A previous article that I wrote which was published in our SPARK newsletter on September 26, 2017 was entitled “Is an opportunity to rectify your taxes slipping away?” The article discussed proposals that were put forth by the CRA in June 2017 that effectively amounted to an overhaul of CRA’s well-established Voluntary Disclosure Program (VDP); a program meant to encourage taxpayers to correct inaccurate or incomplete tax filings without fear of penalty.

Although the proposed changes to the VDP were presented in the form of draft proposals set forth for public consultation, we predicted that most of the proposed changes would be implemented. After reading through the final version of new IC00-1RC – Voluntary Disclosures Program released on December 15, 2017, it appears substantially unchanged in content to the Draft version released for public comments.

Details of the changes to the program were outlined previously in my September 26, 2017 article which can be referenced on our website at the following link.

A change worth noting from CRA’s proposals to the final version is indication that larger taxpayers (i.e. gross revenue in excess of $250M in at least two of their last five taxation years) will continue to be considered for limited relief under the new program (as described below). The initial draft proposals suggested that applications by larger corporations be excluded entirely from relief under the program.

The final version of the circular also provided for a short extension of the new program’s implementation to March 1, 2018, since the release of the final rules were delayed to just days before the initially proposed January 1, 2018 implementation date. The delay was presumably caused by the significant time required for CRA to carefully consider each of the public submissions with comments on the proposals, before apparently concluding that only minor revisions to the draft proposals were actually necessary.

Although time may be quickly running out to correctly and accurately prepare and file a disclosure under the old program (to qualify for the old program CRA must receive the named disclosure on or before February 28, 2018), all hope may not be lost for those who discover tax filing delinquencies as the sun rises on March 1, 2018. In fact, the new program may continue to offer essentially the same or similar relief to many (but not all) taxpayers in most (but not all) circumstances.

However, similar to many of the recent tax policy/changes recently proposed/enacted, the new policies are likely to increase uncertainty for taxpayers and advisors alike.

Under the new VDP, taxpayer disclosures will be divided, based on CRA’s discretion, into two “tracks”: The General relief track (for inadvertent and minor non-compliance); and the Limited relief track (for larger taxpayers and/or instances of major non-compliance infractions).

While taxpayers qualifying under the General relief track will continue to qualify for very similar relief from penalties and prosecution to the outgoing program, in circumstances where CRA decides that a taxpayer’s disclosure involves major non-compliance, the VDP will only provide limited relief in the form of protection from gross negligence penalties and criminal prosecution.

Although many taxpayers wishing to come forward may actually qualify under the General relief track, the design of the new program may present hurtles to many taxpayers who will be forced to courageously expose their non-compliance, and rely on CRA’s discretion to ensure expected relief is granted.

Despite some limited guidance provided by CRA as to the circumstances they generally will consider to involve major non-compliance (i.e. disclosures involving large dollar amounts, multiple years of non-compliance, large sophisticated taxpayers, etc.), taxpayers may understandably find the criteria vague and less than re-assuring. Furthermore, CRA’s no-name disclosure program, allowing taxpayers to receive feedback on an anonymous basis from CRA on whether any information provided in their disclosure might disqualify relief under the program, will no longer be an available option.

Time will tell how CRA will choose to allocate disclosures between the General and Limited tracks. However, taxpayers considering submitting a disclosure under the new program should discuss the circumstances surrounding the disclosure with their tax advisors to obtain an independent third party view on how their particular tax issue and circumstances might be regarded by CRA prior to making a disclosure.

Although the new program will remove much needed certainty for taxpayers, the VDP should continue to be considered as a viable option to correct tax filing delinquencies for many taxpayers.