CRA tightening its GST/HST Voluntary Disclosure Program

It’s getting harder for taxpayers to get relief from penalties and interest for GST/HST errors or non-compliance. Learn about how the Canada Revenue Agency’s Voluntary Disclosure Program has changed and other important GST/HST updates.

At the beginning of this month, changes to the Canada Revenue Agency’s (CRA) Voluntary Disclosure Program (VDP) took effect. These changes limit the ability of some taxpayers to share information about GST/HST or income tax lapses and to receive potential relief from penalties and prosecution.

This update follows a report from a CRA advisory committee recommending that the agency tighten the program due to suspicions of abuse. In response, the CRA released proposed changes for a revised VDP, narrowing the eligibility criteria, imposing more conditions on applicants that limit relief.

UNDERSTANDING THE CHANGES

The new rules, which are now in effect, establish a multi-tier system for relief. VDP eligibility depends partially on the identity or characteristics of the taxpayer, and on whether the taxpayer has engaged in “major non-compliance,” as defined in the CRA’s memorandum.

For GST/HST and other indirect taxes, there are three categories for applicants:

  • a specific program for so-called wash transactions, where a supplier fails to charge and collect GST/HST from a registrant entitled to a full input tax credit, which qualify for reduced penalties and interest under a special CRA policy
  • a general program for most unintentional errors and omissions that offers relief from penalties, prosecution and partial interest relief
  • a limited program for situations involving an element of intentional conduct or omission with relief from gross negligence penalties and prosecution, but not necessarily other penalties and interest

A similar two-tiered system applies for income tax non-compliance.

The CRA decides whether an application falls within the general or limited program on a case-by-case basis. This depends on the dollar amounts involved, the number of years of non-compliance and the registrant’s sophistication, i.e., level of tax knowledge and access to advisors.

UNCERTAINTY COULD ENCOURAGE NON-COMPLIANCE

CPA Canada offered comments on the proposed changes through two committees. Our Joint Committee on Taxation with the Canadian Bar Association made a submission to the CRA pointing out that, unlike the previous rules, the new rules for relief rely on uncertain circumstances.

A submission from our Commodity Tax Committee similarly argued that the VDP succeeded in the past largely because people could reasonably predict the results or acceptance of a voluntary disclosure. The uncertainty of the new system increases the likelihood that non-compliant GST/HST organizations may be more willing to “roll the dice” and not come forward.

The Voluntary Disclosure Program plays an important role in helping the CRA promote greater tax compliance in Canada. We will continue working with the CRA to ensure the VDP encourages all taxpayers to come forward and correct areas of non-compliance.

TAKE YOUR GST/HST SKILLS TO THE NEXT LEVEL

Are you looking to deliver real value-added benefits as a GST/HST advisor? Consider registering for the In-Depth HST/GST Course from May 27 to June 1, 2018 and earn 34 CPD hours. Or take advantage of Canada's leading guide on GST/HST, EY's Complete Guide to GST/HST, which includes GST/HST commentary and legislation, as well as a GST-QST comparison.