For discussion purposes only - Draft GST/HST Memorandum 16.5 – Voluntary Disclosures Program
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Draft GST/HST Memorandum 16.5 – Voluntary Disclosures Program
This memorandum supersedes Information Circular IC00-1R5, Voluntary Disclosures Program, dated January 2017 and applies after December 31, 2017.
The purpose of this memorandum is to provide information about the Canada Revenue Agency's Voluntary Disclosures Program (VDP) as it applies to the goods and services tax and the harmonized sales tax, excise tax, excise duty, softwood lumber products export charge and air travellers security charge. The information in this memorandum is a guideline as to how the Canada Revenue Agency administers the Voluntary Disclosures Program. It is not intended to be exhaustive, and is not meant to restrict the spirit or intent of the legislation, or to unduly limit the discretion of the Minister of National Revenue.
For information regarding the Canada Revenue Agency's Voluntary Disclosures Program as it applies to income tax disclosures, please refer to Income Tax Information Circular IC00-1R6, Voluntary Disclosures Program.
The information in this publication does not replace the law found in the Excise Tax Act, the Excise Act, 2001, the Air Travellers Security Charge Act, the Softwood Lumber Products Export Charge Act, 2006 and their regulations.
Table of Contents
- Voluntary Disclosures Program Tracks
- Relief Provided under the VDP
- Circumstances Where Relief May be Considered
- Circumstances Where Relief Will Not be Considered
- Conditions of a Valid application
- Second VDP application by the Same Registrant
- Making a VDP application
- acceptance of a VDP application
- Denial of a VDP application
- Registrant’s Right of Redress
- Related CRa Policy
- Need More Information
1. In this memorandum, the term “registrant” includes a goods and services tax/harmonized sales tax (GST/HST) registrant/claimant, an excise duty licensee/registrant, an excise tax licensee, an excise tax refund claimant, an air travellers security charge registrant, a designated air carrier, a registered exporter of softwood lumber products and any other person who is required to report or remit an amount as or on account of tax.
2. The Minister of National Revenue (Minister) has discretionary authority to provide relief under the following provisions:
- sections 88, 281.1 and 284 and subsection 284.1(3) of the Excise Tax Act;
- section 4 of the Credit for Provincial Relief (HST) Regulations SOR/2011-57;
- sections 173 and 255.1 of the Excise Act, 2001;
- sections 30 and 55 of the Air Travellers Security Charge Act; and
- section 37 of the Softwood Lumber Products Export Charge Act, 2006.
3. Through the Voluntary Disclosures Program (VDP), a registrant can make an application to correct inaccurate or incomplete information, or to disclose information not previously reported. For example, the application may relate to undisclosed tax liabilities, improperly claimed input tax credits, refunds or rebates, unpaid tax or net tax from a previous reporting period, or any other amount not previously reported to the Canada Revenue Agency (CRA). It may also relate to incomplete information on a return for a reporting period or a failure to file information returns as and when required under the relevant legislation.
4. This memorandum explains how a registrant may make an application, including the proper information and documentation needed to support such an application. This memorandum also outlines the administrative guidelines the CRA will follow in deciding whether to accept the application under the VDP.
Principles of the VDP
5. The VDP promotes compliance with Canada’s tax laws by encouraging registrants to voluntarily come forward and correct any previous errors or omissions in their tax affairs. If a VDP application is accepted by the CRA, the registrant will have to pay the taxes, duties or charges owing, plus interest in part or in full, but would be eligible for relief from prosecution and, in some cases, from penalties that they would otherwise be subject to under the legislation.
6. The majority of registrants comply with their obligations and an important principle of the VDP is that the relief is fair and is not considered to reward non-compliance. The VDP is not intended to serve as a vehicle for registrants to intentionally avoid their legal obligations under legislation administered by the CRA.
Voluntary Disclosures Program Tracks
7. The VDP has three tracks for disclosures relating to GST/HST, excise tax, excise duty, softwood lumber products export charge and air travellers security charge. The determination of whether an application should be processed under Track 1, 2 or 3 will be made on a case by case basis, using the criteria set out in paragraphs 8 to 10 below.
Details of the relief provided under the VDP for the three tracks is described in paragraphs 11 to 17 below.
Track 1 – GST/HST wash transactions
8. Track 1 provides relief for applications involving GST/HST “wash transactions” that are eligible for a reduction of penalty and interest under the policy set out in GST/HST Memorandum 16.3.1, Reduction of Penalty and Interest in Wash Transaction Situations.
For examples of eligible “wash transactions”, please see that memorandum.
Track 2 – General program
9. Track 2 provides relief for applications disclosing non-compliance or errors including, but not limited to, situations involving:
- GST/HST wash transactions that are not eligible for a reduction of penalty and interest under the policy set out in GST/HST Memorandum 16.3.1 (for examples of non-eligible “wash transactions”, please see that memorandum);
- reasonable errors;
- failure to file information returns;
- no gross negligence or deliberate avoidance of tax; or
- over-claimed rebates.
For example, in January 2017, while preparing its financial statements for the year ended December 31, 2016, a registrant discovers that due to an accounting error, its GST/HST return for the quarterly reporting period ending June 30, 2016, overstated its ITCs. The registrant had claimed ITCs that it had already claimed in the previous reporting period.
Track 3 – Limited program
10. Track 3 provides limited relief for applications disclosing major non-compliance including, but not limited to, situations involving:
- GST/HST charged or collected but not remitted;
- active efforts to avoid detection (for example, persons involved with the underground economy);
- large dollar amounts;
- multiple years of non-compliance;
- a sophisticated registrant;
- a disclosure made after an official CRA statement regarding its intended focus of compliance or following CRA correspondence or campaigns;
- deliberate or wilful default or carelessness amounting to gross negligence; and
- any other circumstance in which a high degree of registrant culpability contributed to the failure to comply.
For example, a person making supplies of consulting services which are taxable at the rate of 13% charged and collected GST/HST on the taxable supplies, however, the person did not register for GST/HST and never remitted the GST/HST collected.
Relief Provided under the VDP
11. If a VDP application is accepted as having met the conditions set out in paragraph 22, it will be considered a valid disclosure. The registrant may be eligible for relief from penalties as follows:
- for Tracks 1 and 2, 100% penalty relief; and
- for Track 3, no penalty relief, however, no gross negligence penalty will be applied even where the facts establish that the registrant is liable for such a penalty.
12. Relief from penalties is subject to the limitation period explained in paragraph 15.
13. In addition to penalty relief, if a VDP application is accepted by the CRA, the registrant may be eligible for relief from the application of interest in respect of assessments resulting from the application as follows:
- for Track 1, 100% interest relief;
- for Track 2, 50% of the applicable interest will be relieved;
- for Track 3, none of the applicable interest will be relieved.
14. Relief from interest is subject to the limitation period explained in paragraph 16.
Limitation period on discretion for relief of penalties and interest
15. The Minister’s ability to grant penalty relief is limited to any tax year (or fiscal or reporting period, as applicable) that ended within the previous 10 years before the calendar year in which the application is filed.
16. The Minister’s ability to grant interest relief is limited to the interest that accrued during the previous 10 calendar years before the calendar year in which the application is filed. This is the case regardless of the tax year (or fiscal or reporting period, as applicable) in which the tax debt arose. For more information, go to Revised 10-year limitation period for interest relief.
17. In addition to penalty and interest relief, if a VDP application is accepted by the CRA, the registrant will not be referred for criminal prosecution with respect to the disclosure (i.e., for tax offences).
Providing VDP Relief
18. The Minister is not required to grant relief in respect of all applications made to the VDP. Each request will be reviewed and decided on its own merits. In exercising discretion, the Minister is guided by principles of procedural fairness which require decisions to be made in good faith, in a manner that promotes the objects of the relevant legislation, without discriminating between applicants on the basis of irrelevant considerations. This memorandum provides some general guidelines on some of the relevant considerations in the exercise of this discretion. If relief is denied, the CRA will provide the registrant with an explanation of the reasons for the decision.
19. The CRA reserves the right to audit or verify any information provided in a VDP application whether it is accepted under the VDP or not. If the CRA finds there is any misrepresentation due to neglect, carelessness, wilful default, or fraud, a reassessment can be issued at any time for any tax year or fiscal or reporting period, not just those included in the application. Furthermore, any relief that may have been granted under the VDP will be cancelled as a result of the misrepresentation.
Circumstances Where Relief May be Considered
20. Relief under the VDP may be considered if a registrant:
- failed to fulfil their obligations under the legislation noted in this memorandum;
- failed to charge, collect or report GST/HST for any reporting period;
- improperly claimed input tax credits, refunds or rebates;
- provided incomplete information on a return for a reporting period; or
- failed to file information returns.
Circumstances Where Relief Will Not be Considered
21. The following applications will generally not be accepted under the VDP:
- applications where a registrant is attempting to increase the amount of input tax credits, other credit adjustments or rebates without any corresponding increase in tax liability in the application period;
- applications relating to an election — there are provisions in the various acts administered by the CRA which entitle a registrant to choose or “elect” a specific tax treatment of certain transactions, for example, elections for nil consideration between closely related persons (under section 156 of the Excise Tax Act)should be completed using Form RC4616; and
- applications where a person is in receivership or has become bankrupt.
Conditions of a Valid Application
22. A VDP application must meet the following five conditions in order to qualify for relief. The application must:
- be voluntary;
- be complete;
- involve the application or potential application of a penalty or interest;
- include information that is at least one reporting period past due; and
- include payment of the estimated tax owing.
Application must be voluntary
23. A VDP application will not qualify for relief, subject to the exceptions in paragraph 25, under the “voluntary” condition if the CRA determines:
- the registrant was aware of, or had knowledge of, an audit, investigation or other enforcement action set to be conducted by the CRA or any other authority or administration with respect to the information being disclosed to the CRA; or
- enforcement action relating to the subject matter of the VDP application was initiated by the CRA, or any other authority or administration, against the registrant or a person associated with, or related to, the registrant (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.
24. For purposes of the VDP, an “enforcement action” may include, but is not limited to:
- requests, demands or requirements issued by the CRA, relating to unfiled returns, unremitted taxes/instalments or non-registrants (although these actions may only pertain to one specific year or fiscal or reporting period, the procedure will be considered to be an enforcement action, for purposes of the VDP, for all tax years or fiscal or reporting periods);
- requests, demands or requirements that have been issued with reference to other tax affairs of the registrant, partners of the registrant, trusts in which the registrant is a settlor, trustee or beneficiary, or corporations associated with, or related to, the registrant;
- direct contact by a CRA employee for any reason relating to non-compliance (for example, unfiled returns, audit, collection issues); and/or
- an audit, investigation or other enforcement action by another authority or administration, such as, but not limited to, a police force, securities commission or provincial authority.
25. Not all CRA-initiated enforcement action may be cause for a VDP application to be denied by the CRA. Examples of this include:
- a letter from the CRA inviting the taxpayer to use the VDP to correct their tax affairs; however, this letter would be a factor that could result in the application being considered for Track 3 treatment;
- an audit of a registrant’s files related to a source deductions (payroll) issue at the same time as the registrant is submitting a VDP application for an amount of GST/HST which was collected but not remitted to the CRA. There may be no correlation between these two tax matters. As such, the enforcement action on the payroll account may not be a reason to deny the registrant’s GST/HST VDP application; or
- a registrant may be under audit by the CRA at the same time as the registrant is submitting a VDP application that is not related to the audit. For example, the registrant may be undergoing a GST/HST refund integrity examination for a current period, but may wish to disclose an unrelated GST/HST omission from a previous period not related to the current examination.
Application must be complete
26. A registrant’s VDP application for a particular issue must be made for tax years or fiscal or reporting periods where there was previously inaccurate, incomplete or unreported information regarding their tax affairs (including any non-arm’s length transactions and circumstances) as follows:
- for Track 1, for the four years before the date the application is filed;
- for Track 2, for the six years before the date the application is filed; and
- for Track 3, for all relevant years.
In cases where books and records no longer exist, the registrant should make all reasonable efforts to estimate the relevant amounts for those tax years or fiscal or reporting periods.
27. Where a registrant received assistance from an advisor in respect of the subject matter of the VDP application, the name of that advisor should generally be included in the application.
28. A registrant may obtain relief from interest, penalties and prosecution only on what the registrant discloses. There may be circumstances where the registrant cannot immediately submit all of the information or documentation for the VDP application. In these circumstances the CRA may allow the registrant a period of time to submit such information in order to complete the application. Normally this period of time is no more than 90 days from the effective date of disclosure (EDD) (see paragraphs 49 to 54).
29. It is expected that registrants and/or their representative will cooperate in the voluntary disclosure process. While the VDP application is being evaluated, the CRA official may request additional specific documentation, for example information relating to revenue amounts being disclosed or input tax credits or expenses being claimed. Registrants must comply with such requests within the stipulated timeframes, and provide sufficient detail to allow the facts of the case to be verified. If a registrant refuses to provide complete documentation or if the CRA is not satisfied that the application is complete, then the registrant will in most cases not be eligible for relief.
30. Although the CRA may ask for more information, registrants are responsible for making a complete application. For more information on requirements for keeping books and records:
- for GST/HST, see GST/HST Memorandum 15.1, General Requirements for Books and Records;
- for excise duties, see Excise Duty Memorandum 9.1.1, General Requirements for Books and Records;
- for excise taxes, see Excise Taxes and Special Levies Memorandum X6.1, Books and Records.
31. Due to the nature of a particular application, referrals to other programs within the CRA may be considered necessary in order to fully analyze the application. Applications disclosing more complex types of non-compliance will be reviewed for completeness by a specialist area prior to the VDP application being accepted.
32. While the information provided in an application must be complete, the application may not be disqualified simply because it contains minor errors or omissions. As well, if the CRA is satisfied that a registrant has provided all available information and legitimately cannot locate or obtain certain documents (for example, records were destroyed due to natural or human-made disasters such as a flood or fire) or has made reasonable efforts to estimate revenue amounts, the application may be considered to be complete. Each application will be reviewed on its own merits.
Application involves a monetary penalty or interest
33. A request for VDP relief must involve the application or potential application of a monetary penalty or interest. The penalty type that could normally be imposed may be a late-filing penalty, a failure-to-remit penalty, an instalment penalty, a failure to provide information on a return penalty, an omission penalty or a gross negligence penalty.
34. If neither a monetary penalty nor interest applies, then a registrant cannot seek relief through the VDP. However, the information should still be submitted and it will be handled through the CRA’s normal processing procedures.
One reporting period past due
35. A VDP application must include information that is at least one reporting period past due. The program is not directed at providing a de facto filing extension.
36. A registrant must include payment of the estimated tax owing with their VDP application. When the registrant does not have the ability to make payment of the estimated tax owing, a payment arrangement supported by adequate security may be considered in extraordinary circumstances with approval from CRA Collections officials. In these circumstances, the registrant must make full disclosure and provide evidence of income, expenses, assets and liabilities supporting the inability to make payment in full.
Second VDP Application by the Same Registrant
37. Registrants are expected to remain compliant after being granted relief under the VDP. A registrant is generally entitled to obtain the benefits of the VDP only once. A second application for the same registrant will normally only be considered by the CRA if the circumstances surrounding the second application are both beyond the registrant’s control and related to a different matter than the first application.
38. The CRA will verify if a registrant has made a previous application. If it is discovered during the course of the review that the registrant had previously made an application, the CRA may refuse to give the second application further consideration under the VDP.
39. If an attempted second application is made for the same issue that was previously denied as incomplete due to information not being received by the stipulated date, then the second application will be denied.
Making a VDP Application
40. Registrants who are unsure if they want to proceed with an application are given an opportunity to participate in preliminary discussions about their situation on a “no-name” basis. These discussions with a CRA official are informal, non-binding and general in nature and are done before the identity of the registrant is revealed. They are for the benefit of the registrant and are intended to provide insight into the VDP process, a better understanding of the risks involved in remaining non-compliant, and the relief available under the program.
41. 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.
42. Registrants should use Form RC199, Voluntary Disclosures Program (VDP) Taxpayer Agreement to apply for VDP. Supplemental information can be attached to the Form RC199.
43. The following information pertaining to the registrant’s situation must be completed in Form RC199:
- registrant’s name, address, postal code, telephone number, GST/HST registration number, business number, social insurance number, trust account number, licence number, and any other tax identification number assigned by the CRA to the registrant;
- address of the registrant’s authorized representative, including telephone and fax numbers (if applicable);
- whether the registrant has made a previous application under the VDP;
- tax year(s) or reporting or fiscal period(s) involved;
- amount of the tax, duty, charge, over-claimed ITC or over-claimed rebate involved (where applicable);
- type of return(s) involved: GST/HST return, Excise Tax return, Excise Duty return, Softwood Lumber Products Export Charge return or Air Travellers Security Charge return;
- type of information return(s) and/or slip(s) involved (for example, GST111 or RC7291);
- type of omission (for example, amount of grandparented housing sales, business income, unremitted GST/HST);
- reason for the omission;
- primary business activity;
- proof of payment; and
- an explanation of how the registrant considers that each of the five conditions to qualify for relief (paragraph 22) have been met;
44. Each VDP application must include enough detail to allow for verification of the facts. Registrants and/or their authorized representatives are expected to make all documents, records, and books of account, as well as any other required information, available upon request.
Where to make an application
45. The completed Form RC199 must be sent either:
through My Account, My Business Account, or Represent a Client (for more information go to Submit documents online)
Voluntary Disclosures Program
Shawinigan National Verification and Collections Centre
4695 Shawinigan-Sud Boulevard
Shawinigan QC G9P 5H9
Authorization of registrant’s representative
46. A registrant’s authorized representative can submit the application for relief under VDP. In this case, both the registrant and the authorized representative must sign the Form RC199.
47. The registrant must grant proper authorization to the representative by submitting a signed copy of the appropriate authorization form.
- For individuals—through the online services in My Account, in writing, or by sending a completed Form T1013, Authorizing or Cancelling a Representative;
- For businesses—through the online services in My Business Account, in writing, or by sending a completed Form RC59, Business Consent.
A copy of the authorization should be attached to the Form RC199.
48. The CRA cannot discuss any confidential information with a registrant’s representative before receiving the appropriate authorization from the registrant.
The Effective Date of a Disclosure (EDD)
49. The EDD is the date the CRA receives a completed and signed Form RC199, Voluntary Disclosures Program (VDP) Taxpayer Agreement.
50. From this date, provided that the application meets the five validity conditions set out in paragraph 22 of this memorandum, the registrant is granted protection from the initiation of prosecution action related to the disclosure and penalty and/or interest relief, where applicable regarding the amounts included in the disclosure.
51. If Form RC199 has not been completed or the application does not otherwise meet the five conditions to qualify for relief, the application will not be accepted into the VDP and therefore does not provide an EDD.
52. If necessary, the taxpayer may have up to 90 days from the EDD for the submission of additional relevant information and/or documentation that may be required to complete the application.
53. If this time frame is not sufficient due to the complexity of the application or other extraordinary circumstances, CRA officials may authorize an extension of this period, upon receipt of a written request from the registrant or an authorized representative. The additional information must be provided within the stipulated time frame.
54. If the additional information and/or documentation is not received within the stipulated time frame, the CRA may commence enforcement action wherein penalties and interest may be imposed and an investigation and subsequent prosecution action may be initiated.
Acceptance of a VDP Application
55. If it is determined that the five conditions to qualify for relief (paragraph 22) have been met, the registrant will be advised in writing of the following:
- acceptance of the application into Track 1, Track 2 or Track 3;
- the periods eligible for interest or penalty relief;
- the EDD;
- the disclosed information may be referred to another CRA program area; and
- the disclosed information will be sent to the appropriate area for processing the assessment or reassessment.
Denial of a VDP Application
56. If it is determined that any of the five conditions to qualify for relief (paragraph 22) have not been met or it is a circumstance where the VDP application will not be considered (paragraph 21), the registrant will be advised in writing that:
- the application has been denied;
- the disclosed information may be referred to another CRA program area;
- the disclosed information may result in an assessment or reassessment;
- penalties and interest may be levied; and
- in certain circumstances, an investigation and prosecution may be initiated.
Registrant’s Right of Redress
Second administrative review
57. There is no statutory right of objection under the legislation for a registrant to dispute a discretionary decision that denied relief or allowed only partial relief.
58. However, if the registrant believes that the Minister has not exercised discretion in a fair and reasonable manner, the registrant may request in writing that the Assistant Director of the Shawinigan National Verification and Collections Centre review and reconsider the original decision. The registrant has the opportunity at that time to make additional representations for the CRA to consider. The CRA will not consider a request for a second review if an application was denied because the information was not previously submitted within the stipulated time frame.
59. The Assistant Director may designate a delegated authority, not involved in the previous review and decision, to carry out the second administrative review on their behalf.
60. Where a registrant believes that the Minister has not exercised discretion in a fair and reasonable manner, the registrant may make an application to the Federal Court for a judicial review of the Minister’s discretionary decision, pursuant to section 18.1 of the Federal Courts Act, within 30 days from the date the notification of the decision was communicated to the registrant.
61. To request a judicial review, a registrant must send a completed Form 301, Notice of Application, with the appropriate filing fee, to the registrar of the Federal Court. For more information on how to file an application for judicial review or other general enquiries, call the Courts Administration Service at 1-800-663-2096 or go to their website at www.cas-satj.gc.ca.
62. If the Federal Court is of the view that the Minister’s discretion was not properly exercised, the Court may set aside the Minister’s decision and refer the request back to the CRA for reconsideration by another delegated official.
63. As a general rule, registrants should request a second administrative review from the CRA before filing an application for a judicial review with the Federal Court.
64. If a registrant’s VDP application is accepted under Track 3, in consideration of the relief being provided, the registrant will be required to waive their right to object in relation to the specific matter disclosed in the VDP application and any specifically related assessment of taxes. However, this waiver will not prevent the registrant from filing a Notice of Objection in circumstances where the assessment includes a calculation error, relates to a characterization issue (such as whether a supply is a taxable or exempt supply), or relates to an issue other than the matter disclosed in the VDP application.
Related CRA Policy
Waiver of penalty and interest
65. The VDP provides registrants with relief from penalties and interest when the conditions noted in this document are met. A separate CRA policy exists to provide relief from both interest and penalties in circumstances beyond a person's control. Details of this policy are available in GST/HST Memorandum 16.3, Cancellation or Waiver of Penalties and/or Interest.
66. For requests that deal with a wash transaction that does not meet the voluntary disclosure requirements set out in this memorandum, GST/HST registrants may still be eligible for some interest relief, as described in GST/HST Memorandum 16.3.1 Reduction of Penalty and Interest in Wash Transaction Situations.
67. For information regarding the Voluntary Disclosures Program as it applies to Income Tax disclosures, please refer to Income Tax Information Circular IC00-1R6, Voluntary Disclosures Program.
Need More Information
68. For more information on the Voluntary Disclosures Program, go to Voluntary Disclosures Program - Overview.
69. To provide comments about this draft memorandum, please write to us at:
Voluntary Disclosures Program
Domestic Compliance Programs Branch
Canada Revenue Agency
Ottawa ON K1A 0L5
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