3 June 2011 STEP Roundtable Q. 14, 2011-0401921C6 - 2011 STEP Conference - Q14 - Voluntary Disclosure

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Does voluntary disclosure only cover 10 years or could a taxpayer be subject to penalties that are more than 10 years old?

Position: Each case is unique and full disclosure of the non-compliance is required. The CRA can then look at each voluntary disclosure on a case by case basis. There are no legislative restrictions to assessing any year if the requirements of the applicable legislation are not met. The CRA will apply the legislation as it relates to the statute barred years and will assess income in the year it was earned.

Reasons: Legislation

2011 STEP Conference
June 2-3, 2011

QUESTION #14 – VOLUNTARY DISCLOSURE

We understand that because the Fairness Provisions can be exercised only for a ten-year period following amendment to subsection 220(3.1), CRA in handling Voluntary Disclosures may be precluded from waiving penalties which arise in respect of matters more than ten years old. For example, suppose that an individual had unreported income over a period of 15 years, and makes a voluntary disclosure. CRA may waive penalties and relieve interest in respect of the most recent ten years, but seems to be taking the position that nothing can be done with respect to the earlier years. Can you please clarify your guidelines in respect of Voluntary Disclosures and the levying of penalties in such circumstances?

(a) Does this mean, for example, that a Voluntary Disclosure will only cover ten years, being the period in respect of which CRA may waive penalties, or is there now an inherent limitation on the Voluntary Disclosure Program such that a taxpayer may be exposed to penalties and potentially prosecution in respect of matters more than ten years old?

(b) This would seem counter-intuitive and not conducive to promoting the Voluntary Disclosure Program. What, if anything, might be done about this?

CRA Response

A taxpayer must disclose the entire story surrounding the non-compliance.  That is all years and all unreported income must be included as part of the initial disclosure.  Only after reviewing the entire story can the CRA determine which years will require an (re)assessment.  This can only be done on a case by case basis and taking into account the materiality of the amounts disclosed.

There are no legislative restrictions to assessing any year if the requirements in the applicable legislation are met. As a result, the CRA will not provide assurances that they will not assess beyond 10 years. We will apply the legislation as it relates to statute-barred years and assess income in the year it was earned.

If we identify that the disclosure is not complete then there are consequences.  Don't come forward with half the information.  If we suspect there is income which has not been disclosed, we will ask more questions, gather more information and possibly open additional years, with the possibility of penalties being added.  We will also cross-reference amounts disclosed to third-party information at our disposal. If the disclosure is incomplete, it could be denied and referred to audit.  Please ensure we get the complete story up front.

As the situation described in the question is a result of the proper application of the legislation there is little the CRA can do at this time. The Department of Finance is responsible for the content of the legislation and concerns may be addressed to them.

Roger Filion
2011-040192