The Power of Perspectives

The Canadian Bar Association

Kim Covert

The law should encourage people to do the right thing

August 31 2017 31 August 2017


Canada Revenue Agency’s Voluntary Disclosures Program is generally considered a win-win – people who’ve made errors on their taxes are given the opportunity to come forward and correct their mistakes, and the CRA collects taxes that otherwise have gone unpaid.

But proposed changes to the VDP have the potential to disrupt that balance, and could, when it comes to businesses collecting GST and HST, result in harsher penalties than if the errors were caught in a CRA audit.

The CBA has sent four separate submissions in response to the CRA’s proposed changes to the VDP: one from the Joint Committee on Taxation of the Canadian Bar Association and Chartered Professional Accountants of Canada which deals mainly with the effect on individual taxpayers; one from the Commodity Tax, Customs and Trade Section, which deals mainly with the effect on businesses collecting the GST/HST; and two from the Charities Law Section, one asking that the VDP and Draft Circular be amended to apply to non-profits, and the other stating that registered charities should not be included in it.

The two letters from the Charities Law Section are brief and to the point, while the submissions from the other two groups go into the government’s proposal in a great deal more detail. And while one deals primarily with individual taxpayers and the other with businesses, the two submissions come to many of the same overall broad conclusions.

Overall, the two larger submissions leave the impression that the proposed changes take a relatively fair and successful system – that maybe could use a little tweaking – and turn into a manifestly unfair system.

While the changes are part of the government’s stated intention of cracking down on tax cheats, both the Joint Committee and the Commodity Law Section agree that the changes as proposed will have the opposite effect of actually encouraging people not to report errors when they find them.

“The benefits of the VDP, which are shared by all Canadians, include the resultant tax revenues generated by the VDP and the increased likelihood of future compliance by those taxpayers who participate in the VDP,” the Joint Committee wrote. The proposed changes appear to signal a shift in policy away from “carrot and stick” to just “stick,” it says, and the proposed two-tier system will create uncertainty about the outcome of any voluntary disclosure.

“These uncertainties increase the likelihood that non-compliant taxpayers will be more willing to continue to ‘roll the dice’ and remain non-compliant, rather than face an uncertain outcome associated with entering the VDP,” the Joint Committee says.

Making some groups ineligible for the VDP based on characteristics of the group rather than evidence of culpable activity violates “the fundamental principle of fairness upon which our tax administration system is based and to which the government is committed,” the Joint Committee says.

The Commodity Tax Section notes that when it comes to GST/HST, the VDP is almost exclusively used by suppliers to correct inadvertent errors in charging, collecting or remitting the GST/HST.

“We are cognizant of the VDP’s goal of not rewarding non-compliance and not allowing registrants to intentionally avoid their legal obligations,” the Section writes. “However, the VDP should not put taxpayers in a worse situation than if the issue in question was discovered on audit rather than voluntarily disclosed.”

It is not reasonable, the Section says, to expect taxpayers to come forward voluntarily in that situation.

And that’s exactly what could happen if some of the proposed changes are implemented, the Section writes, offering as an example an instance where an error goes back more than four years and doesn’t involve misrepresentation, “the supplier’s potential GST/HST liabilities under Track 3 would be greater if the supplier voluntarily disclosed the error, than if the supplier assumed the risk of a normal GST/HST audit.”

Both the Joint Committee and the Commodity Tax Law Section make suggestions for clarifying ambiguous language and removing certain sections altogether. The two groups encourage the government to maintain no-name disclosures and don’t believe that advisors should have to be named in a VDP application.

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