The Canadian Bar Association (CBA) and the Chartered Professional Accountants of Canada (CPAC) released a joint document as part of the consultation process into plans by the Canada Revenue Agency (CRA) to tighten the VDP.
The Canadian government published its proposed changes to the VDP in June, with the consultation closing on 8 August.
The changes were largely based on recommendations put forward last December by the Ministry of National Revenue’s Offshore Compliance Advisory Committee (OCAC), which proposed a reduction in the relief available under the VDP.
According to revenue minister Diane Lebouthillier, the existing VDP is too lax and allows some individuals and companies to avoid paying what they owe.
The most significant change proposed by OCAC is that the consequences for the taxpayer of joining the programme will no longer be entirely predictable.
Instead, they depend on whether the taxpayer’s non-compliance was deliberate or accidental, and whether it qualified as ‘major’.
Less generous treatment will be granted to taxpayers whose noncompliance was willful and/or major.
“Risk of uncertainty”
The CBA/CPAC document says this will create considerable uncertainty for VDP users, thus removing one of the principal reasons for its wide take-up, and possibly discouraging future disclosures.
“The historical success of the VDP has in large part been a result of the fact that taxpayers applying under the VDP (and professional advisers) have been able to predict with a relative degree of certainty the implications and consequences of initiating a voluntary disclosure,” the document said.
“The proposed changes are likely to lead to considerable uncertainty as to the eligibility for relief in any given set of circumstances, and so may in fact create a systemic bias towards, and thereby encourage, continued non-compliance.”
Right to privacy
Another amendment to the VDP rules that has irritated Canadian practitioners is the one that requires applicants to name the professional adviser they are working with.
CBA and CPAC are urging the government to scrap this disposition, with the motivation that “revealing that the taxpayer received professional advice or the name of a professional adviser could be viewed as a waiver of solicitor-client privilege.”
Though the finance ministry’s consultation document only says the adviser’s name should ‘generally’ be included, the associations believe this could be interpreted very narrowly.
The result may be that, in some cases, “the acceptance of a voluntary disclosure application may depend on an applicant’s willingness to waive solicitor-client privilege, which has continually been found to be a central pillar of our legal system deserving of the highest judicial protection”.
Canada’s longstanding VDP gives taxpayers – including individuals, corporations, partnerships, and trusts – the chance to change a tax return they previously filed or to file a return that they should have filed.
Under the terms of the VDP, the CRA will grant taxpayers who disclose their assets relief from prosecution or from paying penalties.
However, they will still need to pay any tax due and interest owed.