Recent changes to Revenu Québec's voluntary disclosure policy
Over the past two years, Revenu Québec (“RQ”) has made changes to its voluntary disclosure policy. The following is a brief summary of the changes related to income taxes and the Quebec sales tax (“QST”).
To encourage taxpayers and businesses (”mandatary”) to rectify their tax situation, the tax authorities have created the voluntary disclosure program. The program is designed to help taxpayers avoid penalties and legal proceedings as long as the duties and interest are paid, and the eligibility conditions are met (complete, verifiable, spontaneous and paid).
RQ issued a new bulletin (ADM. 4/R3) on June 29, 2012 to change certain rules in Quebec. This bulletin was subsequently updated on September 19, 2013 with the release of ADM. 4/R4 to clarify certain details and make application form LM-15 (Voluntary Disclosure Application) mandatory to open a voluntary disclosure file.
This bulletin sets out clearer and more detailed rules regarding:
- situations in which the voluntary disclosure policy does not apply;
- cases of a second voluntary disclosure;
- anonymous disclosure;
- terms and conditions for opening a file.
RQ will not allow voluntary disclosure for the sole purpose of avoiding a late-filing penalty for the most recent tax return. However, RQ will allow it if the most recent tax return is part of a larger set of returns to be rectified.
The bulletin clarifies the conditions under which a second voluntary disclosure will be allowed. It indicates that a second voluntary disclosure may be permitted when the circumstances of the second disclosure are beyond the person’s control, and that the omissions, acts of tax evasion and incomplete or inaccurate statements being divulged cannot be considered gross negligence or a repeat of the omissions, acts of tax evasion or incomplete or inaccurate statements reported in the first disclosure. A second disclosure can never be made anonymously and must include details of the first disclosure. It should be noted that file processing will differ depending on whether it is a new voluntary disclosure or a second application following the withdrawal of a first application.
An anonymous disclosure can only be made if it covers at least one taxation year, calendar year or period in respect of which the prescriptive period would normally have expired, which was not previously the case. For example, an individual who failed to report income tax-related amounts cannot make an anonymous disclosure if the disclosure concerns only the three most recent years for which a return had to be filed.
In addition, in the case of an anonymous disclosure, additional information must be provided (see ADM.4/R4), including the first three characters of the person’s postal code. Note that certain file opening applications in which there is some doubt about the “spontaneous” nature of the disclosure (e.g. case that is highly publicized or targeted by the Charbonneau Commission) cannot be submitted anonymously.
Another feature introduced in this version of the bulletin is the requirement to complete a prescribed form to take advantage of the voluntary disclosure program. A simple call or discussion with an agent is no longer sufficient to open a file. A formal application on the new prescribed form is now required along with all the requested information. This form must be sent by fax or mail. It should be noted that failure to duly complete the form may result in your voluntary disclosure application being rejected. If your application is incomplete, an RQ agent will contact you to obtain the missing information within a prescribed timeframe. Failure to meet this deadline will disqualify the voluntary disclosure application, and you will have to submit a new duly completed application. You should know that coverage under the program begins on the date your application is received, if it is duly completed, or if you respond to the request for additional information within the prescribed timeframe. If these conditions are not met, coverage under the program will only begin once your new duly completed application has been received.
A new important rule regarding QST collection was introduced on June 29, 2012. Previously under the program, amandatarywas not required to remit uncollected QST for wash transactions, i.e. a supplier who did not collect an amount of tax from a recipient who, had the recipient paid the tax, would have been entitled to a full input tax refund. Since June 2012, RQ’s policy has been harmonized with that of the Canada Revenue Agency, which means that for files opened after that date, duties will be assessed without penalty or interest.
Accordingly, a mandatary who will not have charged the taxes to their clients must now collect both taxes from their clients and remit them, which could result in cash flow problems for the mandatary when the amounts in question are significant. Nevertheless, in situations where the amounts are very large, it may be possible to enter into an agreement with RQ so that a tax transfer can be completed between the supplier and the recipient.
The voluntary disclosure program is a very useful alternative for rectifying irregular situations in which the penalties and interest can be a burden for the taxpayer/mandatary. However, it is important to ensure that all the conditions are met. Therefore, all facts should be validated and analyzed before proceeding and, when in doubt, you should contact RQ at 514-287-3585 ext. 2878705, for clarifications on your application’s eligibility and the conditions for opening a file, and to see whether voluntary disclosure applies to your client’s situation.
Benoit Vallée, CPA, CGA
Member of the Technical working group on taxation and commodity taxes
Senior Manager, Indirect Taxes
Véronique Latendresse, CPA, CGA
Analyst, Taxation Department