What is a Voluntary Disclosure Program for Taxes?
Voluntary disclosure programs are government initiatives allowing taxpayers to voluntarily and proactively correct previous errors with their tax reporting in exchange for penalty, interest and prosecution relief. Under the Canada Revenue Agency’s voluntary disclosure program, for instance, taxpayers can report errors with income tax, GST/HST and payroll tax reporting. If the taxpayer’s voluntary disclosure application is accepted, the taxpayer can be granted penalty and interest relief for the past 10 years of erroneous reporting and resulting unpaid taxes. The taxpayer will also be relieved from any criminal prosecution which may be related to their erroneous tax reporting.
For taxpayers whose reporting errors relate to taxes levied by provinces, voluntary disclosure programs administered by the relevant province may be available to correct these errors. This article will specifically discuss voluntary disclosure programs for the four provinces which charge provincial sales tax.
British Columbia – Provincial Sales Tax
British Columbia presently charges a Provincial Sales Tax (“PST”) of 7%, subject to certain exceptions. A taxpayer who has not charged, collected, remitted or paid PST as required can file a voluntary disclosure application. A successful voluntary disclosure will provide relief from all tax penalties except the penalty equivalent. The penalty equivalent is a penalty amount equal to the tax which was not charged or collected. The taxpayer will not be prosecuted for anything related to the subject matter of the voluntary disclosure. Interest will still be charged.
A successful voluntary disclosure application is one where:
- It is the taxpayer’s first time making a voluntary disclosure of the tax due
- The taxpayer pays any overdue amounts, plus interest, or makes an acceptable payment arrangement
- The taxpayer was not subject to existing enforcement action when the disclosure was made
- The taxpayer does not owe an amount in respect of taxes prior to making the disclosure.
Québec – Québec Sales Tax
Provincial Sales Tax in Québec is known as Québec Sales Tax or QST. It presently applies at a rate of 9.975%, with exceptions to that rate for some goods and services. The QST voluntary disclosure program will provide relief depending on which category the application qualifies
- General Program – For applications that do not involve intentional misconduct, the taxpayer will not be charged penalties or referred for criminal prosecution for anything related to the information disclosed. Interest will be charged.
- Limited Program – For applications that involve intentional misconduct, the taxpayer will not be charged gross negligence penalties or referred for criminal prosecution for anything related to the information disclosed. Interest and any other relevant penalties will be charged.
- QST wash transactions – For disclosures related to wash transactions, the taxpayer will have to remit the QST not collected or input tax credits incorrectly claimed but penalties and interest will be waived.
- Duties on the transfer of an immovable (Civil Code for real property) - This category deals with special duties payable in respect of the transfer of an immovable. Up to one sixth of the duties will be waived if the application qualifies under this section.
To qualify for the QST voluntary disclosure program, an application must meet the following criteria:
- Spontaneous – The tax issues being disclosed cannot be related to either ongoing enforcement action you were aware of or to information of potential tax non-compliance that Revenue Québec has already received. Effectively, the disclosure must be voluntary.
- Complete – Your application must disclose all instances of tax non-compliance and the estimated amount owed. If you control or are controlled by another person, that other person must also be compliant with their taxation obligations.
- Verifiable – You must provide all necessary documentation to allow Revenue Québec to verify the accuracy of the information disclosed.
- Payment – You must either provide payment of all unpaid taxes at time of filing the application, or propose an acceptable payment plan.
Québec allows for multiple voluntary disclosure applications by the same taxpayer, but generally will only accept the first application. Québec additionally allows for provincial income tax voluntary disclosures.
Manitoba – Retail Sales Tax
Manitoba presently charges a provincial sales tax known as “Retail Sales Tax” or RST at a rate of 7%, subject to certain exemptions. A successful voluntary disclosure application in Manitoba will result in penalties being waived and the taxpayer being exempted from criminal prosecution related to the subject matter of the disclosure. The application must be voluntarily made, meaning it must be filed prior to Manitoba’s Taxation Division undertaking any kind of enforcement action including a tax audit. The taxpayer must pay tax and applicable interest at the time of voluntary disclosure, or provide an acceptable payment plan for these amounts.
Saskatchewan – Provincial Sales Tax
Saskatchewan presently charges a Provincial Sales Tax (“PST”) of 6%, subject to certain exceptions.
- Voluntary – The disclosure must be made prior to any enforcement action.
- Complete and Accurate – The taxpayer must provide access to all relevant records related to the tax owing to ensure the amount was correctly calculated by the taxpayer or their representative. The taxpayer must also file all outstanding returns, and disclose errors related to any type of consumption tax. For example, taxpayers who are aware that they have erroneously reported both Tobacco Taxes and PST must disclose both.
- Payment – Payment of all taxes owing and applicable interest must be made at the time of the disclosure, unless this would cause undue hardship to the taxpayer. If undue hardship is caused, a payment plan can be used.
- Acceptable Filing History – The taxpayer making the voluntary disclosure cannot have a poor history related to filing and paying taxes.
A successful voluntary disclosure application will result in penalties and the right to prosecute being waived. Interest will still be charged.
Pro Tax Tips – Coordinating Voluntary Disclosure Applications
Taxpayers who must file voluntary disclosure applications in multiple jurisdictions – such as disclosing unfiled taxes in both Canada and the United States or provincial and federal sales tax – should consider having expert Canadian tax lawyers coordinate their applications to be filed at or around the same time. Information sharing agreements exist between provincial and the federal government bodies, and between various countries. Disclosing taxation issues to one enforcement body may, therefore, lead to enforcement action by another relevant enforcement body. A consistent requirement of voluntary disclosure applications is that the application be made prior to any enforcement action. Failing to file a voluntary disclosure with all relevant government bodies may prevent the taxpayer from filing disclosures and receiving applicable relief.
Our experienced Canadian tax lawyers can assist in correcting taxation errors through the voluntary disclosure program both federally and provincially.
What is a Voluntary Disclosure Program?
Voluntary disclosure programs are government initiatives allowing taxpayers to voluntarily and proactively correct previous errors with their tax reporting in exchange for penalty, interest and prosecution relief.
What are the requirements of a voluntary disclosure?
The exact criteria for a successful voluntary disclosure depend on the governmental body administering the voluntary disclosure program. Generally, the requirements include that the voluntary disclosure must be made prior to any enforcement action, must be complete and accurate and must include payment or an acceptable payment plan.
"These articles provide information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."