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Taxation law

New Federal Information Circular Regarding Voluntary Disclosures

Apr 11th, 2013

By Steven Sitcoff

For several weeks, it has been informally known that changes on a national level were pending with regard to the processing of voluntary disclosure files by the Canada Revenue Agency (“CRA”).  These changes were formally announced on March 21, 2013, when the CRA issued an updated information circular (IC00-1R3).

Ostensibly, the only change of note is that, rather than sending submissions to your local tax services office, they are now to be sent to one of three Tax Centres, namely: Shawinigan, Quebec (for the Atlantic, Quebec, and Ontario regions); Surrey, BC (for the Pacific Region); or Winnipeg (for the Prairie Region).  While, informally, we have been told by the CRA that this change should have no material impact and that it is otherwise “business as usual”, there are nonetheless certain practical concerns raised.

First, we understand that the CRA’s 90 day period to complete the disclosure will be adhered to more strictly.  This will have particular effect when proceeding under the no-name disclosure method since, while an extension may be granted in order to provide additional information, there will still be an expectation to disclose the taxpayer’s identity at the end of the 90 days or the file will be closed by the CRA; where the file is not yet complete at the end of the 90 days, and it is thus premature to have received the CRA’s assessment of whether in principle the file qualifies under the voluntary disclosures program, some difficult decisions will have to be made.  Also uncertain at this point is whether the 90 days will begin to run from the date of the initial application (which is the CRA’s long-time formal policy), or from the date that an agent is assigned to the file (as has been the CRA’s informal practice in many instances).  As such, it becomes particularly important to fully prepare the submission in advance of making the initial application.

Second, for Quebec taxpayers, although it could well lead to a significant improvement in the timely processing of CRA disclosure files, the management of the timing of the parallel disclosure processes to the CRA and Revenu Québec (“RQ”) becomes even more difficult.  In particular, the lack of coordination between the agencies could make the no-names procedure illusory since, if the taxpayer’s name is disclosed to one agency (of particular concern given the CRA’s stricter adherence to its 90 day period) such information will be provided to the other irrespective of the status of the latter’s file.  One way to mitigate this concern is by disclosing first to RQ and then to the CRA only once RQ’s file is sufficiently advanced.

Finally, it is apparent that, at least in the case of the CRA’s Shawinigan Tax Centre, an all-new team of agents will be responsible for handling disclosure files.  Presumably, there will be a preliminary learning curve to go through but, hopefully, there will be little turnover in the group so as to (eventually) achieve consistency and efficiency.  Nonetheless, it remains to be seen how this will affect the processing of files during the initial phase.

Steven Sitcoff is a tax lawyer at Spiegel Sohmer who has experience with a variety of corporate and personal income tax matters, including voluntary disclosures to the federal and provincial tax authorities.