For years, many accountants and tax lawyers, have been circulating advice to the effect that under the Canada Revenue Agency’s Voluntary Disclosures Program (“VDP”), commonly referred to as “Tax Amnesty” you cannot be prosecuted for tax related criminal offences if you file a VDP application before the CRA comes after you. That advice is wrong.
Under the Income Tax Act, the Minister of Revenue has a discretion to cancel or waive penalties and part of the interest that has accrued on tax owing. You can still, however, be prosecuted for tax evasion or related offences in the criminal courts, if you’re not careful.
First of all, the CRA’s Information Circular No. IC00 – 1R6 – Voluntary Disclosures Program (the “IC”),that this advice is based on, is not law, but only a statement of the CRA’s administrative practice. As such, any discussion with a VDP officer prior to reaching any agreement with CRA, is non-binding. It even states that in the IC. Under the heading “Pre-Disclosure Discussion” the IC states:
” 41. Taxpayers who are unsure if they want to proceed with an application are given an opportunity to participate in preliminary discussions about their situation on an anonymous basis to get insight into the VDP process, a better understanding of the risks involved in remaining non-compliant, and the relief available under the VDP. These discussions with a CRA official are for the benefit of the taxpayer; they are informal, non-binding, and may occur before the identity of the taxpayer is revealed. For complex technical reporting issues or questions, taxpayers will be referred to a CRA official in a specialized audit area to discuss their situation on an anonymous basis.
42. These discussions do not constitute acceptance into the VDP and have no impact on CRA’s ability to audit, penalize, or refer a case for criminal prosecution. ”
Secondly, if there is any discrepancy between the information that you provided to the CRA, and the information that the CRA verifies once you have come forward and identified yourself to them, the CRA can revoke any amnesty and prosecute you.
Section 28 of the IC sets out the conditions for a valid VDP application as follows:
” Conditions of a Valid Application
28. A VDP application must meet the following five conditions to be valid and to qualify for relief. The application must:
– be voluntary;
– be complete;
– involve the application or potential application of a penalty;
– include information that is at least one year past due; and
– include payment of the estimated tax owing.”
It then goes on to define when a disclosure is not “voluntary”.
” s 29 ….a VDP application will not be voluntary if:
– the taxpayer was aware of, or had knowledge of an enforcement action (see paragraph 30) set to be conducted with respect to the information being disclosed to the CRA;
– enforcement action (see paragraph 30) relating to the subject matter of the VDP application has been initiated against the taxpayer, or a person associated with, or related to, the taxpayer (this includes, but is not restricted to, corporations, shareholders, spouses and partners), or against a third party, where the purpose and impact of the enforcement action against the third party is sufficiently related to the present application;
or
– the CRA has already received information regarding the specific taxpayer’s (or a related taxpayer’s) potential involvement in tax non-compliance (for example, a leak of offshore banking or other information that names the taxpayer).”
The second criteria for a valid VDP application, namely that the application must be complete,is defined as:
” Complete
32. A taxpayer’s VDP application must be made for all relevant taxation years where there was previously inaccurate, incomplete or unreported information regarding their tax affairs, including any non-arm’s length transactions and circumstances.”
If any of the above conditions are not met, then the VDP application will be invalid. However, in the event of a subsequent prosecution, you will be deemed to have waived your right against self-incrimination under the Canadian Charter of Rights and Freedoms because you came forward voluntarily, and the information you provided to CRA can be used against you.
Because the possibility of prosecution is always there, it is important that when contemplating a VDP application, you retain a lawyer (not an accountant), who understands the criminal process and your Charter rights and how best to preserve them. An accountant cannot provide this protection to you. If an accountant or lawyer tells you that you cannot be prosecuted when you make a VDP application, get up and walk away from them immediately.
To view the full text of Information Circular No. IC00 – 1R6 – Voluntary Disclosures Program click here