CRA's popular tax-amnesty program
Looser rules since Oct. 1 attract more applicants
Canadians who have neglected to pay their taxes to the Canada Revenue Agency (CRA) have been coming forward in droves to take advantage of new amnesty rules.
The CRA beefed up its so-called Voluntary Disclosure Program (VDP) on Oct. 1 last year to encourage more renegade taxpayers to come in from the cold.
Many remiss taxpayers had been shunning the program since 2018, the year a clampdown ended a one-size-fits-all approach that gave similar breaks to small players and to more sophisticated operators.
A government panel created to fight tax dodging, the Offshore Compliance Advisory Committee, had warned that the original rules could be seen as “overly generous,” especially with regard to those sophisticated tax filers.
So in 2018, CRA tightened the rules governing the interest and penalty relief available to those signing up for the VDP through declarations of previously undisclosed income.
The result was a sharp drop-off in the number of taxpayers applying for the program, to 9,800 applications in 2018-19 from 19,500 the year before, a decline of almost half.
The suddenly low take-up continued for seven years and prompted a second review of the Voluntary Disclosure Program to assess whether the tightening had gone too far.
The “current VDP policy may have inadvertently discouraged otherwise suitable taxpayers from using the program,” says an internal memo for François-Philippe Champagne, Liberal finance and national revenue minister.
The 2018 restrictions “resulted in lost opportunities for the CRA to increase tax revenues and to bring taxpayers back into compliance with low-cost interventions,” says the July 9 memo, obtained under the Access to Information Act.
A copy of the memo and internal VDP package is available for download here:
The agency also carried out opinion surveys, which found that “the general public does not trust that the VDP will provide enough benefit to disclosing an error or omission. … [The] incentives of the program are insufficient.”
So the program was again revamped, now with simpler language and targeted to continue excluding the bad guys – that is, “eggregiously non-compliant taxpayers” – while enticing more “well-intentioned taxpayers” back into compliance.
Under the program, taxpayers who are under audit or investigation are automatically ineligible because they’re not considered voluntary.
The relaxed rules kicked in Oct. 1 and early results show delinquent taxpayers are indeed flocking to apply. Internal statistics show some 1,000 applications were received in each of its first four months, October to January.
“When compared to the monthly average from the previous years, this shows an increase of approximately 40 per cent in applications received,” CRA spokesperson Kim Thiffault said in an email.
Any taxpayer not previously known to the CRA for undeclared income will get a break under the new rules, a reduction of 75 per cent in the interest payable on the late tax amounts, compared with 50 per cent under the previous program.
If CRA is already aware of a taxpayer’s potential non-compliance, and sends that taxpayer notice or a letter, a subsequent VDP application now will provide a 25 per cent reduction in interest owed compared with zero per cent under the old rules.
And both kinds of applications will not attract added penalties, whereas under the old program some would.
Some tax experts have welcomed the new rules, but are warning clients there are risks that CRA may not readily accept declarations under the program. For some taxpayers “the name of the game continues to be, hide the ball and just go on with your head down, hoping the CRA doesn’t find you or find your noncompliance,” tax specialist Robert Kreklewetz told Canadian Lawyer last fall.
Among the most high-profile beneficiaries of the VDP was former prime minister Brian Mulroney, who did not initially declare $225,000 in cash payments received from lobbyist Karlheinz Schreiber in the mid-1990s.
Under a generous early version of the VDP program, Mulroney was required to pay income tax on only half of the $225,000 when he finally declared the income to CRA in 1999.