Canada: VDP Overhaul Coming Sooner Than You Thought

Last Updated: December 22 2017
Article by Martin Sorensen and Nicholas Arrigo

Earlier this month, we reported that a senior representative of the Canada Revenue Agency (CRA) had announced that it was "highly likely" that the incoming changes to the Voluntary Disclosures Program (VDP) would be delayed until at least June 2018. It seems, however, that the improbable has come to pass, as Minister of National Revenue, Diane Lebouthillier, announced on December 15 that the new rules will actually take effect on March 1, 2018.

The New Rules Have Been Finalized

Minister Lebouthillier's announcement was accompanied by a finalized version of the VDP information circular (IC00-1R6) (the "December 15 Amendments"), which differs from the originally proposed draft in several respects. The key elements of new VDP are as follows:

Additional Eligibility Requirement

There are four requirements to qualify under the current VDP. Applications must (1) be voluntary, (2) be complete, (3) involve the application or potential application of a penalty, and (4) involve information that is at least one year past due. The new rules will introduce a fifth requirement, namely that taxpayers must include payment of the estimated tax owing with their VDP application. Taxpayers unable to make such a payment may request to be considered for a payment arrangement, subject to the approval of the CRA's collections division.

Limited Relief for "Major Non-Compliance" and for Large Corporations

Income tax disclosures will be administered under two separate tracks: the "General Program" and the "Limited Program". The General Program will offer relief similar to that available under the current rules: protection from prosecution, relief from penalties and a partial interest reduction. Disclosures dealt with under the Limited Program will receive reduced relief. While taxpayers will still receive protection from criminal prosecution and will not be subject to gross negligence penalties, they will be potentially liable for all other penalties as applicable, and will not be eligible for interest relief.

As originally proposed, the new rules set out a list of factors that the CRA may consider in order to determine whether the disclosure evidenced "major non-compliance", in which case the application would fall under the Limited Program. It was not clear whether the CRA would consider the factors only in circumstances of intentional misconduct, or whether the Limited Program could only apply even if there was no element of taxpayer culpability. The December 15 Amendments bring some added clarity to the application of these factors, stating that there must be "an element of intentional conduct on the part of the taxpayer or a closely related party."

Following the December 15 Amendments, in determining whether there has been major non-compliance in a situation where there has been intentional misconduct, CRA may consider the following factors:

  • 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).

Some uncertainty still surrounds the treatment of disclosures made by corporations with gross revenue in excess of $250 million in at least two of their last five taxation years. Under the new rules as originally proposed, these corporations were excluded from the VDP outright. Now, in light of the December 15 Amendments, corporations exceeding the stated dollar threshold will generally be eligible for the Limited Program. Although not entirely clear from the language of the revised rules, it appears that these corporations will fall under the Limited Program regardless of whether they have committed any intentional misconduct.

Special Treatment of Transfer Pricing Adjustments

Under the new rules as originally proposed, VDP applications in respect of transfer pricing adjustments and related penalties were to be denied outright. Applications relating to transfer pricing matters are now eligible for VDP relief under the revised new rules, but will be referred to the Transfer Pricing Review Committee. However, this statement falls under the heading "circumstances where relief will typically not be considered." It is therefore an open question whether transfer pricing disclosures will commonly lead to relief. Caution is likely warranted here.

Narrower Objection Rights

Currently, taxpayers are free to object to assessments or reassessments that arise as a result of their voluntary disclosures. Under the new rules, however, taxpayers whose applications are accepted under the Limited Program will be required to waive their objection and appeal rights in relation to the specific matter disclosed in the VDP and any related assessments. This waiver will not prevent a taxpayer from objecting in circumstances where the assessment includes a calculation error, relates to a characterization issue (e.g., income vs. capital gains treatment) or relates to an issue other than the matter voluntarily disclosed.

Changes to the 90-Day Grace Period

The current rules, as well as the original draft of the new rules, permit the CRA to grant the taxpayer up to 90 days to gather all necessary information and documents after submitting a VDP application. The December 15 Amendments may still allow for this grace period, but will require taxpayers to submit a written request for an additional specified period at the time the application is submitted. It is therefore likely to become common practice for taxpayers and their advisors to request additional time to prepare the application.

No Protection for "No-Name" Disclosures

Under the current VDP rules, taxpayers who wish to remain anonymous may apply on a "no-name" basis, requesting that a CRA officer offer an initial assessment as to whether the disclosure will qualify for the VDP. If the response is in the affirmative, the taxpayer is given 90 days to provide identifying information and all supporting documentation required. Under the incoming rules, it is proposed that taxpayers may enter into informal, non-binding "pre-disclosure discussions" with a CRA official on an anonymous basis. However, taxpayers will no longer enjoy a guaranteed 90-day protection period. Instead, the proposed guidelines provide that pre-disclosure discussions will "have no impact on CRA's ability to audit, penalize, or refer a case for criminal prosecution." The December 15 Amendments add that, "for complex technical reporting issues or questions, taxpayers will be referred to a CRA official in a specialized audit area to discuss their situation on an anonymous basis."

What's Next?

Now that the new rules have been finalized, the clock is ticking for taxpayers to apply under the current VDP, which generally offers more favourable relief. Taxpayers who wish to disclose any non-compliance should consider initiating a named VDP application on or before February 28, 2018, in order to preserve their entitlement to relief under the current rules.

We encourage you to reach out to a member of the Bennett Jones Tax team to discuss how the incoming VDP rules may affect you or your business.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Martin Sorensen
Similar Articles
Relevancy Powered by MondaqAI
Bennett Jones LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Bennett Jones LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions