In our last post, we discussed the importance of legal representation on the “back end” of the voluntary disclosure process, assisting you with handling the Canada Revenue Agency’s collections division. Additionally, having legal assistance is more important now then ever in preparing the application itself.
Under the previous program, most penalties under the tax code were treated alike; a valid disclosure, regardless of a Taxpayer’s malfeasance, would wipe off all non-filing, gross negligence, error and omission penalties applicable relevant to the disclosure. They might also offer interest relief, although this was murkier.
Now, individuals and corporations who come forward to rectify errors may be placed in either the limited or the general “track” of the disclosure program. The general track is available to those they consider to have made unintentional or minor errors. Under this program, relief is substantially the same as it was under the old program: all penalties will be waived, along with a reduction of interest to 2.5% for the past ten years, except for the three most recent years.
Changes to the Voluntary Disclosures Program
Under the limited program, where CRA thinks that taxpayers have been intentionally breaking the rules, they will waive only gross negligence and criminal prosecution. This greatly reduces the relief available, and being shunted into the limited program can mean very sizable increases in your tax bill.
Determining whether or not a taxpayer belongs in the limited or the general program requires considering of a number of factors, and balancing is not clear cut. Fortunately, this is what we do every day; preparing voluntary disclosure requests now very much resembles other parts of tax advocacy, such as drafting response to auditors or objections.
For example, if you are a taxpayer with a rental income property offshore, you have a master’s degree, and you have not reported the income for several years, you may be at risk for CRA placing you in the limited program, as they consider all of these factors to indicate intentionality. However, we know how to respond and rebut these assumptions, explaining how other things are more important under the circumstances and why you should remain in the general program.
CRA’s rationale for these changes rests in part on their emboldened confidence about their ability to detect and crack down on non-compliance. The government has signed a number of agreements with foreign countries about detecting and disclosing the assets of Canadians held abroad, alongside additional funding for compliance and audits domestically and abroad. This means that, even if the relief under the Limited Program appears to be lean, CRA is getting better and better at tracking down tax cheats, and it is better to have limited relief than none at all.
With this in mind, it is important to note how much the relief even under the limited program is worth. Gross Negligence penalties under the Income Tax Act are typically equal to one-half of the taxes dodged, and under some provisions (particularly, foreign reporting) can grow to eye-wateringly large sums. Criminal prosecution is an obviously terrifying prospect. As such, even if you are stuck under the limited program, the Disclosures Program offers immense relief, peace of mind, and makes it far easier to spend concealed funds.
If you have undisclosed income or assets or overclaimed expenses, contact us now to get the most out of your voluntary disclosure.
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer.