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Litigation, Taxation law

Predictions: The Future of Canada and Quebec’s Voluntary Disclosure Programs

Jan 12th, 2017

By David H. Sohmer

David Sohmer recently spoke to the Accountants Study Group  in Montreal about the future of the Canadian and Quebec voluntary disclosure programs (respectively, the “CRA VDP” and the “ARQ VDP“) .  The following were his predictions:

  1. The CRA VDP will continue to be administered on the current basis until “late 2017”. Automatic exchange of information will commence on January 1, 2018, so most disclosures will have already been filed by then.
  2. In late 2017 the CRA will create a separate category of “high risk” disclosures which will not grant any interest relief under s 220(3.1). This will be a reaction to the political pressure attributable to the KPMG/Isle of Mann scheme and The Panama Papers leak. The category will include large dollar amounts, taxpayers whose disclosure is motivated by CRA statements regarding “its intended focus of compliance”, and taxpayers who moved accounts to avoid detection. In egregious cases there may also be a T1135 penalty under 162(10.1) or 163(2.4) equal to 5% of the cost of specified foreign property.
  3. The ARQ VDP will continue to be administered on the current basis.
  4. There will be a dramatic increase in CRA and ARQ attacks on offshore files where there was no disclosure including where disclosures have been or will be rejected. These files include HSBC files (the ARQ has announced that these will not qualify), taxpayers investigated by the Charbonneau Commission, “leavers” who closed accounts and invested the proceeds in real estate or in banks in jurisdictions which are not required to exchange information, and files arising from ‘whistle-blowers”. Potential tax interest and penalties can approach 150%-200% of the amount in the offshore account.
  5. There will be court challenges to the ARQ practice of using the “retrospective” method of taxing capital. If successful, Quebec may enact remedial legislation such as penalty provisions where T1135s were not filed or contained false statements or omissions- these may have retroactive effect.
  6. To “feed the beast” of public opinion there may be some criminal prosecutions.