Canadians get upset when they think the wealthy get special tax treatment. Getting special treatment is changing. As part of the government’s plan to clampdown on people who intentionally avoid paying taxes, the Canada Revenue Agency is revising the Voluntary Disclosures Program (VDP).
Under the old program, non-compliant taxpayers could come clean to the CRA without worrying about prosecution or civil penalties, despite the fact that they may have used creative, and sometimes aggressive, tax avoidance strategies.
As of March 1, the revised VDP will come into effect. Changes will narrow the eligibility of the program and impose additional conditions on applicants.
It appears the CRA is transitioning from passive to proactive with respect to tax collection.
The public became more aware of tax avoidance schemes with the release of the Panama and Paradise Papers in 2016 and 2017. These two massive leaks of confidential financial records sent shock waves around the world, and had the CRA vowing to investigate new evidence of offshore tax evasion.
Hackers and whistleblowers can play a positive role in the fairness of tax collection.
The CRA’s Report to Parliament 2014-15 stated VDP income topped $1.3 billion, $780 million of which came from offshore. Both numbers were up substantially from the previous year. So why the change?
Our government is now dealing from a position of strength in tracking down aggressive and illegal tax avoidance strategies. They have better information.
The CRA has increasing amounts of data on financial transactions over $10,000. It has better information on worldwide banking activity, and it has a paid informant program that seems to be operating well.
Our tax system no longer has to encourage people to self-report potential wrongdoings. The increased amount of information can be used to find and pursue tax avoiders.
The CRA will also be more aggressive against ‘third parties’ that play a role in making tax avoidance options available to clients. Lawyers will now have to reveal the names of clients before any settlement can be reached.
Government relies on everyone paying their fair share of taxes, and the CRA is determined to find tax cheaters.