Aggressive CRA Enforcement Activity and Increased International Cooperation Make the Voluntary Disclosures Program An Important Option to Consider
The Canada Revenue Agency (the “CRA”) has been increasing its efforts to pursue taxpayers who fail to report all of their worldwide income.
Tax amnesty offered under the Voluntary Disclosures Program is often the most attractive alternative for those who are potential targets of this enforcement activity.
The Canadian Government is also stepping up its coordination with other countries to combat the use of international tax havens. In the first week of January 2010, the Canadian Minister of National Revenue, Jean-Pierre Blackburn, met with tax officials from the United Kingdom, France and Germany affirming their cooperation with Canada in combating the use of tax havens through their involvement in the Seven Country Working Group on Tax Havens.
On January 20, 2010, the CRA released a Tax Alert including the following statistics regarding its tax enforcement activity in the past year:
- The CRA conducted over 370,360 audit and review actions, including over 12,800 underground economy audits;
- The CRA completed 1,439 international audits, and 34,111 audits of tax shelters;
- The CRA identified a total dollar value of $5.2 billion in non compliance for international and large business and $2.2 billion for small and medium-sized enterprises; and
- The CRA completed 148 interprovincial tax avoidance cases, which resulted in more than $300 million worth of taxes being recovered.
This Tax Alert also included the following statistics regarding penalties and prosecutions imposed as a result of CRA enforcement activity:
- In 2008-2009, the CRA referred 164 income tax and GST/HST investigations to the Public Prosecution Service of Canada;
- The CRA referred 58 GST investigations to the ministère de la justice du Québec;
- These and referrals from previous years resulted in 323 convictions for fraud or tax evasion (including 66 cases in Quebec courts);
- Courts across Canada imposed fines of close to $29.2 million;
- The offenders were sentenced to more than 81 years in prison collectively; and
- Convictions were obtained in 98% of the cases prosecuted.
The indication seems to be that the CRA’s enforcement activity will likely increase in coming years.
The international movement towards mulilateral tax information exchange agreements and increased effort to combat tax havens in the form of groups such as the Seven Country Working Group on Tax Havens will also likely result in greater enforcement activity in upcoming years.
These actions by the Canadian Government and the international movement towards combating tax havens make the tax amnesty provided under the Voluntary Disclosures Program an important option to consider.
Under Canada’s Voluntary Disclosures Program, a taxpayer who makes a valid disclosure under the Income Tax Act will be required to pay taxes owing plus interest, but can avoid penalty or prosecution. Further the CRA has the discretion to grant partial relief in the application of interest against a taxpayer in respect years preceding the three most recent years of returns required to be filed.
Penalties and interest often add up to be a substantial portion of the amounts that must be paid to the CRA. As a result, disclosure through the Voluntary Disclosures Program, can save a taxpayer a significant amount of money.
Taxpayers are entitled to begin the voluntary disclosure process on an anonymous (“no-names”) basis. This allows the taxpayer’s lawyer, to have preliminary discussions with a Voluntary Disclosures Program officer to establish the terms of disclosure and what settlement options may be available. Should the taxpayer wish to proceed with the voluntary disclosure, the identity of the taxpayer must be disclosed by 90 days.
In order to qualify for the Voluntary Disclosure Program, the disclosure must meet the following four conditions.
- The disclosure must be voluntary. In order to be considered voluntary, the taxpayer must not be aware of or have knowledge of an audit, investigation or other enforcement action set to be conducted by the CRA, or initiated by the CRA, with respect to the information being disclosed.
- The disclosure must be complete. The taxpayer must provide full and accurate facts and documentation for the years to which the disclosure relates.
- The disclosure must involve the application of a penalty. A penalty, such as a late filing penalty, failure to remit penalty, instalment penalty, ommission penalty, or gross negligence penalty, must apply or have the potential to apply to the disclosure.
- The disclosure must relate to information that is at least one year past due.
For more information, please contact a member of the Tax Law Team at Pushor Mitchell LLP.
Tom Fellhauer 250-869-1165