Canada Revenue Agency's (CRA) voluntary disclosure program provides a taxpayer (e.g., an individual or corporation) with a one-time opportunity to retroactively comply with Canadian tax law. For example, if a taxpayer fails to report income in a tax year, more than one year past due, the noncompliance can be resolved by submitting a voluntary disclosure application. If the application is accepted, then the taxpayer will receive relief from penalties and interest. CRA will also waive any chance of criminal prosecution. The voluntary disclosure program offers two streams, the general and limited. The general offers greater relief.
The authority to provide relief from penalties and interest exercised by CRA's voluntary disclosures program stems from subsection 220(3.1) of the Federal Income Tax Act. Per this subsection, CRA is granted the discretionary power to waive penalties or interest. The Federal Excise Tax Act contains similar discretionary provisions.
A common example is the failure of Canadian taxpayers to report offshore property with a cost amount greater than $100,000. This must be done utilizing form T1135 Foreign Income Verification Statement. The standard penalty for not filing the form is $2500 annually. With interest, and over multiples years, the T1135 penalty can become substantive. A taxpayer can rectify this through the voluntary disclosure process. If accepted relief will be provided for up to the previous ten years.
Second Administrative Review
Upon receiving notice that a voluntary disclosure application has been denied, a taxpayer can request that CRA conduct a Second Administrative Review of the impugned decision. A request will not be granted if the taxpayer merely failed to provide the information to complete the disclosure in time. If the request is granted, the taxpayer has the opportunity to provide additional information and legal arguments in favour of acceptance. If the second review is denied the taxpayer's recourse falls with the Federal Court.
Judicial Review of Discretionary Decisions of the CRA
In general, discretionary decisions of government representatives are subject to review by the courts, judicial review. The taxpayer can ask the Federal Court for a judicial review of the denial of a voluntary disclosure. Per section 18.1(2) of Canada's Federal Courts Act, the judicial review application must be filed within 30 days of CRA's decision. A motion for an extension can be submitted to the Federal Court. The taxpayer must have a "ground of review" to rely upon in support of the judicial review application. The accepted grounds are outlined in subsection 18.1(4) of the Federal Courts Act.
What about a Notice of Objection?
In general, when a taxpayer wants to dispute a tax assessment, a notice of objection must be filed within 90 days of the assessment date (plus 1 year with an extension request). However, tax assessments stemming from the processing of a voluntary disclosure application cannot be disputed by filing a Notice of Objection, with exceptions as outlined in subsection 165(1.2).
In general, objections to assessments based on disagreements with CRA's decision to provide general or limited relief are disallowed. Also, to be accepted under the Limited program, CRA will ask the taxpayer to sign a waiver agreeing not to dispute the assessments with a Notice of Objection. However, a taxpayer can object to an error in calculation or characterization, but not anything related directly to the content of the disclosure.
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.
