So here’s the thing about tax planning: things change on a pretty regular basis. It’s usually right around that time when you think you’ve got a handle on your situation that new guidelines are put in place. That is what happened this past December with the Voluntary Disclosure Program but don’t worry, in this post, I’ll take you through those changes.
In my previous post, I talked about the Voluntary Disclosure Program offered by the Canada Revenue Agency, what it is, and who can use it – I’ll link to it below. In this video, I want to discuss what the recent changes to the program mean for Canadians who might be considering the VDP. If you have any questions, please leave a comment below.
On December 15 of last year, the Honourable Diane Lebouthillier, the Minister of National Revenue, announced changes to the Voluntary Disclosure Program that came into effect in March. The reason was to tighten the eligibility criteria to access the program. In other words, it’s going to be harder for those who intentionally avoided paying their taxes to take advantage of and benefit from the VDP.
The changes have created two tracks for disclosures.
The first track is the Limited Program, which will offer, as the title says, limited relief to taxpayers who have intentionally avoided paying taxes. Under the Limited Program, taxpayers will not be referred for criminal prosecution with respect to their disclosure and they won’t be charged gross negligence penalties. But they will be charged other penalties and interest based on their assessments. Under this program track, participants will also have to sign a waiver of their right to object and appeal in relation to the specific issue disclosed.
The second track is the General Program, where the same rules apply regarding criminal prosecution and gross negligence penalties, but unlike the Limited Program, the CRA will provide partial relief of interest for years preceding the three most recent years. Got that?
So you might be thinking, ‘How will the CRA decide what track I’ll be on when I apply to the VDP?’
Well, it’s going to look at whether efforts were made by the person or company to avoid detection through the use of offshore vehicles or other means, the total dollar amounts involved, the number of years of non-compliance, and the ‘sophistication’ of the taxpayer. Those are the two main changes to the program but there are other pretty significant changes that could affect you. The CRA now requires that you pay the estimated taxes owing as a condition to qualify for the program. This is important because prior to March, this payment wasn’t required. If you can’t make the payment at the time of filing the application, you can request a payment arrangement.
Another change that comes into effect this month is that the CRA will cancel relief after the fact if it’s discovered that a taxpayer’s application was not complete because of misrepresentation. The final change is that taxpayers and their authorized representatives used to be able to make disclosures on a no-name basis. That meant knowing the outcome before saying who you were. A good deal! Now under what they’re calling the “pre-disclosure discussion” service, taxpayers can have an anonymous conversation with a CRA official but they won’t confirm the outcome before you tell them who you are.
Those are the changes! The new program will be reviewed after two years and adjusted based on feedback. Look, the CRA doesn’t want to scare you but it does want you to pay your taxes. It’s getting better at finding tax evaders and those who are found tend to pay heavy penalties. Better to come clean before they come after you!
Don’t worry about remembering all of this. I’ll put some links below if you want to read more about the new changes and feel free to ask me any questions.