The message from the Canada Revenue Agency (CRA) is loud and clear — and aggressive. Voluntary disclosure is easier than an audit — come clean or face the consequences.
The 12th national conference of the Canadian chapter of the Society of Trust and Estate Practitioners (STEP Canada) provided the platform from which the CRA offered its perspective on where its Voluntary Disclosure Program (VDP) now stands and how it can be made more effective.
“Our goal this year is to really put some strong messages out there to various groups about increasing the awareness of the VDP,” said Kevin Pratt, director, policy, planning and disclosure division, compliance programs branch, CRA. “There are a lot of people who do not know about the program.”
He said although the CRA is seeing tremendous intake and upward movement for disclosure, there remains plenty of room for improvement.
“We need to send a clear message about the consequences of the program as well,” he said making it clear that the CRA takes the carrot-and-stick approach to tax evaders. “We want to make sure the disclosure is upfront.”
Pratt warned the VDP is much easier and quicker than the audit process. “If these people are willing to come forward, they probably are the ones we need to put our audit efforts on. The VDP is much easier. The message is always there to come forward.”
The decline of bank secrecy, increasing tax information agreements and aggressive CRA efforts are making people realize that they can run, but they cannot hide. And they may be caught sooner than they think.
The CRA is also intensifying its efforts to integrate the VDP into all its future compliance plans. “The one area where we are really trying to push is to make sure VDP is part of all of our compliance activities and strategies,” said Pratt. “When we are looking at addressing the underground economy and offshore transactions, we want to make sure voluntary disclosure is upfront.”
VDP requires a taxpayer to provide complete information on all omissions outstanding at the time of the disclosure. “If we identify that (the disclosure) is not complete then there are consequences,” Pratt said. If a taxpayer comes forward with incomplete information, then the CRA completes the picture by way of referrals and audits. Pratt urged taxpayers to make sure their disclosure is full, valid and accurate. “That is the risk of coming forward: don’t come with half information.”
One of the objectives of the VDP is to inform Canadians about the risks and consequences of using jurisdictions with entrenched bank secrecy to avoid paying taxes, and to explain what the CRA is doing to fight abuse of such tax havens.
When the CRA looks at disclosures dealing with offshore income, it is looking both for tax returns and the foreign asset reporting returns, he said. “A disclosure for an offshore investment is going to be denied if (the taxpayer) is under audit and when (the CRA) has already started enforcement actions,” he said in an attempt to address misunderstanding among some taxpayers.
Although the vast majority of taxpayers voluntarily fulfill their tax obligations, some individuals and businesses look for ways to avoid paying their required share. For those who use offshore tax jurisdictions to conceal assets or dodge taxes, Pratt warned that the CRA is working with international partners to bring them to book.
The CRA has introduced tough penalties to demonstrate that it takes this form of tax evasion very seriously. “Penalties are being applied very seriously, and in large amounts, on offshore foreign asset reporting.” He said taxpayers had better include their foreign assets when filing their tax returns because the costs of failing to do so are substantial.
There are no separate rules that apply to offshore disclosures. “Rules for offshore disclosures are the same as those for domestic disclosures,” he said.