On June 9, 2017, the Canada Revenue Agency (CRA) proposed significant changes to the Voluntary Disclosure Program (VDP) for both income tax, and GST/HST and excise tax compliance matters, including drafting GST/HST Memorandum 16.5, “Voluntary Disclosure Programs.” Due to complexities and differences between income taxes (including source deductions), and transaction-based taxes (such as GST/HST, and other excise taxes), the CRA has devolved the VDP rules so that they now are customized for each tax system. The VDP was designed to encourage registrants to come forward of their own volition to correct sales tax deficiencies. Since April 1, 2007, the VDP has lost much of its effectiveness as penalties, a condition of the current program, were eliminated for most GST/HST non-compliance issues. The new rules concerning GST/HST also provides different tracks for disclosures, contingent on the extent and severity of the non-compliance offense.
The new memorandum provides relief under the VDP for three separate tracks of non-compliance:
- Track 1 will provide relief for GST/HST “wash transactions” as described under GST/HST Memorandum 16.3.1, “Reduction of Penalty and Interest in Wash Transaction Situations”;
- Track 2 will provide relief for non-compliance for transactions not set out in GST/HST Memorandum 16.3.1 including reasonable errors, failure to file information returns, no gross negligence or deliberate avoidance of tax; or over-claimed rebates; and
- Track 3 will provide limited relief for major non-compliance situations including, but not limited to, GST/HST charged or collected but not remitted, large dollar amounts, multiple-years of non-compliance, among other areas.
With respect to Track 1, a “wash transaction” generally occurs where a supplier has not collected nor remitted tax on a taxable sale and the registered purchaser would have been entitled to claim a full input tax credit if the tax had been charged correctly.
The memorandum proposes that should a VDP applicant meet specific conditions, Track 1 and 2 applicants would be relieved of 100% of the penalties, and Track 3 applicants would have no penalty relief, but would also not be subject to a gross negligence penalty. To obtain this relief, the application must:
- be voluntary;
- be complete;
- involve the application or potential application of a penalty or interest;
- include information that is at least one reporting period past due; and
- include a payment of the estimated tax owing.
The memorandum also proposes relief from 100% of interest for Track 1 applications, 50% of interest for Track 2 applications, and no relief from interest for Track 3 applicants.
To be considered complete, a VDP application for a specific tax issue must be made for tax years or fiscal or reporting periods where the information was inaccurate, incomplete or unreported and include data covering:
- for Track 1, four years before the date the application is filed;
- for Track 2, six years before the date the application is filed;
- for Track 3, all relevant years.
The memorandum also provides information on how to file a VDP application using Form RC199, Voluntary Disclosure Program (VDP) Taxpayer Agreement. It also provides administrative guidelines and information concerning when a VDP application will be accepted, when it would be denied, and a Registrant’s Right of Redress.
The CRA launched a 60 day online consultation concerning the new VDP, beginning June 9, 2017. Canadians and industry stakeholders are invited to share their comments and suggestions on the new policy via email. This new memorandum is expected to be in effect after December 31, 2017.
For more information on the CRA’s consultation with Canadians on the Voluntary Disclosures Program, please visit their website.