Accounting for Law

Proposed changes would lead to demise of CRA's VDP

If enacted, recently proposed changes to the Voluntary Disclosures Program (VDP) will have the effect of ultimately killing what is arguably one of the most effective initiatives administered by the Canada Revenue Agency (CRA), Canadian tax lawyer David J. Rotfleisch writes in The Globe and Mail. Read Canadian Accountant

As Rotfleisch, founding tax lawyer at Rotfleisch & Samulovitch Professional Corporation, explains, the VDP allows taxpayers who are noncompliant to come back into the system without fear of prosecution or civil penalties.

“The CRA reports that for 2014-15, the total income from all voluntary disclosures was more than $1.3-billion, with $780-million coming from offshore. According to CRA, there were 19,134 voluntary disclosures received in fiscal year 2014-15. Importantly, the enforcement costs of the VDP are minimal to Canadian taxpayers,” he writes.

However, Rotfleisch says, the recently proposed changes “seem to ignore this success and are designed to reduce or eliminate the availability of the VDP in many circumstances.”

As a result of the proposed changes, situations that will qualify only for limited relief include the use of offshore accounts and multiple years of non-compliance, he writes.

Those two categories, Rotfleisch notes, cover 75 per cent of the voluntary disclosures that his tax law firm submits.

Other cases that will also only be eligible for limited relief, he says, are large dollar amounts and sophisticated taxpayers, as well as multiple years of non-filing.

“I see the same situation over and over. A taxpayer fails to file one return for some reason. It gets ignored and next April rolls around with another tax deadline.

“The common reaction is panic and a lack of knowledge as to how to deal with the unfiled returns. The years accumulate and eat at the individual until the pressure causes them to seek professional advice and file a voluntary disclosure,” writes Rotfleisch.

“Is this a situation worthy of opprobrium and denial of penalty-free remedy?” he asks.

In terms of large dollar amounts not qualifying, Rotfleisch says “the result is that CRA is removing the incentive for high-net-worth individuals to come clean on their taxes — the very people that the CRA needs in the VDP.”

Money launderers who want to "come clean" won't qualify at all for the VDP, says Rotfleisch, and the CRA will have to catch them first and then prosecute them. There is also an exclusion for corporations with annual gross revenues of more than $250-million, he says.

“A new requirement for the VDP is that payment of estimated taxes must be included with the application. If payment in full can't be made, then payment arrangements supported by ‘adequate security’ may be considered by the CRA. What happens if you don't have enough assets to furnish the security? You don't qualify for relief,” says Rotfleisch.

The CRA is also proposing the abolition of the no-names voluntary disclosure, says Rotfleisch.

“Right now, you can submit an application without a name to see if the facts qualify for relief. No longer. The new rules, if implemented, will produce a bumper crop of work for lawyers because of the uncertainties. If the CRA asks you to file those returns, you will be fully penalized even though a lawyer contacted CRA on your behalf before they contacted you,” he writes.

Ultimately, if the VDP is changed as proposed, says Rotfleisch, “it will be seriously broken and on its way to a lamented demise. We won't collect more taxes and the taxes we do collect will come with a higher enforcement price tag. The CRA will be going backward.”

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