On December 15, 2017, the Canada Revenue Agency (the “CRA”) released new guidelines on the rules applicable to voluntary disclosures that are made (or for which the name of the taxpayer is disclosed) on or after March 1, 2018. Like the earlier draft guidelines, which were released on July 9, 2017, the new guidelines include a separation of the rules applicable to income tax voluntary disclosures and the rules applicable to disclosures of errors relating to GST/HST and other non-income taxes. Below is a summary of the new voluntary disclosures program for GST/HST (“VDP”).
The voluntary disclosures program allows taxpayers to make disclosures to the Canada Revenue Agency to correct inaccurate or incomplete information, or to disclose information not previously reported. We understand there were concerns within the CRA that the existing program was overly generous to participants in the program (as compared to taxpayers who had been fully compliant), and proposals to revise the program have been in the works for some time now. In this regard, the CRA issued an earlier version of the VDP guidelines for comments on June 9, 2017, with an initial proposed implementation date of January 1, 2018.
There was much speculation that this implementation date would be postponed, as well as hope that the final guidelines would address concerns expressed by many tax practitioners that certain proposed measures in the June 9, 2017 version were too harsh and would lead to few taxpayers choosing to avail themselves of the program. In the result, the new VDP guidelines includes significant improvements from the July 9, 2017 version. As compared to the program that is currently in place, the new VDP is more beneficial for taxpayers in some cases, and worse for taxpayers in others.
The new VDP includes three categories for disclosures, depending on the taxpayer’s circumstances.
Category 1 (GST/HST Wash Transactions Disclosures)
Category 1 disclosures include disclosures of errors relating to qualifying GST/HST “wash transactions”. This generally covers situations where a taxpayer who supplied goods or services fails to collect and remit tax as required, and the recipient would have been entitled to full input tax credits. Wash transactions will continue to be eligible for full relief from interest and penalties under the new VDP. As for the relevant period, these disclosures will require disclosure of previously inaccurate, incomplete or unreported information for the four calendar years before the date the VDP application is filed.
This posts was originally published on White Collar Post under “Panama Papers: CRA getting tougher on tax evasion” – a Fasken Martineau blog.
We are beginning to see the legal enforcement fallout from the now infamous Panama Papers. Canada Revenue Agency’s (CRA) concerted efforts to find undeclared offshore money and assets is moving into full gear. In addition to pursuing typical civil audits, the CRA is now executing search warrants and launching criminal investigations for tax evasion.
The CRA is actively gathering information from domestic and international sources to identify and charge offenders criminally. Since 2015, the Canadian government has required domestic financial institutions to report to the CRA all international electronic fund transfers of $10,000 or more. In addition, as of March 2016 the CRA has analyzed over 41,000 transactions worth over $12 billion dollars, involving four jurisdictions and particular financial institutions of concern, and has initiated risk assessments on 1,300 individuals named in the Panama Papers. This has resulted in approximately 122 CRA audits to date and counting. However, it is not just taxpayers who are subject to the CRA’s scrutiny and who may be criminally charged. The CRA is also investigating the enablers and advisors, including the lawyers and accountants, who facilitated the hiding of taxpayer money and assets offshore.
What is the “automatic exchange of financial information”
In order to increase tax transparency across the globe, the Organisation for Economic Co-operation and Development (OECD) adopted the Common Reporting Standard (CRS) on July 15, 2014. The CRS initiative calls on each participating jurisdiction to obtain information from financial institutions within their country and automatically exchange that information with other jurisdictions on an annual basis. The objective is to increase tax compliance by providing key information to the participating jurisdictions allowing them to identify whether their citizens accurately report their foreign assets and income. However, since the CRS is not constraining, 90 jurisdictions have also signed the Multilateral Competent Authority Agreement (MCAA) on automatic exchange of financial account information. The MCAA provides a mechanism to facilitate the exchange of information in accordance with the CRS. Such information to be disclosed includes the following :
- The name, address, taxpayer identification number, date and place of birth of each account holder;
- The account number;
- The name and identifying number of the financial institution;
- The account balance or value (including, in the case of a cash value insurance contract or annuity contract, the cash value or surrender value) as of the end of the relevant calendar year or the closure of the account;
- The total gross amount of interest, dividends and other income generated with respect to the assets held in the account.
The Canada Revenue Agency’s (the ‘’CRA’’) voluntary disclosures program allows taxpayers who meet certain conditions to correct inaccurate or incomplete information previously submitted to the CRA, or to disclose information not previously reported on their tax form. Under the current voluntary disclosures program, those who make a valid disclosure will be responsible for paying the taxes and reduced interest owing as a result of their disclosure, the whole without penalties or fear of prosecution. However, access to the voluntary disclosures program will be limited in the near future and radical changes will be introduced.
Access to the voluntary disclosures program limited for some and radical changes for others
However, on May 29, 2017, the CRA announced by the way of its Report on Progress that a revised voluntary disclosures program policy would be introduced shortly. The changes sought will tighten the access to the voluntary disclosures program and the relief provided. This announce by the CRA is made after the recommendation from the Standing Committee on Finance to conduct a review of the voluntary disclosures program as part of the strategy to combat offshore tax evasion and aggressive tax planning.
In completing its review of the program, CRA sought input from the Offshore Compliance Advisory Committee (the ‘’OCAC’’). In December 2016, the OCAC released the ‘’Report on the Voluntary Disclosures Program’’ which sets out different recommendations to ‘’improve’’ the program. The main contemplated alterations are to, in certain circumstances :
- increase the period for which full interest must be paid;
- reduce penalties relief in certain circumstances so that the taxpayers pay more than they would pay if they had been fully compliant; and
- even deny relief from civil penalties.
Such circumstances could include, for example :
- Situations where large dollar amounts of tax were avoided;
- Active efforts to avoid detection and the use of complex offshore structures;
- Multiple years of non-compliance;
- Disclosures motivated by CRA statements regarding its intended focus of compliance, by broad-based tax compliance programs or by the reception of leaked confidential information by the CRA such as the Panama Papers data leak; and
- Other circumstances in which the CRA considers that the high degree of the taxpayer’s culpability contributed to the failure to comply.
Less certain and more expensive results
If implemented by the CRA, the recommendations of the OCAC would significantly change the current voluntary disclosures program and the result of a disclosure would be more discretionary and expensive. Therefore, taxpayers entertaining the possibility of making a voluntary disclosure may want to act soon as the CRA intends to tighten the criteria for acceptance into the voluntary disclosures program and to be less generous in its application.
For more information about filing a voluntary disclosure download “The Voluntary Disclosures Programs in Canada (And in Québec)“.
A huge data leak from a Panama-based law firm has exposed billions in secret, offshore transactions involving multiple political leaders around the world and approximately 350 Canadians with offshore tax haven investments.
Previous leaks of offshore activities have led the Canada Revenue Agency (CRA) to engage in multiple tax audits targeting wealthy Canadians, such as clients of the LGT Bank, the Swiss HSBC Bank, and recently clients of one international accounting firm, just to name a few. This time should be no different. CRA was already instructed to get the leaked data in Panama Papers.
Many OECD-participating countries have engaged in a fight against tax evasion, treaty shopping and base erosion and profit-shifting (BEPS). Combined with the upcoming exchanges of financial information between countries starting in 2017 and 2018, Canada’s “new” offshore tax compliance section since 2013 and the offshore tax informant program (OTIP) rewarding whistleblowers, wealthy Canadians and businesses engaged in aggressive tax planning are more likely than ever to be audited.
In addition, the 2016 Federal budget proposed a plan to “improve tax compliance, prevent underground economic activity, tax evasion and aggressive tax planning,” requiring an investment of $444.4 million over five years to be used by the CRA for:
- hiring additional auditors and specialists
- developing robust business intelligence infrastructure
- increasing audit activities
- improving the quality of investigative work that targets criminal tax evaders
The expected additional revenue from such measures is $2.6 billion.
To most Canadians, these measures may sound perfectly legitimate. But many taxpayers in the province of Québec will hear a familiar tune that evokes unpleasant memories.