Introduction – The Canada Revenue Agency Responds to the First Stream of Applications under the New Voluntary Disclosures Program (VDP)

On March 1, 2018, the Canada Revenue Agency (CRA) overhauled the Voluntary Disclosures Program (VDP). These new VDP rules applied to all disclosure applications submitted on or after March 1, 2018. For a more general overview of the Voluntary Disclosures Program, see our VDP webpage. And for a more detailed review of the new VDP rules that took effect on March 1, 2018, see our article "Upcoming Changes to the Voluntary Disclosures Program (VDP)".

From July through August of 2018, the CRA responded to the first stream of disclosure applications that taxpayers had filed under the new VDP rules.

The results were troubling.

CRA Requires Completed Tax Returns Upfront Otherwise It May Reject the Disclosure

In particular, during informal conversations with our experienced Canadian tax lawyers, the Canada Revenue Agency insisted that it would reject disclosure applications if the relevant tax returns weren't enclosed. The stipulation confirms that the CRA indeed seeks to render the VDP as inaccessible as possible for taxpayers. (The CRA will, however, grant 30 days for the first round of disclosing taxpayers to submit their returns. But this allowance shall cease once the CRA determines that taxpayers have caught on to the new program.)

A Misapprehension of the VDP Information Circular?

Notably, the CRA's approach to subsequent disclosure applications seems contrary to the new VDP information circular—making the administration's policy all the more concerning.

Information Circular IC00-1R6 (the "IC") sets out the Canada Revenue Agency's guidelines on the post-March 2018 Voluntary Disclosures Program.

Granted, paragraph 43 of the IC indicates that "[a]ll CRA returns, forms and schedules needed to correct the non-compliance must be included with the application."

Yet the IC contemplates that a disclosing taxpayer may require additional time to submit the completed tax returns. If a taxpayer needs extra time to submit documents, paragraph 33 asks the taxpayer to make a written request "for an additional specified period of time" upon submitting the disclosure application.

Likewise, paragraph 53 of the IC states that a taxpayer may, if necessary, submit "additional CRA-requested information and/or documentation to complete the application" up to 90 days from the day that the CRA received the VDP application. Albeit poorly drafted, the phrase "additional CRA-requested information and/or documentation to complete the application" presumably includes the relevant tax returns for the taxpayer's disclosure. After all, these documents are required to complete the disclosure and requested by the CRA in the IC itself.

Moreover, paragraph 54 permits the CRA to grant more than 90 days where (1) "the complexity of the application or other extraordinary circumstances" dictate and (2) taxpayer makes a written request.

So, the CRA's opinion appears puzzling. The IC clearly affords a taxpayer with the opportunity to submit tax returns after tendering the disclosure application. And although the CRA ultimately has discretion on whether it will allow a taxpayer's request for extra time to submit the returns, the blanket statements from VDP agents—namely, that the CRA will default to denying the disclosure when returns aren't enclosed—indicate not an exercise of discretion but an ousting of these very discretionary powers. Indeed, this sort of administrative decision- making may find itself vulnerable to a challenge under judicial review.

Tax Tips – Pursuing a Disclosure under the new Voluntary Disclosures Program

The Canada Revenue Agency looks determined to remove any doubt that it seeks to limit the availability of the Voluntary Disclosures Program.

As a result, if you need to correct your tax affairs, you should consult with an expert Canadian tax lawyer, who can carefully plan and prepare your disclosure application. A properly prepared disclosure application not only increases the odds that the CRA will accept your disclosure but also lays the groundwork for a judicial-review application to the Federal Court should the CRA unfairly deny your disclosure.