CRA tightens voluntary disclosures, targets offshore tax avoidance

TORONTO, Dec. 15, 2017 – Canadians who have intentionally avoided their tax obligations through offshore or sophisticated tax-avoidance schemes will no longer benefit from financial relief according to an announcement this morning by the Canada Revenue Agency. Just two days after Finance Minister Bill Morneau clarified income splitting tax rules, the CRA has announced the creation of a new, limited Voluntary Disclosures Program, that will affect the clients of Canadian tax accountants and lawyers.

Beginning March 1, 2018, the Limited Program will require payment of the estimated taxes owing as a condition to qualify for the program (this payment was not required in the past). It will cancel relief if it is subsequently discovered that a taxpayer's application was not complete due to a misrepresentation. It will also eliminate the process for taxpayers and authorized representatives to make disclosures on a no-names basis.

The press release from the office of National Revenue Minister Diane Lebouthillier specifically mentions the so-called "Paradise Papers," the leak of documents from the offshore law firm Appleby, that occurred in November 2017. The leak was notable for naming a high-profile advisor to Prime Minister Justin Trudeau as an Appleby client.

The CRA says it will "continue to restrict participation in the VDP if it has already received information on a taxpayer's (or a related taxpayer's) potential involvement in tax non-compliance — for example, a leak of offshore financial information such as the Paradise Papers, or other information that names the taxpayer."

The CRA says the Limited Program will consider applicants based on:

• whether efforts were made to avoid detection through the use of offshore vehicles or other means;
• the total dollar amounts involved;
• the number of years of non-compliance; and
• the sophistication of the taxpayer.

Corporations with gross revenue in excess of $250 million who will apply to the VDP will be considered under the limited program.

The CRA warns that its ability to detect non-compliance is improving. The new program will be reviewed after two years and may be tightened further, depending on results and feedback.

"The Government of Canada is committed to cracking down on tax evasion and aggressive tax avoidance to ensure a system that is responsive and fair for all Canadians," said the Revenue Minister in a statement. "The changes to the Voluntary Disclosures Program are part of these efforts, which will allow the Agency to crack down even further on those who are intentionally breaking the law. Because of our investments, the Agency will have the resources, the staff and the tools to gather information. In this light, the CRA will re-examine the VDP in the coming years, with the goal of further restricting the relief it offers."

Colin Ellis is the managing editor of Canadian Accountant.