Beware of Voluntary Disclosure/Tax Amnesty

Are you considering taking advantage of CRA’s Voluntary Disclosures Program? Is someone advising you to disclose? Notice to Reader. The gig is up on Voluntary Disclosure Program, even the most known law firm advertising tax amnesty is stating that they have just discovered that the VDP is a tax trap and are offering their own version of a tax amnesty proposition. Their idea although never tested in court, takes the position that doing a legal confession gives client-solicitor privilege. In any case, it this does not tell you that the VDP is very risky, then my mind boggles. I see this proclamation on radio and on the law firm’s web site as a form of confession. “We now realize that the VDP is risky.” I have been saying that for years. Now I have a law firm saying the same thing. I am now gratified. Read on and discover the inherent risks of participating in a Voluntary Disclosure. See short list of reasons to not do a VDP on the bottom of this web page. According to CRA, “the Voluntary Disclosures Program (VDP) allows taxpayers to come forward and correct inaccurate or incomplete information or to disclose information they have not reported during previous dealings with the CRA, without penalty or prosecution. A disclosure may be made for Income Tax and Goods and Services Tax/Harmonized Sales Tax (GST/HST) purposes, as well as for charges under the Softwood Lumber Products Export Charge Act, 2006, or the Air Travelers Security Charge Act.” On the surface, this may be tempting if you have knowingly withheld information that CRA might discover. But, hold on a moment. Isn’t this magnanimous gesture to waive penalties and prosecution more than a little out of character with CRA’s normal modus operandi? So it would seem, but that’s the strategy behind this program. It’s supposed to look like a sweet deal, when really, it’s a potential trap. From CRA’s perspective, the VDP is designed to collect money that the odds say they wouldn’t otherwise get. CRA’s only purpose is to collect as much money as they can. The amnesty program was designed, from the ground up, to increase profits. If the VDP weren’t turning a profit, the program would be sacked. So, what’s the catch? Well, to understand that, we have to look at the qualifying conditions that CRA imposes to gain entry to this program. Here’s how they describe them: A valid disclosure must meet four conditions. These conditions require that the disclosure be voluntary, complete, involve the application or potential application of a penalty, and generally include information that is more than one year overdue. If the CRA accepts the disclosure, the taxpayer will have to pay the taxes or charges owing, plus interest. However, the taxpayer will not be subject to penalty or prosecution for those amounts accepted as a valid disclosure. There are two catches. The first is that the disclosure must be accepted as valid, in order to avoid penalty and/or prosecution. If accepted, you will still have to pay whatever taxes and accrued interest your disclosure reveals. Only additional penalties and criminal charges can be potentially avoided. Depending on circumstances, this may not amount to a significant saving. But the big catch comes if your disclosure is not accepted. If it is rejected, all the information you disclosed can and will be used against you. Not only will you still be subject to the taxes and interest, but you will not be exempt from prosecution or penalties. Even if your application is accepted by CRA, you may still end up paying penalties, and there are other risks involved by you submitting all your financial information to CRA via a voluntary disclosure. You could find yourself in a 6 year audit. The risk is enormous. Allow me to digress for a moment. You need to carefully consider the source of information that you are using to make important decisions. Always remember to consider vested interests when you are taking advice. If the people giving you advice stand to benefit by you following their advice, you need to satisfy yourself that the advice is complete and adequate for you to make the appropriate decision. For instance, tax lawyers will almost certainly say that you need their services if you plan to apply for the VDP, if for no other reason than to be protected by their client privilege. Recognize this as a sales tactic. You may not need a lawyer at all, and you may be far better off not disclosing at all. I, too, have a vested interest in giving you this advice and hope it will persuade you to consider us handling your tax issues. What we offer may be more in alignment with your individual needs. While we can assist you with a Voluntary Disclosure, it is quite possible that we might advise against it, in terms of risk management, or that perhaps, in your case, a Voluntary Disclosure is not the best and safest way to disclose information to CRA. Here are some important factors to consider in deciding if VDP is a sensible solution. It does not matter how many years are involved when you file a VDP. Tax returns have to be filed for every year you have a net income, regardless of how many years are involved. There is a new CRA administrative policy with respect to the voluntary disclosure program, relating to ‘‘No Name’’ disclosures (NND). A NND is a very clever instrument that CRA uses to tempt tax evaders to disclose. It allows you to test the waters by submitting an application for VDP in which the participant is not named. Only the specific circumstances regarding that individual’s tax situation are disclosed in a manner that will not reveal the person’s identity. The CRA has 90 days to “rule” on whether they would accept the disclosure as voluntary. If they rule against it, then obviously, you would not proceed with a real disclosure. However, if they rule in favour of the NND, you may assume you are irrevocably qualified and accepted. Not so. A NND is not a valid disclosure until such time as the taxpayer is named. If a NND is made and an enforcement action is taken by any government agency before the taxpayer’s name is disclosed to the CRA, the disclosure will not be treated as a voluntary disclosure, even if the person’s name is disclosed within 90 days of the filing of the NND. If the CRA discovers that you were under some kind of investigation, be it criminal or civil, by ANY other authority during the 90-day period, and they rule that the NND is accepted, you will be shocked at the outcome. Even though they don’t know who you are when they accept the NND, once they find out and look up the information regarding your case, they will learn of the investigation or action that has already begun. This will allow CRA to reject the conditions of the VD. As an example, CRA has information exchange agreements with many agencies. The Workers Safety Insurance Board is one such entity. If you are subject to some enforcement procedure by WSIB then you will be denied the protection of a NND, once they discover who you are. Then, not only will you be vulnerable to the full CRA blast, but you will have opened yourself up to a complete audit for the entire duration of the tax years in question. In some cases, if the NND reveals that you are in another enforcement process, and CRA accepts that, then you may be okay with the VDP. In this type of situation, you would likely need a lawyer. In the case of Karia v. Minister of National Revenue, CRA accepted the NND and then changed their mind. The case went to Federal Court which ruled CRA wrong. The bad thing here is that most people will not go to court over tax matters. As in all dealings with CRA, only what is in writing will save your assets in the end. CRA is not your friend and they will look to ways to collect more money than you volunteer to disclose. They will look for reasons to deny things they previously agreed to. This is especially true when it comes to verbal information. CRA’s standard response to what they say is: if it is not in writing then it has no merit. You can be sure that CRA will be looking for reasons to deny your VDP, before and after the submission of your VDP. CRA has the authority to reject part or all of your VDP protection, at any time. CRA also has the authority under the new rules to forgive interest on the penalties, although, I would not hold my breath that it will happen to you. I think it is just fly bait. All it takes for CRA to revoke the protection of your VDP is one tiny little reason and you could have a major financial crisis on your hands. Even if there are no skeletons in your closets, you could still be subject to an audit. And if you are found in someway to be grossly negligent, or missed any other income, or claimed any bogus expenses, your VDP will be voided. The VDP program has been rife with inequities and ad hoc policy throughout its 38-year history. For starters, the 50% discount was available only in Quebec—a vagary the CRA’s spokespeople could not explain when contacted. In 2008, former Prime Minister Brian Mulroney disclosed that he received C$225,000 in cash payments from a German arms dealer in 2002. He ended up paying taxes on only 50% of the amount. There were no penalties nor was any interest charged to Mulroney. After the ensuing publicity, CRA told reporters at the Mulroney inquiry, in the interest of creating “consistency across Canada,” this 50% discount would be discontinued. It is interesting to note that the World Bank has voiced doubts about the benefits of tax amnesty programs in general, warning they encourage evasion by sending the message that enforcement measures are weak. “Unless an excellent and inarguable reason can be found for an amnesty,” the bank advises governments on its website, “don’t declare one.” The Voluntary Disclosure program moved from the Appeals department of CRA to the Audit department, on April 1, 2006. This move is indicative of what the VDP program is all about. The Audit department’s mandate is to get as much tax as it can, and the VDP is to forgive as much as possible, which creates a stunning conflict of interest. A VDP allows CRA to access a statute-barred year, which they normally could not. The statute, in this case, states that CRA cannot open an investigation for any taxation year after 3 years from the notice of assessment. A VDP extends the statute from 3 years to 10 years. CRA officials involved in a file can audit a normally statute-barred year even without any basis for the audit, other than having a signed voluntary disclosure. Any mistake you may have made can make opening a statute-barred year possible. CRA considers the disclosure to be an admission of misrepresentation due to the enumerated grounds, so you better be aware. CRA has used the VDP to open, audit and assess statute-barred years on Canadians doing VDs, under the authority of sub-paragraph 152(4)(a)(i), which states that the Minister may assess tax, interest or penalties, after the taxpayer’s normal reassessment period in respect of the year only if the taxpayer: (i) has made any misrepresentation that is attributable to neglect, carelessness or wilful default or has committed any fraud in filing the return or in supplying any information under this Act. This poses a very serious risk. If CRA audits you as a result of your VDP, and finds that you made any misrepresentation under this Act, you are in big trouble. There are other things to consider. You will need to disclose ALL your world-wide assets in a VD. If you have more than $100,000 (at cost) in foreign assets you are required to declare the assets on your income tax return and file a form T1135. Foreign assets are assets in any country other than Canada. Not declaring this on your VDP will void the protection, but not the resultant audit. If you have unreported income such as income from eBay sales, unclaimed barter income, unreported cash payments, phony expense claims, it could invalidate your VDP. Coming out of the darkness of unreported income is not as simple as suddenly completing an accurate tax return. A abrupt change in a financial figure on your return is a red flag that could cause an audit. A VDP does not mean that you won’t be audited; it just means that you may not have to pay penalties and interest on the penalties. On the other hand, you could still end up paying the full shot. So if you do a VDP, for sure you will need to cough up money. If you don’t do a VDP, there is a good chance you will never get caught. We are not suggesting you don’t come clean. Just be sure to come clean in the best possible way. An alternative would be to simply file a T1A Tax adjustment for the tax years in question. Then deal with the matter the normal way instead of doing the VDP and exposing yourself backwards and losing the 3 year statute-barred protection against audits. This allows you to come clean in a way where you can pretty much count on the results. Normally T1 Adjustments are just processed without gross negligence penalties. So this is a serious consideration as a best possible approach. Short List of Reasons why you should not file a VDP You could easily receive a Denial of a Disclosure Submission If it is determined, after the VDP officer has completed evaluating the disclosure submission, that any of the four validity conditions have not been met; the taxpayer would then be advised in writing that: The disclosure is being denied,

  1. The disclosed information may be referred to another CRA program area such as criminal investigations.
  2. The disclosed information may result in an assessment or reassessment, which could very well happen.
  3. Penalties and interest may be levied, “May” being the operative word here.
  4. In certain circumstances, an investigation and prosecution may be initiated. This while possible, is unlikely.
  5. You have signed up for a ten year audit.
  6. You can not object to the assessment. However you can go for a Judicial Review.
  7. You will be subjected to huge pressure for a fast pay off of your debt within one year.
  8. It is not as good as a proper T1 A as a solution. (Doing this right is critical.)
  9. Even if your VDP is accepted it may not save you interest.
  10. You likely would not get gross negligence penalties anyway.
  11. You were not going to get a criminal charge anyway!

Frankly I am 100% convinced that a VDP does not pass the Risk Management Sensibility Test in many cases. Don’t let panic or some scare mongering SOB scare you into irrational behaviour. Sure owing CRA money is a bad situation, but why risk make it worse with a VDP. There are much better ways to come in from the cold. Here is an article clearly showing that CRA will look to reject a VDP. By Stevan Novoselac & John Sorensen This article was published in the December 15, 2009 edition of Taxation Law @ Gowlings. In McCracken v. The Queen1 (“McCracken”), the Federal Court refused to overturn the Canada Revenue Agency’s (“CRA”) decision to reject a voluntary disclosure (“VD”) that was incomplete. The VD was incomplete because the taxpayer, Mr. McCracken, was waiting to get information to report his income from eBay, instead of reporting the income based on his banking records. The McCracken case provides taxpayers and counsel with guidance on the importance of managing and completing VDs in a timely manner. The four requirements for a valid VD are: 1. Voluntary: The VD must be initiated voluntarily and not as a result of a pending audit, investigation or other enforcement action. 2. Complete: The taxpayer must provide full and accurate facts and documents for all taxation years for which there was previously inaccurate, incomplete or unreported information. 3. Penalty: The VD must involve the application or potential application of a penalty. 4. One Year Past-Due: The VD must include information that is at least one year past due. Mr. McCracken was an eBay “Powerseller” with sales between 2000 and 2006 of approximately one million dollars.2 While Mr. McCracken had copies of his banking records, he requested further records from eBay to help him prepare amended income tax and goods and services tax returns. When eBay did not provide the requested records, Mr. McCracken’s counsel asked the CRA for an extension of time to complete the VD, which was granted. However, when the eBay records were still not forthcoming and a second extension was requested, the CRA refused. Mr. McCracken was accordingly denied relief under the CRA’s VD Program. Mr. McCracken requested a “second level review” of the CRA’s decision to deny his VD and a further 60 days to complete the VD. Almost six months after requesting the further review, the VD had still not been completed, and in a conversation with Mr. McCracken’s counsel, the CRA indicated that it remained open to receiving Mr. McCracken’s amended tax returns based on his banking records. No returns and supporting documents were filed, ostensibly because eBay had not provided the requested records. Ultimately, the CRA’s patience simply ran out and the earlier decision to reject Mr. McCracken’s VD was maintained, thereby substantially increasing Mr. McCracken’s exposure for tax, interest and penalties. Mr. McCracken brought an application before the Federal Court to challenge the CRA’s decision to reject his VD. The Court however held that Mr. McCracken and his counsel were given “ample opportunity” to provide information and make submissions and that the CRA’s decision to reject the VD was made fairly on the basis of the evidence and arguments provided. In the Court’s view, Mr. McCracken had the means at his disposal to make a reasonable effort to complete the VD. The Court further held that the CRA’s decisions on VDs should be shown deference and given “broad latitude”. The CRA’s decision was upheld as reasonable and the Court declined to intervene on Mr. McCracken’s behalf. The Court criticized some of the CRA’s apparent mistakes on the file which, although immaterial, were said to demonstrate incompetence and lack of attention. The Court also stated that the same criticism could be made of some of the actions taken on behalf of Mr. McCracken. The McCracken case illustrates that although the CRA’s VD program is intended to provide taxpayers with relief, the onus remains on taxpayers and their counsel to provide required information and documents on a timely basis. A failure to do so within defined timelines can be fatal. The Auditor General’s Take on the Voluntary Disclosure Program. Read through this carefully taking note where I have highlighted important points. (My comments are in brackets) If you are considering the Tax Amnesty (Voluntary Disclosure Program) then you need to look very carefully at the potential pitfalls. Look at the words carefully. You will see lots of room to invalidate a disclosure and to play with penalties and interest. Do not think for one instant that there is a safe easy way to come clean with CRA. Remember it is like robbing a bank and offering to give the money back under a deal…. the bank will want their money, but they would still like you to go to jail. The reality is CRA may just treat you like a bank robber. Take care and read this thouroughly! Voluntary Disclosures Program Response from taxpayers and registrants has been good 6.45 The Voluntary Disclosures Program allows taxpayers and GST (or HST) registrants to correct inaccurate or incomplete information previously reported to the Agency, or to disclose information not previously reported, without penalty or prosecution and sometimes with reduced interest. Its goal is to promote compliance with the tax laws. (One has to look at this program very carefully to ensure that they don’t get in a mess where the only option is bankruptcy.) 6.46 The program has been around for many years. It was administered by the Investigations Division of the Agency until 1999, when it was transferred to the Appeals Branch as part of the Agency’s fairness initiative. An information circular published in 1973 indicated that taxpayers who made a complete and voluntary disclosure would not be prosecuted or assessed penalties for gross negligence. This policy was extended to GST registrants in 1991. Amendments to the Income Tax Act, introduced in 1991 as part of the government’s fairness initiative, gave the Minister of National Revenue the authority to waive or cancel any interest or penalty payable under the Act. An updated information circular on the program was published in 2000 and revised in 2002. 6.47 The number of voluntary disclosure requests increased from 2,500 in 2000–01 to 6,100 in 2003–04; the associated federal income tax and GST (or HST) assessments increased from about $140 million to an estimated $459 million. The $459 million is unusually high, due to two large disclosures. The Agency’s records show that the issues most frequently disclosed by taxpayers and registrants are

  • domestic business income not previously reported;
  • failure to collect and remit GST;
  • information returns not previously submitted;
  • foreign wages and benefits not previously reported; and
  • domestic and foreign interest and dividends not previously reported.

6.48 The Agency has actively promoted the program in recent years and attributes at least some of the increase in disclosures to that promotion. We note that while it is fairly easy to find information about the program on the Agency’s Web site, the information is limited to the information circular published in September 2002, although the program has seen several changes since that circular was published (see examples in paragraphs 6.63 and 6.66). The changes are reflected in guidelines to staff but have not been made public so that all taxpayers and registrants would have equal access to the Agency’s policies for the program. 6.49 The Agency reviewed its administration of the program and reported the results of that review internally in February 2004. The review highlighted the inconsistent administration of the program across the country, the need to revisit certain policies such as “no-name” or anonymous disclosures (see paragraph 6.59), and the need to capture and analyze performance information to manage the program effectively. The Agency has developed an action plan to address the issues raised in the review and is beginning to implement it. The way the program’s legislative authority is being used raises concerns. 6.50 The Agency notes that the legislative authority for the program is subsection 220(3.1) of the Income Tax Act and sections 88 and 281.1 of the Excise Tax Act. These authorities are similar; essentially they allow the Minister of National Revenue to waive or cancel all or any portion of any penalty or interest otherwise payable under the Acts (amounts waived have not yet been charged; amounts cancelled have already been assessed). 6.51 When subsection 220(3.1) was introduced in 1991, the Department of Finance told Parliament in its Technical Notes that the Minister’s discretion to waive or cancel penalties and interest would generally be used in cases where taxpayers had encountered extraordinary circumstances that were beyond their control. The Department gave some examples of extraordinary circumstances:

  • natural or human-made disasters such as flood or fire;
  • civil disturbance or disruption of services, such as a strike;
  • recent serious illness or accident that prevented or delayed the filing of a return or making of a payment; and
  • erroneous information received from the Agency in the form of incorrect written answers or errors in published information.

6.52 Further, Parliament was told that the Minister would not use the provision unless the taxpayer had taken a reasonable amount of care in attempting to comply with the requirements of the Act. The Department said that if the taxpayer had delayed paying or complying because of neglect or lack of awareness, the penalty or interest would not be cancelled or waived. 6.53 We support the goals of the Voluntary Disclosures Program and acknowledge the good response from taxpayers and registrants. However, we are concerned that the Agency has gone beyond what Parliament was told the legislation supporting the program would be used for. The overall thrust of the Department of Finance’s Technical Notes related to subsection 220(3.1) of the Income Tax Act is that the provision is to be used to provide some relief to taxpayers when they find themselves in extraordinary circumstances that are generally beyond their control. In the case of the Voluntary Disclosures Program, many of the disclosures relate to income that was intentionally never reported. Using subsection 220(3.1) to waive the penalties and some of the interest on those disclosures clearly goes beyond the overall thrust of the Technical Notes and may go beyond what Parliament intended the subsection to be used for. Administration of the program has inconsistencies 6.54 Administering the program is a difficult balancing act. On the one hand, officers want to encourage taxpayers and registrants to correct past errors or omissions and become compliant. On the other hand, they need to ensure that the program is fair to compliant taxpayers and registrants and is not seen as a free ride or a reward for non-compliance. This calls for a lot of judgment on the part of officers, and solid support from headquarters, to ensure that the balance is maintained and the program is administered consistently across the country. We found that the program is not administered consistently, and we are concerned that the balance is not being maintained. 6.55 Changing use of the program. The information circular says that taxpayers and registrants may use the program to correct inaccurate or incomplete information or to disclose information not previously reported, without penalty or prosecution. Officers told us that they thought the primary goal of the program was to encourage those who had been evading tax to come forward and set the record straight without fear of penalty or prosecution. In many ways, the information circular and the guidance given to the officers reflect this view. However, officers find themselves handling more and more cases of taxpayers and registrants who want to correct errors made on past returns without incurring a penalty. 6.56 Officers need to use a lot of discretion and judgment in dealing with these different types of disclosures. In some offices, the staff administering the program may not have enough experience and training to exercise their discretion in a way that promotes the consistent administration of the program across the country. Further, there is no job description or classification for officers of the program and no specific training requirements; most Tax Services Offices are using appeals officers. We note that the Agency recently provided its officers with a Web-based self-training module on the program. 6.57 Enforcement actions invalidate a disclosure. The information circular says that a disclosure may not qualify as a voluntary disclosure if it is found to have been made with knowledge of an audit, investigation, or other enforcement action initiated by the Agency. We found that officers checked to see whether there was any enforcement action underway before approving a voluntary disclosure. In most cases this was a relatively easy task. In some cases an enforcement action had started but the taxpayer or registrant had been unaware of it, so the disclosure could (does not mean would) still be considered voluntary. (this is a vary dangerous area for participants) 6.58 In a few cases, the taxpayer or registrant was aware that an audit was underway. In such situations, officers are advised to use their discretion in determining how closely the audit relates to the voluntary disclosure the taxpayer or registrant has attempted to make. (What this means is you are vulnerable to the whim of an auditor) Only if there is a close connection will the disclosure be considered invalid. For example, if auditors were doing a restricted audit (an audit that focuses on one to three issues) of income tax issues and the taxpayer/registrant wanted to make a voluntary disclosure related to GST, the disclosure would probably be considered valid because it is unlikely that the audit would have discovered a GST issue. ( I would not count on this… I think it would be discovered. )Given the changing use of the program, it is likely that officers will have to make more of these judgment calls. 6.59 Anonymous or “no-name” disclosures. The information circular points out that those who are unsure that they want to make a voluntary disclosure are entitled to discuss their situation anonymously or as a hypothetical case. We found inconsistencies in the application of this policy from office to office. 6.60 The program provides protection from penalties and prosecution on the understanding that the disclosure is voluntary, complete, and not triggered by an Agency enforcement action such as an audit. In the case of an anonymous disclosure, it is not clear when that protection begins. Some officers told us they would give protection from the date of the first contact, when they would likely have little information about the taxpayer or registrant, the amounts involved, and whether the disclosure would even qualify under the program. Other officers told us they would give protection only from the date when they had enough information to determine that the disclosure could be accepted under the program. Still other officers felt that no protection should be provided until the name of the taxpayer or registrant was revealed. 6.61 The guidelines state that protection should be granted from the date on which the taxpayer or registrant is identified or when the Client Agreement Form is signed, whichever date is earlier. There is a risk in providing protection too early, before the officer has enough information to determine that the disclosure can be accepted under the program. But being too strict risks discouraging non-compliant taxpayers and registrants from coming forward. 6.62 We noted one GST case that highlights the difficulties with anonymous disclosures and enforcement actions (see A voluntary disclosure of goods and services tax). The issues the Agency had to deal with were the effective date of protection for an anonymous disclosure and whether an enforcement action had been initiated before that date. Complicating this case was the difficulty of calculating the amounts involved and the length of time it took from the initial contact to the disclosure of the name of one of the companies involved. As we have noted, applying the program is a balancing act. At the same time, we believe that taxpayers and registrants should have to identify themselves fairly early if they want to receive the program’s protection from penalties and prosecution. 6.63 Interest relief. While the information circular makes no mention of interest relief under the program, the guidance given to officers does—it says that taxpayers and registrants are expected to pay a reasonable amount of interest. But it also authorizes officers to consider relief of part of the interest charged on assessments of older-year returns. In particular, officers may consider reducing the interest rate by 4 percent for income tax assessments on the years preceding the latest three years for which returns were required. For example, a taxpayer voluntarily discloses that she did not report dividend income from an offshore investment for the years 1995 to 2002. Using the guidance, the officer would consider reducing the interest rate by 4 percent for the years 1995 to 1999. The guidance goes on to say that there may be exceptional circumstances that warrant interest relief of more than 4 percent, but it does not give any criteria to consider in making that decision. 6.64 We found that officers were automatically reducing the interest rate by 4 percent on all voluntary disclosures that covered more than three taxation years, without considering whether the interest that would then be paid was a reasonable amount based on the nature of the disclosure. Headquarters officials had advised them to proceed in this way so that the rate of interest paid on voluntary disclosures would be the same as the government’s Treasury Bill rate over the short term. 6.65 Inconsistency with the “fairness provisions.” Under legislation referred to as “fairness provisions,” the Agency can waive or cancel all or part of any interest or penalty owed by a taxpayer because of a delay or error by the Agency, circumstances beyond the taxpayer’s control, or the taxpayer’s inability to pay. The goal is to help taxpayers resolve problems that arise in these situations. Fairness requests are handled by staff at all Tax Services Offices and Tax Centres. Each request is considered separately, and the decision takes into account the facts presented by the taxpayer. The Appeals Branch has overall responsibility for coordinating the use of the fairness provisions. In our view, the policy of automatically providing interest relief for voluntary disclosures is inconsistent with the Agency’s practices in providing interest relief under the fairness provisions, because it does not take the facts of each disclosure into consideration. 6.66 Years to be assessed. Voluntary disclosures must be complete disclosures. (translation: miss some information and your disclosure, becomes not valid) However, some amounts that are disclosed may not be assessed. While the information circular does not discuss this, the guidance given to officers does. For example, if a taxpayer knowingly has not reported income from offshore investments for the last 20 years, the taxpayer must disclose this and the officer has to determine how much of that income is to be assessed. Making that decision means finding the balance between what the taxpayer owes and what the taxpayer is willing to pay to become compliant, taking into account that the result also has to be fair to taxpayers who have been compliant. The guidance states that when omissions have occurred in any of the most current six years for which taxes are due, the officer should include those years in the assessment. (and you have do now disclose this information even though it would normally be statute barred) But when the omissions also occur in years other than the most current six, the officer must determine whether other years should also be included by considering factors such as how material the omission is in relation to the amounts originally reported:

  • whether a significant portion of the omission relates to years prior to the most current six;
  • the taxpayer’s or registrant’s compliance history; and
  • how long the taxpayer or registrant has been non-compliant.

6.67 We found that there were significant inconsistencies in the way this guidance is followed across the country. Taxpayers and registrants in similar circumstances are not being treated consistently. Analysis of results is needed 6.68 The Agency is collecting some information on the Voluntary Disclosures Program. Each quarter, officers report the number of cases closed, the types of issues disclosed (such as failure to collect and remit GST), and the amounts of additional tax assessed. However, the Agency is not using this information in any detail to determine whether the program is meeting its objectives or to help it manage the program. In part this is because officers are not reporting the information consistently, and there is no computer program to roll up the results. 6.69 Nor is the Agency analyzing the types of cases being processed under the program. This is important information because it can indicate sources of non-compliance, information that would help the Compliance Programs Branch improve its compliance programs. For example, in 2003–04 the largest number of voluntary disclosures dealt with previously unreported domestic business income. This would suggest that the Compliance Programs Branch should review the work it does to detect unreported domestic business income. 6.70 The Agency is not following up on taxpayers and registrants who have come forward through the Voluntary Disclosures Program to ensure that they remain compliant. This is particularly important to prevent misuse of the program. **** Personally I think that this Voluntary Disclosure program is a pretty risky maneuver. 

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