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Aggressive CRA enforcement activity and increased exchanges of tax and financial information between different countries make the Voluntary Disclosures Program an important option for Canadian taxpayers 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. Disclosure through the Voluntary Disclosures Program can save a taxpayer a significant amount of money.

The trends suggest that the CRA’s enforcement activity will likely increase in coming years. The Government needs to increase the tax collected. Collectively, more taxes is easier for the Government then increasing tax rates. The Government is putting more resources into audit and collections. So if you have forgotten to report all of your income, whether in Canada, or outside Canada, you should be aware of the risks of being caught and consider taking advantage of the tax amnesty program in Canada.

The Canadian Government is also stepping up its coordination with other countries to combat the use of international tax havens. The international movement towards multilateral 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 or jail. 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.

  1. 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.
  2. The disclosure must be complete. The taxpayer must provide full and accurate facts and documentation for the years to which the disclosure relates.
  3. The disclosure must involve the application of a penalty. A penalty, such as a late filing penalty, failure to remit penalty, installment penalty, omission penalty, or gross negligence penalty, must apply or have the potential to apply to the disclosure.
  4. The disclosure must relate to information that is at least one year past due.

You may want to consider whether participation in the Voluntary Disclosures program is right for your tax situation. If you think it is an alternative you want to consider one of our experienced tax lawyers will review the pros and cons of participation the program with you. Should you wish to proceed with a disclosure, our tax lawyers will carefully draft submissions on your behalf to ensure that your rights are protected to the greatest extent possible.