COVID 19 Update: It is business as usual. We are available to assist you via phone, email or video calls.

The Affect of Voluntary Disclosure Program Changes

If you haven’t heard yet, the Canada Revenue Agency (CRA) is making Voluntary Disclosure Program changes that will seriously affect the future of the program. In June 2017, the CRA announced proposed Voluntary Disclosure Program changes and opened up online consultations regarding these changes. The proposed changes are being considered in response to a recommendation from the Standing Committee on Finance and with the advice of the Offshore Compliance Advisory Committee.

What is the Voluntary Disclosure Program?

In short, the Voluntary Disclosure Program gives people who may have made errors prior year tax returns or who have not filed all returns that should have been filed with the opportunity to correct these issues and avoid penalties. This program is designed as a “second chance” and it has been responsible for the CRA collecting more than a billion dollars of tax debt that is owed to it with minimal enforcement costs.

What Are the Upcoming Changes?

At least partially in response to the Panama Papers, the CRA has decided to make several Voluntary Disclosure Program Changes. The biggest is that they are introducing more than one “track” to the program.

Currently, if you are eligible for the program, you can apply and receive relief from penalties and prosecution. This means that, if you are accepted, you will only be responsible for paying the taxes and interest that you owe. For many people, this is a big reason to use the Voluntary Disclosure Program. However, the proposed program changes announced in June 2017 state that “severe cases of non-compliance” will not benefit from the same level of penalty and interest relief.

This means that, when you apply for the program, there is a chance that you will be accepted but put into a second “track” and not receive the full benefits of the program.

In addition, the CRA has announced that it will be “narrowing the criteria of who is eligible” for the program. It has also announced that “requiring payment of the estimated taxes owing” will be a condition to qualify for the program.

The changes to the program will officially be announced in the fall.

How the Voluntary Disclosure Program Changes Will Hurt the Program

The CRA states that changes are coming to the Voluntary Disclosure Program to “crack down on tax cheats.” However, the affect of these changes will make the program much stricter and, therefore, much less useful for people.

The VDP has been a successful program for the CRA as well as for individuals who have tax problems. It gave people the opportunity to file previous returns, correct errors, and pay what they owe without living in fear of penalties or charges being filed against them. It also allowed the CRA to collect a lot of outstanding tax debt with very little effort on its part. Now, thanks to these changes, the situation will be very different.

If you do not know which “track” of the program you will be placed into when you apply, you will be much more hesitant to do so. Right now, you can come clean to the CRA and know that, if accepted, you won’t face any punishment for doing so. Once the Voluntary Disclosure Program changes come into effect, this will no longer be the case. People will be much less likely to come forward if they can still face possible penalties for doing so.

Under the proposed changes, offshore accounts and multiple years of non-compliance will only qualify for limited relief. These are both common situations and people in these situations have used the VDP frequently in the past. They will be much less likely to do so once the changes are finalized.

Plus, if the CRA narrows the criteria for being accepted to the program, it will take away the option of applying for many people. This leaves them without the ability to disclose tax issues without being penalized.

A likely consequence of these changes is that fewer people will apply for the Voluntary Disclosure Program and that not everyone will benefit from the program in the same way. For a program that has been quite successful, this seems odd.

One of the reasons that the Voluntary Disclosure Program has been so successful is that it is straightforward and easy to understand. Making it more complicated and adding in various different aspects to the program will serve to make it much less useful for taxpayers and to the CRA.