A new Canada Revenue Agency (CRA) directive is about to make it much harder for entrepreneurs to correct legitimate tax errors without significant repercussions.
The CRA recently proposed changes to the Voluntary Disclosure Program (VDP), an initiative that allows taxpayers to correct mistakes or oversights on their Canadian tax returns, or make new submissions, for up to 10 years without threat of penalty or prosecution. The agency proposes rolling back that relief as of December 31, 2017.
Under new proposed VDP rules, income tax disclosures will fall under two categories: General Program and Limited Program. The former will cover minor tax filing discrepancies and will still offer penalty and some interest relief. The Limited Program will cover VDP applications with major non-compliance violations. While taxpayers who fall under this category will still be protected from criminal prosecution and severe penalties for gross negligence, late-filing and other penalties, as well as any outstanding interest charges, will be applicable.
Examples of major non-compliance under the Limited Program include using offshore accounts or overseas investment vehicles as a tool to evade Canadian taxation, failing to pay large dollar amounts in outstanding taxes (with the definition of ‘large amount’ yet to be determined), extended non-compliance or using sophisticated tactics to unduly minimize taxation. A file could also be placed in the Limited Program category if a voluntary disclosure is made, but only after a CRA audit or continued calls for compliance.
What does this mean for your business or personal tax situation? Put simply, if you’ve neglected to pay taxes for any number of years, think you may have made major errors in tax filings, or have attempted through non-disclosure or aggressive planning to evade taxation, now is the time to come clean. Making a voluntary disclosure before the end of the year is absolutely crucial if you hope to avoid far more serious penalties and interest charges that could place your company’s bottom line, or your personal financial well-being, in jeopardy.
If you find yourself in just such a situation, perhaps because you’ve attempted to manage personal or corporate taxes on your own, now is the time to consult a qualified accountant (and possibly even a tax lawyer) to help you make a comprehensive voluntary disclosure. Because tax filings can be complex and time-consuming for entrepreneurs, we always recommend seeking professional assistance to get the job done right.
Marshall Egelnick, Managing Partner