It has now been two years since the new Voluntary Disclosures Program (VDP) rules came into effect (see our previous blog, VDP Overhaul Coming Sooner Than You Thought), which restricted the relief that taxpayers had previously enjoyed. We recently submitted a request to the Canada Revenue Agency (CRA) under the Access to Information Act and obtained new data on how the new program's first year (March 2018 to February 2019) compared to the old program's final year (March 2017 to February 2018).
The responses were interesting. Here are some highlights:
- Applications on the decline. The final year of the old VDP saw 18,191 applications, compared to 12,042 in the new program's first year, a 34% reduction. Of these applications under the new VDP, 7,935 were submitted by individuals, and 4,107 by other entities including corporations, partnerships and trusts.
- Rush before the deadline. The large number of applications in the old VDP's final year may be explained, in part, by a surge in applications between December 15, 2017, (the date of the policy change announcement) and February 28, 2018 (the last day on which the old VDP was effective). During this period, CRA received approximately 6,700 new applications, representing an increase of approximately 95% over the same period during the previous year.
- Response may be delayed. Partly on account of the backlog created by this influx of submissions, CRA's turnaround time for resolving VDP applications under the new rules is now approximately 350 days on average.
- Pre-disclosure discussions are rare. Taxpayers are rarely availing themselves of "pre-disclosure discussions", which are an opportunity to engage in an informal, non-binding dialogue with CRA to assess the merits of disclosure on an anonymous basis. In the first year of the new VDP, CRA engaged in only 412 pre-disclosure discussions with taxpayers. Recognizing that some of these pre-disclosure discussions likely did not lead to a formal application, it appears that only approximately 3% of taxpayers, at most, decided to start their disclosures anonymously.
- Many statistics remain untracked. Many of our queries were met with a common refrain: "VDP does not track this information". Most surprisingly, CRA indicated that it does not track the amount of tax or penalties that it collects under the new VDP. Other data points that are not tracked include (i) the number of "no names" discussions held under the old rules, (ii) whether the taxpayer requested relief under the "general program" or the more restrictive "limited program" under the new rules, and (iii) how many applications under the new rules have been referred to the Transfer Pricing Review Committee.
As expected, the new VDP has had a chilling effect on the flow of applications, though perhaps not as much as some practitioners had expected. Despite its more restrictive form, the new VDP remains a powerful tool for taxpayers seeking to reduce their liability in the face of tax non-compliance.
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