Tax dodgers and others stampeded to beat amnesty deadline in March

Tax dodgers and others rushed to take advantage of the Canada Revenue Agency's (CRA) controversial amnesty program earlier this year in the weeks before the rules got tougher and much less generous.

CBC News has learned there was almost a doubling of applications under the Voluntary Disclosures Program (VDP) between Dec. 15, when the changes were announced, and the March 1 implementation date.

In those 11 weeks, 6,612 people scrambled to beat the deadline, compared with 3,432 who applied in the same period a year earlier.

And in the two months following the far more restrictive regime of March 1, there were just 1,413 applications, down by 65 per cent from the same period a year previous, statistics supplied by CRA show.

The rush was predicted by many tax specialists, who themselves had encouraged the filing of applications before March 1 to their clients and others. And some of them say the tighter rules now spell the demise of the program, which they say is already faltering.

"It's an ill-conceived change. It makes no sense from a practical point of view," David Rotfleisch, a tax lawyer at taxpage.com, said in an interview from Toronto.

"They had an incredibly effective program that has been bringing in scads of money, and they killed it."

Too generous?

The old Voluntary Disclosures Program has long been criticized as far too generous to wealthy Canadians who've hidden their money from the taxman. The previous regime often waived interest and penalties, among other benefits.

The beneficiaries included former prime minister Brian Mulroney, who in 2000 paid taxes on only half the $225,000 in undeclared cash payments he had received from a German businessman in the 1990s when he signed up for the VDP.

At the same time, the old program uncovered about $1.6 billion annually of previously unreported income, through some 18,500 voluntary disclosures. About $900 million of that was related to money stashed offshore, the agency says.

The tough new rules this year follow recommendations in 2016 from a House of Commons committee, and from a blue-ribbon panel, and were politically driven by disclosures about offshore tax havens, as revealed by the Panama Papers and other document leaks.

This regime will not work.- Tax lawyer David Rotfleisch

The changes narrow the eligibility and impose new conditions, including a requirement that applicants now pay their estimated tax-owing up front, rather than later in the process.

"By making the relief offered through the VDP less generous in certain circumstances, the CRA does anticipate that use of the VDP will decline as those who intentionally avoid their tax obligations have lost access to the relief provisions of the program," said agency spokesperson Heidi Hofstad.

"It is too early to accurately project the impact of the new policy on the number of future VDP applications."

The CRA revealed the proposed changes in June 2017, with an intended implementation date of Jan. 1, 2018, giving tax dodgers and others a long lead time. After public consultations and review, some small changes were made and the new regime was postponed to March 1st this year.

Rotfleisch said the new application process is riddled with problems, including inconsistent application of the rules, poorly trained or untrained staff, and systems not yet in place.

"This regime will not work," he added, largely because it has severely reduced the incentives for those with unreported income to come forward.

Cite offsets

The agency acknowledges fewer people are likely to access the VDP. But it says other measures will compensate for the reduced amount of unreported income flushed out by the program.

"This will be offset by ongoing improvements in our audit yield (which has grown 35 per cent in the past four years) and deterrence measures (such as electronic funds transfer reporting) that will be in place," says an internal memo, obtained by CBC News under the Access to Information Act.

"As well, the reduced generosity of the VDP relief for serious income tax non-compliance is expected to help deter non-compliance going forward," says the May 26, 2017, document.

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