On June 9, 2017, CRA released its proposed changes to the VDP, to be effective January 1, 2018. A 60-day online consultation program was also announced, closing on August 8, 2017. The proposals are expected to be finalized in the fall of 2017.

the risks of an incomplete disclosure

The proposed VDP is summarized in Draft Information Circular IC00-1R6 for income taxes and Draft GST/HST Memorandum 16.5 for GST/HST. The new guidelines note that an important principle of the VDP is that relief is fair and is not considered to reward non-compliance. CRA reserves the right to audit or verify information disclosed and indicates that the future discovery of a misrepresentation attributable to carelessness or neglect will result in cancellation of any relief previously granted.

The proposals will create two tracks for income tax disclosures.

General Program (GP)
The GP is similar to the current VDP. Penalties will be waived, subject to the usual ten-year limit, criminal prosecution will not be considered and interest relief will be considered for years preceding the most recent three years, with 50% of interest generally being waived. Interest for the most recent three years will not be waived.

Limited Program (LP)
The LP will apply for disclosures of major non-compliance and will provide reduced relief. Examples of situations where the LP would apply include:

• active efforts to avoid detection, through the use of offshore vehicles or other means;
• large amounts;
• multiple years of non-compliance;
• sophisticated taxpayers;
• disclosure after CRA communications such as official statements regarding its intended compliance focus, or following CRA campaigns or correspondence; and
• other circumstances where a high degree of taxpayer culpability contributed to the non-compliance.

making a disclosure before the end of 2017

Under the LP, gross negligence penalties will be waived, and criminal prosecution will not be considered. However, all other penalties will be assessed. No interest relief will be provided.

No Relief
VDP submissions will not be accepted for the following:

• returns with refunds or no taxes owing, which will be handled under normal processing procedures, however, CRA indicates such filings should still be submitted;
• elections; and
• post-assessment requests for penalty or interest relief.

The above are unchanged from the current policies, however, the following situations will no longer be eligible for VDP:

• income from proceeds of crime;
• disclosures from corporations with gross revenue in excess of $250 million in at least two of its last five years;
• disclosures related to transfer pricing adjustments or penalties; and
• disclosures dependent on agreements made at the discretion of the competent authority, such as S-corporation agreements under Article XXIX(5) of the Treaty with the United States.

The above would not prevent an application for taxpayer relief (see IC 07-1, Taxpayer Relief Provisions).

Conditions for Valid Disclosure
The existing requirements that any disclosure be voluntary, complete, involve a penalty or potential penalty, and include information at least one year past due will be unchanged. Some further issues related to these criteria have been added, including:

• A letter from CRA inviting the taxpayer to consider coming forward under VDP would not result in the disclosure not being voluntary, but would be a factor considered in assessing whether the LP would apply.
• Completeness requires disclosure of all relevant taxation years and any non-arm’s length circumstances.
• Legitimate inability to locate all relevant documents would be permitted, with an expectation of reasonable estimates of income where records are incomplete.

remitting payment with Voluntary Disclosures starting in 2018

A further requirement that the application include payment of the estimated taxes owing is proposed. A payment arrangement supported by adequate security may be considered in extraordinary circumstances. This will require full disclosure, and evidence, of the taxpayer’s income, expenses, assets and liabilities.

The taxpayer will be required to waive their objection rights in respect of the matters disclosed, with exceptions for calculation errors, disputes over characterization (e.g. income versus capital gains), or issues other than those in the disclosure application.

Information to be Included
Form RC199 is expected, and there have been some additions to the expected information, including the following:

• whether a previous VDP application has been made;
• whether foreign source income is involved, and, if so, the foreign jurisdiction; and
• proof of payment;

identifying advisors to tax avoidance or evasion

In addition, it is expected that the name of any advisor who assisted with the subject matter of the VDP would generally be included.

Reference to “no-names” disclosure has been replaced with the option for pre-disclosure discussions on a no-names basis.

GST/HST Disclosures
The proposals for GST/HST disclosures are similar. However, a third track will apply to GST/HST wash transactions, unchanged from GST/HST Memorandum 16.3.1.

The Limited Program (LP) will apply where GST/HST is collected, but not remitted. As well, participation in the underground economy is included as an example of active efforts to avoid detection, restricting the disclosure to the LP. It is unclear whether disclosure of activity in the underground economy will also restrict relief for income tax disclosures.