To promote compliance with Canada’s tax laws, the Canada Revenue Agency (“CRA”) implemented a program, the VDP, to encourage taxpayers to voluntarily correct omissions in their tax filings, including income tax, GST, source deductions and excise tax.
Taxpayers who make a valid disclosure will have to pay the taxes or charges plus interest. However, they will not be subject to a penalty or prosecution that the taxpayer would otherwise be subject to. CRA recently released a Draft Information Circular which discusses proposed changes to the VDP, which, if implemented, will be effective January 1, 2018. The proposed changes introduce two tracks for income tax disclosures – a General Program (similar to the current VDP) and a Limited Program.
Relief available under the General Program may be available if a taxpayer:
- failed to fulfill obligations under the Income Tax Act, or other applicable act
- failed to report any taxable income received,
- claimed ineligible expenses on a tax return,
- failed to remit source deductions of their employees,
- failed to file information returns, or
- failed to report foreign sourced income that is taxable in Canada
Limited relief available under the Limited Program for applications that disclose major non-compliance, including one or more of the following situations:
- active efforts to avoid detection through use of offshore vehicles, etc.,
- large dollar amounts,
- multiple years of non-compliance,
- a sophisticated taxpayer,
- the disclosure is made following official CRA correspondence, statements or campaigns,
- a high degree of taxpayer culpability contributed to the failure to comply.
Additional details regarding the VDP can be obtained from your tax advisor. If you are considering making a disclosure, the application should be made prior to January 1, 2018, under the current program as the new programs will not be as favorable as the current program.