Release date: December 4, 2012
Guest: Jennifer Sinstead
Running time: 8:58 minutes
In the final episode of our “Frequent Business Traveller” series, Jennifer Sinstead focuses on the Canadian Revenue Agency’s Voluntary Disclosure Program.
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Sharon: Hi it’s Sharon Mitchell with PwC Canada for our fourth and final installment of our PwC podcast session on frequent business traveller issues, this one focussing on voluntary disclosure.
Here with us today is Jennifer Sinstead a Senior Manager within the PwC Human Resource Services practice. Jennifer specializes in helping companies and their employees manage the complex financial, tax and benefit matters associated with overseas postings in Canada, the U.S. and abroad. Welcome Jennifer.
Jennifer: Thank you Sharon.
Sharon: Jennifer, in the earlier episodes of the Frequent Business Traveller series, we touched upon many examples where companies and employees have generated tax compliance obligations as a result of, in some instances, very limited business travel into Canada. My question is, can anything be done to resolve a history of non-compliance without fear of penalties or possible prosecution?
Jennifer: I’m sure the reporting obligations discussed raised a few eyebrows amongst our listeners. The CRA does have a formal program in place to deal with past non-compliance matters. The Voluntary Disclosure Program or, “VDP” for short, promotes compliance with Canada’s tax laws by encouraging taxpayers to voluntarily come forward to correct inaccurate information or to disclose information not previously reported. If a valid disclosure is made and accepted by the CRA, the taxpayer will be required to pay the taxes or charges owing (plus interest) but no penalties will be assessed and the taxpayer will not face prosecution.
Sharon: Could you provide an example of where PwC may recommend a company come forward under the Voluntary Disclosure Program?
Jennifer: Sure Sharon. In our practice, we often come across situations where a non-resident company has had several of its employees commuting to Canada to work for years but the company has failed to remit source deductions for these employees and failed to file the annual T4 information returns. This is a common example where the VDP may be recommended.
Sharon: Now, is there a fee involved for the CRA to consider a disclosure submission?
Jennifer: Unlike similar disclosure programs abroad, there is no fee charged by the CRA to consider a disclosure submission.
Sharon: Jennifer, earlier you mentioned the term “valid” disclosure. What conditions must be met in order for the CRA to consider one’s disclosure “valid?”
Jennifer: The CRA is very clear that in order for a disclosure to be considered valid, four conditions must be met:
The first condition is that the disclosure must be voluntary. The CRA will not consider the disclosure to be voluntary if the taxpayer was aware of any current or impending audit or investigation by the CRA.
The second condition is that the disclosure must be complete. The CRA expects that accurate facts and documentation be disclosed for all previous tax years where there was inaccurate or unreported information.
The third condition is that the disclosure must involve the application or potential application of a penalty. Examples of penalties include a late filing penalty, a failure to remit penalty, or even a discretionary penalty.
The fourth and final condition is that the disclosure must include information that is more than one year overdue.
Sharon: Jennifer, this whole VDP process sounds a bit intimidating for a taxpayer who may have years of unsettled tax matters to just openly come forward without knowing whether their submission would even be accepted.
Jennifer: The CRA recognizes this Sharon, and they’ve provided an alternative to taxpayers who may be hesitant in coming forward with their unsettled tax matters. Rather than proceeding on a “named” disclosure basis where the taxpayer’s identity is stated on the submission, taxpayers may first choose to participate in preliminary discussions about their submission on a “no-name” basis. Typically, these discussions with the CRA are informal and are designed to learn more about the VDP process.
Sharon: Can a preliminary decision be made by the CRA with the information provided under a “no-name” submission?
Jennifer: Yes, and we have suggested this approach to many of our clients. Under a “no-names” submission if all the required information for a valid named disclosure is made available, except the name the taxpayer of course, then the CRA can review this information and provide a preliminary decision on the outcome of the disclosure. It’s important to note though, that in order for the CRA to provide a final and binding decision on the “no-name” disclosure, the identity of the taxpayer must then be revealed.
Sharon: I sense this would be a popular approach?
Jennifer: It is Sharon. You really have nothing to lose by first proceeding with your submission under a “no-name” basis. You can clarify the potential relief available under the VDP if you choose to go forward with a named disclosure and also assess the risks involved in remaining non-compliant if you choose not to proceed with a named disclosure.
Sharon: Let’s say you go through the VDP, and your submission is denied. Does the taxpayer have some recourse if they feel they are being treated unfairly, or if all the facts and circumstances have not been properly considered?
Jennifer: That’s a good question Sharon. If the taxpayer believes that the CRA acted unfairly or unreasonably in its denial of the submission, the taxpayer can request that the denial be reconsidered by the Director of the Tax Services Office where the disclosure was originally submitted. The request to review must be made in writing. Note that a second review will not be allowed if the disclosure was denied because the information to complete the disclosure was not submitted within the time stipulated by the CRA. In addition, the taxpayer may pursue further recourse through the judicial review process.
Sharon: Now that brings a question to mind that we did not touch on earlier. How much time does a taxpayer have to submit additional information to complete their disclosure?
Jennifer: Generally speaking, the CRA allows the taxpayer up to 90 days from the date that the CRA receives the original no-name or named disclosure, however, this can be extended at the CRA’s discretion.
Sharon: It certainly appears there are options one can consider if they find themselves non-compliant with past reporting obligations. I assume that you and your colleagues at PwC are able to assist companies assess their exposure to penalties and potential relief under the VDP?
Jennifer: That’s correct Sharon. We’ve worked with many companies on developing and implementing remediation plans to deal with matters of non-compliance including the use of CRA’s Voluntary Disclosure Program.
Sharon: Thank you for joining us today Jennifer.
Well, this marks the end of our “Frequent Business Traveller” podcast series. Hopefully you have found this subseries both educational and eye-opening as to the complex state of cross-border tax compliance in Canada. For additional PwC Human Resource Services practice information please visit our website at www.pwc.com/ca/hrs.
Through interviews with prominent PwC tax subject matter professionals, Tax Tracks is an audio podcast series that is designed to bring succinct commentary on tax technical, policy and administrative issues that provides busy tax directors information they require.