Through the Canada Revenue Agency's (CRA) voluntary disclosure program (VDP), taxpayers can avoid penalties and prosecution and may also be entitled to partial interest relief in respect of past non-compliance with tax obligations. While the VDP is not new, a number of recent developments may increase the chances of the CRA detecting the noncompliance or taking other actions that could foreclose the possibility of making a valid voluntary disclosure.
These developments include:
1. A new initiative to share information about border crossings. On June 30, 2014, Canada and the U.S. commenced a new joint initiative to share information about when individuals cross the Canada-U.S. border. Amongst other things, the CRA could use the information to target (a) non-resident employees and service providers who do not comply with their Canadian tax filing obligations, and (b) persons who do not comply with their obligations to withhold and remit tax on payments to such employees and services providers.
2. The Offshore Tax Information Program ("OTIP"). Launched in January 2014, OTIP allows the CRA to make financial awards to individuals who provide information related to international tax non-compliance that leads to the collection of at least $100,000 of federal taxes.
3. The continued negotiation with foreign countries of Tax Information Exchange Agreements and Tax Treaties with exchange-of-information provisions. These agreements permit, and in some cases require, the sharing of information between Canada and foreign jurisdictions for purposes of verifying tax compliance. In this connection, the Canada-United States Enhanced Tax Information Exchange Agreement was brought into law in Canada as of June 27, 2014 and, among other things, requires the U.S. to provide the CRA with information on Canadian residents who hold accounts at U.S. financial institutions. With the OECD (of which Canada is a member) developing a global standard for the automatic exchange of financial account information, these sorts of agreements are expected to become more common.
4. Reporting requirements for electronic transfers of funds. Starting in 2015, certain entities (generally financial intermediaries) will be required to report to the Minister of National Revenue certain electronic transfers of funds of $10,000 or more into or out of Canada.
5. Changes to information requirement rules. With judicial authorization, the CRA is permitted to require third parties to provide information or documents for the purposes of verifying tax compliance of unnamed persons. With the intention of obtaining the information and documents more quickly, these rules were changed in 2013 to require the CRA to provide notice to the third parties of the judicial application and eliminate the ability of the third parties to seek a subsequent review of the authorization.
These developments add to, and do not replace, existing mechanisms at the CRA's disposal to uncover non-compliance, such as audits. The CRA also continues to encourage "whistleblowing" through its Informant Leads Program.
These developments are relevant in considering whether and when to make a voluntary disclosure because in order to be accepted under the VDP, the disclosure must be voluntary. Where the CRA uncovers the non-compliance or undertakes an enforcement action that might lead to uncovering the noncompliance, the opportunity to access the voluntary disclosure program is generally foreclosed because the CRA would likely not view the disclosure as voluntary.
Part II of this article will appear in the next Client Update Newsletter and will discuss other conditions for making a valid disclosure and how to participate in the VDP.
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.
