CROSS BORDER RESOURCES

Voluntary Disclosure Programs (VDP)

This post is also available in: Français (French)

 

What is a Voluntary Disclosure?

The Canada Revenue Agency (CRA) and Québec Minister of Revenue have Voluntary Disclosure Programs (VDP) in place that allow taxpayers who have not fulfilled their tax obligations to voluntarily rectify their situation without facing penalties and/or potential legal prosecution.

These penalties can be substantial – often in excess of 50% and even 100% of the taxes owing.

In general, when a Voluntary Disclosure (VD) application is accepted, the taxpayer pays the relevant taxes owed plus interest. While the CRA and Revenue Québec programs have similar conditions to qualify, the respective agencies have different approaches to the treatment of opening capital and the period which is covered by the VD.

The VDP programs do not apply in all situations and have certain restrictions, and we strongly recommend taxpayers consult with a professional before initiating a Voluntary Disclosure.

 

Recent changes to the VDP program include:

  • The VDP now has two tracks:
    1. General Program – Minor and unintentional omissions
    2. Limited Program – Major or Intentional omissions
  1.  
  • The criteria of what constitutes a “voluntary” disclosure are now more restricted.
  • The CRA has eliminated the “no-name” application option. The taxpayer must be identified in the application.

 

A VDP application must:

  • Be voluntary
  • Be complete
  • Income Tax Disclosures must involve the application or potential application of a penalty
  • Income Tax Disclosures must include at least one year of past-due income tax
  • GST / HST disclosure must the application or potential application of a penalty or interest
  • GST/HST disclosures must include at least one period past due
  • Include payment of the estimated tax owing
  • If you file a VDP application and the Canada Revenue Agency accepts it, you must pay all or part of the taxes due plus interest

 

 

Examples of what a VDP application for income tax may involve:

  • Omitted or undeclared income
  • Expenditures claimed in error
  • Failure to remit source deductions for employees (i.e. Canada Pension Plan / Quebec Pension Plan deductions)
  • Failure to file an information return (i.e. T1135 Foreign Income Verification Statement, T1134)

 

 

General Program - Minor and unintentional omissions

In this category, you will not be prosecuted or punished for the facts and elements disclosed. The CRA will now only cancel half of the interest in the years older than the three most recent years.



Limited Program – Major or intentional omissions

Before accepting an application, the CRA requires the taxpayer to waive the taxpayer's rights of appeal related to the subject of disclosure, subject to an objection relating to a characterization or calculation issue. The CRA will not waive all the penalties and it will not cancel any of the interest charges. The CRA will only waive the gross-negligence penalty.

 

The following factors are to be considered when deciding whether an application is to be included in the Limited Program:

  • Efforts have been made to prevent detection by offshore vehicles or other means
  • The dollar amounts involved
  • The years of non-compliance
  • The sophistication of the taxpayer
  • If disclosure follows an official CRA declaration of the specific focus of compliance intended (for example, the launch of a compliance project or campaign) or CRA communications (for example, a letter to taxpayers who are facing a compliance issue)
  • Under the Limited Program, participants will have to sign a waiver of their right to object and appeal regarding the specific issue disclosed.

 

 

For more information click here. 

 

 

Examples of what a GST/HST disclosure application may involve:

  • undisclosed tax liabilities
  • tax credits wrongly claimed
  • refunds or rebates
  • unpaid tax or net tax from a prior period
  • any other amount not previously reported to the Canada Revenue Agency (CRA)

 

 

 

General Program - Minor and unintentional omissions

In this category, you will not be prosecuted or fined for the facts and elements disclosed, you will only have to pay the interest due.

 

Limited Program – Major or intentional omissions

In this classification, you will not be subject to criminal prosecution or to penalties or gross negligence with respect to the facts and elements disclosed. All you have to do is pay the interest owed. Nevertheless, further penalties may be imposed and interest will be charged.

 

GST/HST Wash Transactions

In this category, you will remit the non-collected GST/HST or the input tax refunds you unjustly claim. You will not be prosecuted in connection with the information disclosed and you may be entitled to 100% penalty and interest relief for the transactions disclosed.

 

Factors to consider a disclosure under the limited program:

  • The taxpayer charged and collected HST but did not remit HST
  • The taxpayer earned at least $250 million in revenue in at least two of the last five fiscal years
  • The taxpayer took efforts to avoid CRA detection
  • The number of years of non-compliance
  • The amount of dollars involved
  • The taxpayer's actions regarding non-compliance constitute gross negligence
  • The Taxpayer created the disclosure after the CRA announced a focus on the specific category of non-compliance; and
  • The taxpayer sophistication 
  • Under the Limited Program, participants will have to sign a waiver of their right to object and appeal regarding the specific issue disclosed.

 

For more detailed information regarding the GST/HST stream, click here

 

 

 

A VDP  application must:

  • Spontaneous application
  • Complete application:

    A disclosure shall be complete if the person discloses all cases (including transactions and circumstances in which the person does not fulfil his tax obligations) for all tax laws, tax years and periods in which the person's tax situation does not conform to the tax laws administered by Revenu Québec. The person must calculate their income and the duties he owes. If the books, records or receipts no longer exist, the person should make all reasonable efforts to estimate his income and the obligations he owes for the years or periods in question, so that the application can be considered complete.

  • Verifiable:

    A request for disclosure shall be verifiable if the person provides Revenu Québec with all available information, records, books and documents necessary to establish the accuracy of the facts presented and the estimated obligations. There may be exceptional circumstances in which the person cannot provide all the necessary information or documents with his or her application. In these circumstances, Revenu Québec may grant the person a reasonable period of time to submit the information required to complete the application. Normally this period is no more than 90 days from the effective date of the disclosure. If information and documents are missing by the deadline, your application is deemed not to be verifiable. Your application can be refused and the information and documents received will be forwarded to the relevant department of Revenu Québec. If Revenu Québec is satisfied with your application, including all available information that you have provided to us, and if you are unable to find certain documents, or if you have made reasonable efforts to estimate your income and obligations regarding the tax years of the missing documents, your application may be considered verifiable. This may also apply to the absence of documented evidence from a foreign country.

  • The related tax must be paid: 

    Your application must be accompanied by the payment of your duties. If your situation is particularly difficult to estimate the amount of your duties or interest owed, you must estimate it. Make your payment out to the Minister of Revenue, Quebec, keep proof of your payment.

 

 

 

 

 

General Program - Minor and unintentional omissions

In this category, you will not be referred for criminal prosecution or be charged penalties with respect to the disclosed facts and elements, you will only have to pay the interest due.

 

Limited Program – Major or intentional omissions

In this category, you will not be prosecuted or punished for the facts and elements disclosed or for gross negligence. You will only have to pay the interests owed. Nonetheless, other penalties may apply, and interest will be charged

 

QST Wash Transactions

In this classification, you will be refunding the uncollected QST or the input tax refunds you wrongly claim. Revenue Quebec will waive the penalties and interests that would otherwise be payable under the applicable tax legislation.

 

Duties on the transfer of an immovable

This category covers situations in which special duties equal to 150% of the transfer duties are levied on the transfer of a property. It applies if you fail to declare the transfer in the land register or file a notice of disclosure with the municipality where the immovable is located by the 90-day deadline and under the terms set out in the Act respecting duties on transfers of immovables. Revenue Quebec can waive up to one-sixth of the special duties.

 

 

 

 

  • Bankruptcy returns
  • Income tax returns with no taxes owing or with refunds expected
  • Elections
  • Advance pricing arrangements
  • Rollover provisions
  • Post-assessment requests for penalty and interest relief

 

UHY Victor has extensive experience processing voluntary disclosures with both the CRA and the Québec Minister of Revenue. We have developed systems and templates to efficiently summarize financial information and create reports that present information in a format acceptable to Voluntary Disclosure processing officers with both the Canada Revenue Agency and the Québec Minister of Revenue.

For more information about the Canada Revenue Agency Voluntary Disclosure Program click here.

For more information about the Revenu Québec Voluntary Disclosure program, click here.

For more information about the recent changes to Revenue Québec’s Voluntary Disclosure program, click here.

Disclaimer: UHY Victor assumes no responsibility or liability for any errors or omissions of this site. The information used in this site is provided for general guidance. This article is not a substitute for professional legal advice.

 

Need Help?

Contact us on a strictly confidential basis if you have questions regarding the VD program.

Our office is located in Montreal, Québec, and we can assist with both Canadian and Québec submissions.

UHY Victor LLP 

crossbordertax@uhyvictor.com
(514) 282-0067

 

 

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