|
FROM: JUL-AUG 2008 ISSUE | BY R. JASON RICHE
The CRA has had a GST voluntary disclosure program in place since 1991 to encourage taxpayers to confess their tax sins, such as failure to collect and remit GST, and over claiming input tax credits. In return for coming clean, the CRA waives all otherwise enforceable penalties. But recent developments make it doubtful that many taxpayers will be stepping into the confessional.
The troubles concern the imposition and calculation of penalties and interest under the Standardized Accounting initiative, which came into effect April 1, 2007. The six per cent penalty was replaced with a four per cent interest premium added to interest on GST assessments. A new failure to file penalty is calculated at one per cent of the overdue amount, plus an additional .25 per cent of that amount for each month that the return is overdue, to a combined maximum of four per cent.
For a voluntary disclosure to be accepted, it “must involve the application, or potential application of a penalty.” The CRA has confirmed that the additional interest component will not be considered a penalty in these situations. But with the ostensible conversion of the penalty to interest, the incentive to make a voluntary disclosure is diminished.
In wash transactions tax is mistakenly not charged, so the taxpayer misses the opportunity to claim a full input tax credit. When such situations are discovered and relate to periods before April 1, 2007, the CRA can opt to eliminate interest charges and reduce the six per cent penalty. If these transactions are disclosed by the taxpayer via a voluntary disclosure, a portion of the penalty is waived. If the same error is discovered for periods after April 1, 2007, a portion of the interest premium is eliminated; however, assuming returns were filed on time and no penalty is imposed, it is doubtful that a voluntary disclosure would be accepted, so no further relief would be granted.
And so there appears to be little difference between confessing and silence. It is unclear why the CRA has not redesigned the program so that taxpayers receive treatment equal to what was available prior to the implementation of Standardized Accounting, particularly in light of the success of the voluntary disclosure program.
Under the program, the CRA received over 8,000 disclosures in 2006-07 resulting in total assessed tax of more than $500 million – up from approximately 1,000 and $100 million in 1999-2000. Approximately one-third of these numbers come from GST voluntary disclosures. One would think that the CRA would not want to make the program less attractive to taxpayers, as every person who makes a voluntary disclosure is one less that the CRA has to uncover.
[ TOP ] |