The Canada Revenue Agency’s (CRA) Voluntary Disclosure Program (VDP) offers taxpayers a chance to correct past errors or omissions without facing penalties or prosecution. However, for a disclosure to qualify under this program, it must meet specific criteria, with the most critical being that the disclosure is voluntary. This blog will delve into what it means for a disclosure to be voluntary, and we’ll explore key court cases that highlight the complexities involved in this determination.
The Requirement of Voluntariness
The concept of voluntariness is central to the VDP. A voluntary disclosure must be initiated by the taxpayer without any compulsion from the CRA. If the CRA has already started enforcement action against the taxpayer or a related party, the disclosure may not qualify as voluntary.
An enforcement action can include a range of activities initiated by the CRA, such as requests to file, direct contact by a CRA employee, or other investigative measures. However, it’s important to note that not all enforcement actions automatically disqualify a disclosure from being considered voluntary.
When an Enforcement Action Doesn’t Disqualify a Disclosure
The CRA’s Information Circular provides clarity by offering specific examples where a disclosure may still be deemed voluntary despite ongoing enforcement actions. For instance:
Example: A taxpayer undergoes a GST/HST audit and subsequently submits a voluntary disclosure for an unrelated payroll issue. Since the GST/HST audit and the payroll issue are unrelated, the enforcement action on the GST/HST account would not cause the payroll voluntary disclosure to be denied.
This example illustrates that the relationship between the enforcement action and the disclosure is crucial. If the issues are unrelated, the disclosure may still be considered voluntary.
Case Study: Poon v. Canada, 2009 FC 432
The case of Poon v. Canada provides significant insights into how the Courts interpret the voluntariness of disclosures. Mr. Poon submitted a voluntary disclosure application for himself and his corporation, but CRA denied it because his corporation had previously been contacted by CRA.
Mr. Poon sought judicial review of the denial of his personal voluntary disclosure. The Federal Court, led by Justice Simpson, identified two critical questions that must be asked when the CRA discovers an enforcement action against a taxpayer:
1. Was any direct contact made with the taxpayer, or was the taxpayer likely aware of the enforcement action; and
2. Is it likely that the CRA would have uncovered the information being disclosed based on the enforcement action?
If the answer to either question is “no,” the disclosure may still be considered voluntary. In Mr. Poon’s case, the Court found that CRA had failed to analyze the second question, which led to the decision being overturned. The Court emphasized that taxpayers should be given the benefit of the doubt when determining the voluntariness of a disclosure.
Case Study: Amour International Mines d’Or Ltee v. Canada, 2010 FC 1070
In Amour International Mines d’Or Ltee v. Canada, CRA disallowed a voluntary disclosure on the grounds that it was not voluntary, as an enforcement action was in place. The case involved AIMO, which had paid dividends to foreign shareholders without remitting the proper amount to CRA. After receiving a letter related to a different matter, AIMO filed a voluntary disclosure.
Justice Harrington ruled in favor of AIMO, emphasizing that CRA must demonstrate that the enforcement action was likely to uncover the information being disclosed. CRA’s decision was based on pure conjecture, without evidence, making it unreasonable. As a result, AIMO’s judicial review application succeeded.
Conclusion
Understanding when a disclosure is truly voluntary under the VDP is complex, and CRA must carefully assess whether an enforcement action is likely to have uncovered the information being disclosed. As the Poon and Amour International cases show, the Courts are willing to scrutinize CRA’s decisions closely, particularly when there is doubt about the voluntariness of a disclosure.
If you are considering making a voluntary disclosure, it’s crucial to consult with a knowledgeable tax lawyer to ensure that your disclosure meets the necessary criteria.
At SpenceDrake Tax Law, we specialize in helping taxpayers navigate the intricacies of the Voluntary Disclosure Program.
Contact us today to find out how we can assist you.
Jeff Kirshen, BA, JD(US), JD(CDN)
Partner & Tax Lawyer
Disclaimer
Each article/blog post is only meant to provide general information. It is posted on a specific date. Laws and rules change. Please know that it may be out of date. It is not meant to provide legal advice, and it does not provide legal advice. It cannot be relied on. Every tax situation is unique, and that may mean situations differ from this article/blog. If you have legal questions, please consult a lawyer.