Introduction - The Differences Between Federal and Provincial Tax Administration in Canada
Under the Canadian tax law system, Canadian taxpayers are subject to income taxation at both the Federal and Provincial levels of government. Section 91 of the Constitution Act, 1867, grants Parliament the exclusive jurisdiction to legislate "the raising of money by any mode or system of taxation". The Canadian Income Tax Act and Excise Tax Act are both federally-administered statutes made possible by this head of power under the Canadian Constitution. At the provincial level, subsection 92(2) of the Constitution Act, 1867, grants Canada's provinces exclusive jurisdiction to legislate direct taxation within a province to raise revenue for provincial purposes. The Ontario legislature has passed a number of statutes under this power, including the Taxation Act, 2007, and Corporations Tax Act, levying provincial income and sales tax (among many other taxes) on Ontario taxpayers.
The Canadian Voluntary Disclosures Program is a tax amnesty program offered by the Canada Revenue Agency to allow non-compliant taxpayers a means by which to correct outstanding tax issues. A taxpayer may do so voluntarily with the CRA, and make any required tax payments, in exchange for presumptive relief from interest on outstanding debts, penalties for non-compliance, and where applicable, criminal prosecution. Eligibility for the CRA's Voluntary Disclosures Program includes sales tax matters (GST/HST) under the Excise Tax Act, income tax matters under the Income Tax Act, and various other taxpayer compliance duties under federal legislation.
The CRA's Voluntary Disclosures Program is inapplicable, however, to provincial taxation in Canada which the CRA is not responsible to administer. The Ontario Ministry of Finance, similarly to other provinces like Quebec, British Columbia, and Manitoba, offers a Voluntary Disclosures Program for various statutes that it is responsible for administering. The difference in procedure and responsibilities under both CRA's Voluntary Disclosures Program and the Ontario Ministry of Finance's offered program can be significant for taxpayers who face compliance issues. A taxpayer should always consult with an expert Canadian tax lawyer before taking action to pursue a Voluntary Disclosure application at any level, and to ensure that the application will be accepted on its merits.
Features of the Ontario Ministry of Finance's Voluntary Disclosures Program
As previously mentioned, the Ontario Voluntary Disclosures Program is offered for statutes administered by the Ontario Ministry of Finance, including the following:
- Corporations Tax Act;
- Community Small Business Investment Funds Act;
- Specific provisions of the Electricity Act;
- Employer Health Tax Act;
- Estate Administration Tax Act, 1998;
- Fuel Tax Act;
- Gasoline Tax Act;
- Taxation Act, 2007;
- Land Transfer Tax Act;
- Mining Tax Act;
- Ontario Guaranteed Annual Income Act;
- Provincial Land Tax Act;
- Race Tracks Tax Act;
- Retail Sales Tax Act; and,
- Tobacco Tax Act.
The Ontario Ministry of Finance's Voluntary Disclosures Program works similarly to the CRA's Voluntary Disclosures Program, in that a taxpayer must meet certain requirements on filing a Voluntary Disclosure to qualify. For the Ontario Ministry of Finance to accept a Voluntary Disclosure application, the taxpayer must meet the following conditions:
- The Disclosure Must be Voluntary: The disclosure cannot be motivated by the Ontario Ministry of Finance taking enforcement action. "Enforcement action" casts a wide net over Ontario Ministry of Finance actions, and can include both enforcement and collections actions, and requests for information. Thus, the taxpayer must bring the application before the Ontario Ministry of Finance has taken any substantive action to inquire about or enforce a tax debt.
- The Disclosure Must be Complete: In order for the Ontario Ministry of Finance to accept a Voluntary Disclosure, the taxpayer must provide all required submissions, calculations, and information to assess the debt. The taxpayer must also disclose all compliance issues, and not selective matters. Minor errors can be corrected, but a material mistake or omission can result in an application being rejected.
- The Ontario Ministry of Finance Must Verify the Validity of Disclosed Information:The Ontario Ministry of Finance requires full cooperation from taxpayer to verify books, records and information provided as part of a Voluntary Disclosure. A taxpayer's failure to comply with further questioning can disqualify a taxpayer from making a successful application, regardless of whether disclosure was complete or not.
- The Ontario Ministry of Finance Must Receive Full Payment of Taxes Owing:The Ontario Ministry of Finance offers no relief from interest or penalties associated with an outstanding tax debt. The taxpayer is responsible for remitting any due interest and applicable penalties for failure to report as required, in addition to the principal amount owing. This is in stark contrast to the CRA's Voluntary Disclosures Program, which offers certain interest and penalty relief on a successful application, up to a 10-year limitation period.
The principal benefit of the Ontario Ministry of Finance's Voluntary Disclosures Program is thus the potential relief from criminal prosecution where a taxpayer has been negligent in reporting. In most cases, the maximum criminal punishment for non-compliance with Ontario's tax laws is a fine of twice the amount of tax evaded, plus a jail term of two years. Although this may be of limited benefit for most taxpayers, it is still a valuable tool for taxpayers facing serious remittance issues under provincially-administered statutes.
Finally, unlike the CRA's Voluntary Disclosures Program, the Ontario Ministry of Finance offers no formalized means to file a Voluntary Disclosure. In order to apply for relief with the CRA, a taxpayer must file an RC199 Voluntary Disclosures Program (VDP) Application, with a mandatory list of information that must be disclosed about the taxpayer's circumstances. The Ontario Ministry of Finance provides no form or procedure for filing for relief. Applications can either be made in writing to the Ministry, or by phoning the Ontario Ministry of Finance directly to discuss the matter. However, discussing the matter with the Ontario Ministry of Finance by phone, rather than preparing written submissions, may prove a risky strategy where the Ontario Ministry of Finance catches a taxpayer off-guard with questioning or incorrectly transcribes information. Preparing written submissions allows for a more thorough review process so that a taxpayer can ensure due diligence has been completed before making an application.
Pro Tax Tip: Disclosure Must be Complete to Qualify for Relief. Your Due Diligence is the Deciding Factor Between Success and Failure
Just as is the case with CRA's Voluntary Disclosures Program, the Ontario Ministry of Finance requires that taxpayers provide complete disclosure of non-compliance issues to make a successful application for relief. Any failure to disclose material information related to your application is a clear cause for rejecting your application. A taxpayer who fails to complete their due diligence and provide complete and ongoing disclosure to the Ontario Ministry of Finance risks disclosing grounds for criminal prosecution without any grounds for protection.
Engaging an expert Toronto tax lawyer early on in the Voluntary Disclosure application process ensures that your information remains confidential and solicitor-client privileged throughout the process of preparing and submitting your application. That privilege can be extended to any accountant retained to act on your file and to prepare any unfiled returns. An expert Canadian tax lawyer can also work with you to evaluate what is required for complete disclosure, and to ensure you are prepared for further questioning by the Ministry after filing an application. This is especially important where your non-compliance issues extend across several provincial jurisdictions, between provincial and federal statutes, and even international compliance issues involving Canada and the United States. Engaging an expert Canadian tax lawyer in these situations is crucial to coordinate your voluntary disclosure applications, so that a voluntary disclosure in one jurisdiction does not lead to enforcement action by the authorities of another jurisdiction. If you discover you are non-compliant with any of the provincial tax statutes administered by the Ontario Ministry of Finance, you should engage an expert Canadian tax lawyer to discuss your filing obligations and how you might benefit from the Ontario Ministry of Finance's Voluntary Disclosures Program.
1. What is the Ontario Ministry of Finance's Voluntary Disclosures Program?
The Ontario Ministry of Finance's Voluntary Disclosures Program is a voluntary program offered to Ontario taxpayers who are non-compliant with their obligations under the various tax laws that the Ministry of Finance is responsible for administering. A taxpayer under the Ontario Ministry of Finance's Voluntary Disclosures Program may apply for relief from potential criminal prosecution by pre-emptively disclosing and correcting non-compliance issues.
2. What are the required Elements for a Successful Voluntary Disclosure Application with the Ontario Ministry of Finance?
In order for a taxpayer to be successful under the Ontario Ministry of Finance's Voluntary Disclosures Program:
- The disclosure must be voluntary, and not motivated by the Ontario Ministry of Finance's enforcement actions or requests for information);
- The disclosure must be complete, and any material omissions or errors may jeopardize the application being accepted);
- The Ontario Ministry of Finance must verify the validity of the taxpayer's disclosure, and it expects ongoing cooperation to verify the taxpayer's information; and,
- The Ontario Ministry of Finance must receive full payment for taxes owing, any applicable civil penalties, and interest on amounts due.
3. What Relief am I Entitled to Under the Ontario Ministry of Finance's Voluntary Disclosures Program?
In most cases, the maximum criminal punishment for non-compliance with Ontario's tax laws is a fine of twice the amount of tax evaded, plus a jail term of two years. Where a taxpayer is successful under the Ontario Ministry of Finance's Voluntary Disclosures Program, that taxpayer will be entitled to relief from potential criminal prosecution and punishment for non-compliance. A taxpayer is still responsible for any civil penalties, interest, and principal taxes owing as a result of a disclosure, unlike the CRA's Voluntary Disclosures Program which offers varying interest and penalty relief on a successful application.
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.