The Canada Revenue Agency needs to toughen up the program that offers advantageous deals to tax cheats, especially in cases where large amounts of income were not declared through deliberate schemes, a federally appointed committee says.
In a report released Thursday, the Offshore Compliance Advisory Committee called for a series of changes to the Voluntary Disclosure Program (VDP). In particular, the committee said there should be harsher penalties against taxpayers who used offshore vehicles, hid large amounts of income or did so for a number of years.
The long-standing program is available to taxpayers who have fallen behind in their tax obligations and decide to proactively approach the CRA to settle the matter. The goal, as in other countries that offer voluntary disclosure, is to make it "attractive for non-compliant taxpayers to come forward," while ensuring the overall fairness of the system for all compliant taxpayers, the committee said.
The CRA handled 19,500 proactive disclosures in the 2015-2016 fiscal year, for a total recovery of $1.7-billion.
As it stands, the CRA can offer "relief from prosecution or from paying penalties" to taxpayers who use the program to declare previously unreported income.
However, the committee said penalties should still be imposed in a number of cases, while shying from providing specific numbers. In particular, the committee said a taxpayer whose financial activities were revealed in leaks – such as the so-called Panama Papers that exposed the offshore dealings of many high-profile people around the globe – should not benefit from the same deal as other taxpayers.
"Depending on the particular facts, relief of penalties and partial interest relief could be seen as overly generous," the committee said. "It is our view that the CRA should view all of the circumstances surrounding the disclosure and that relief from interest and penalties should be reduced in certain cases."
The committee is also urging the CRA to force users of the program to provide information on any accountant or adviser who helped them to engage in tax evasion or avoidance, to find other taxpayers who may have broken the rules.
"The CRA has confirmed that there exists no requirement to disclose the identity of advisers who assisted with non-compliance (by, for example, helping taxpayers set up offshore accounts or structures)," the committee said. "Such disclosures provide valuable information that could materially assist the CRA in identifying advisers that promote and enable offshore non-compliance."
In another recommendation, the committee said the CRA should not quickly approve any voluntary disclosures, given the applications might hide other large amounts of unreported income.
"It is not clear that complex VDP files are, in all cases, being thoroughly examined by CRA personnel with expert knowledge. Consideration should be given to introducing procedures to ensure that large or complex cases are reviewed by specialists before acceptance into the VDP," the committee said, making a specific reference to "aggressive tax-planning" files.
The five-member committee, which is chaired by Western University law professor Colin Campbell, was appointed earlier this year by Revenue Minister Diane Lebouthilier.
In a statement, Ms. Lebouthilier said that she plans to announce changes to the Voluntary Disclosure Program next year, adding the committee's input will be factored in the review.