Voluntariness Of A Voluntary-Disclosure Application 4053893 Canada Inc ' A Canadian Tax Lawyer's Guide

• Published date: 11 March 2022
• Subject Matter: Tax, Compliance, Income Tax, Sales Taxes: VAT, GST
• Law Firm: Rotfleisch & Samulovitch P.C.
• Author: Mr David Rotfleisch

Introduction: Voluntary Disclosure Program

The Voluntary Disclosure Program (VDP) is designed to encourage taxpayers to come forward and report incomplete, inaccurate or unreported information to the Canada Revenue Agency (CRA). If the disclosure is accepted, the taxpayer is relieved from prosecution and, in some instances, the taxpayer may also be relieved from penalties and some interest owing. A valid disclosure must satisfy five key conditions: it must (i) be voluntary, (ii) be complete, (iii) involve the application or potential application of a penalty, (iv) include information that is more than one year past due, and (v) include payment of estimated taxes owing. One of the key conditions, as also implied by the name of the program, is that the disclosure must be voluntary. A disclosure is not voluntary if the CRA has already initiated enforcement action relating to the content of the taxpayer's disclosure or a person related to the taxpayer, and the enforcement action was likely to have uncovered the disclosed information. Multiple cases have come before the courts on the issue of whether a taxpayer's disclosure was voluntary. On March 11, 2021, the Federal Court released a decision, 4053893 Canada Inc v Canada (National Revenue), 2021 FC 218, where the central issue involved was whether the CRA's decision to deny a corporate taxpayer's application for involuntariness was reasonable given the CRA's prior enforcement against the corporation's sole owner and director.

Facts and Administrative History of the Voluntary-Disclosure Case

In 4053893 Canada Inc v Canada (National Revenue), Mr. Harris was the sole owner and director of 4053893 Canada Inc. (405 Canada). In August 2016, the CRA notified Mr. Harris in writing and through a phone call that both he and 405 Canada had not filed their tax returns for close to 10 years. In January 2017, 405 Canada submitted a voluntary-disclosure application regarding its unfiled tax returns for the 2006 through 2015 taxation years. However, the CRA denied 405 Canada's VDP application. This denial was later quashed by the Federal Court as the CRA did not adequately address how the enforcement action against Mr. Harris would have likely uncovered the disclosed information. Thus, 405 Canada's application was sent back to the CRA for a redetermination. Through a letter dated December 3, 2019, the CRA notified Mr. Harris that 405 Canada's application was denied. This time, the letter explained that the CRA would have...