Voluntary disclosures drop under new VDP unreported income rules

TORONTO, August 3, 2018 – The Voluntary Disclosures Program (VDP) is no longer attractive to the clients of Canadian tax accountants and lawyers. That appears to be the outcome of more restrictive changes made to the VDP by the Canada Revenue Agency (CRA), an outcome predicted by many in the tax profession.

As reported by the CBC, which obtained statistics from the CRA under the Access to Information Act, Canadians with unreported income rushed to take advantage of an amnesty program in the 11 weeks prior to its closing on March 1, 2018: 

In those 11 weeks, 6,612 people scrambled to beat the deadline, compared with 3,432 who applied in the same period a year earlier. And in the two months following the far more restrictive regime of March 1, there were just 1,413 applications, down by 65 per cent from the same period a year previous, statistics supplied by CRA show.

The program was a lucrative one for the practices of tax accountants and lawyers, who say the CRA has killed a beneficial program that cost the Canadian taxpayer little, and brought billions of dollars into government coffers.

“The Canada Revenue Agency ends a year of blunders and backtracks with the most egregious misstep of all: the new, curtailed Voluntary Disclosures Program,” wrote Canadian Accountant columnist and tax lawyer David Rotfleisch of TaxPage.com last December.

According to CRA figures, the VDP drew close to 20,000 filings per year, uncovering roughly $1.5 billion annually. Typically, more than half the previously unreported income was related to income held in offshore tax havens, an aspect further highlighted with the release of the Panama Papers and subsequent Paradise Papers.

According to internal memos obtained by the CBC, the government believes that stricter audit and deterrence measures will offset the drastic drop in voluntary unreported income disclosures.

"This will be offset by ongoing improvements in our audit yield (which has grown 35 per cent in the past four years) and deterrence measures (such as electronic funds transfer reporting) that will be in place," says an internal memo obtained by CBC News. "As well, the reduced generosity of the VDP relief for serious income tax non-compliance is expected to help deter non-compliance going forward," says the May 26, 2017, document.

According to CRA spokesperson Heidi Hofstad, "By making the relief offered through the VDP less generous in certain circumstances, the CRA does anticipate that use of the VDP will decline as those who intentionally avoid their tax obligations have lost access to the relief provisions of the program."

"It is too early to accurately project the impact of the new policy on the number of future VDP applications,” Hofstad told the CBC.

Colin Ellis is the managing editor of Canadian Accountant.