commence, or if CRA has already received information regarding the taxpayer’s potential involvement in tax non-compliance (e.g. a leak of offshore banking or other information that names the taxpayer). An enforcement action is noted to include an audit, examination, investigation or other enforcement action by CRA or any other an authority or administration, such as, but not limited to, a law enforcement agency, securities commission, or federal or provincial authorities.

requesting a payment arrangement where taxes are substantial

Finally, while the new requirement of remitting the estimated taxes remains, CRA has indicated that a request for consideration of a payment arrangement may be made where the taxpayer lacks the financial ability to pay the taxes immediately. CRA Collections would review this request, typically requiring full disclosure of income, expenses, assets and liabilities of the taxpayer.

To summarize, the basic tenets of the proposed changes to the voluntary disclosure process effective March 2018 include:

• The creation of a new Limited Program, which will offer more limited relief to taxpayers who have intentionally avoided their tax obligations (also, the taxpayer would be required to forfeit appeal rights to participate in the Limited Program);
• The addition of a requirement to pay the estimated taxes owing to qualify;
• The cancelation of relief if it is subsequently discovered that a taxpayer’s application was not complete due to a misrepresentation; and
• The elimination of ability to make disclosures on a no-names basis, however, pre-disclosure discussions will be available

More information can be found in updated CRA Guide IC00-1R6.

Editors’ Comment
It is uncertain how a no-names voluntary disclosure would be treated if it has not reached the named disclosure phase by March 2018. It would be prudent to reach this phase as quickly as possible. Also, clients looking to submit a new no-name disclosure under the pre-March process should be alerted that they may face a timing risk.