Mac Killoran joined Fruitman Kates in April 2013 to head up the firm’s tax group. Mac specializes in executing strategies to minimize tax and is well versed in corporate tax compliance, partnership tax reporting, personal tax compliance, cross-border, commodity tax (GST/HST), and CRA disputes. Mac prides himself in his ability to offer clients peace of mind knowing that all possible filing positions have been considered without leaving any capital on the table.
Prior to joining the team at Fruitman Kates, Mac worked in mid-market public accounting since graduating university. He also worked at his family business, Weber’s, a well-known Muskoka destination and has acquired core knowledge of the business strategies and communication for small to medium privately owned businesses.
Peter Aprile is a senior lawyer specializing in tax dispute resolution and litigation. His vision as Counter’s founder and his everyday role at the firm are one and the same: to be an agent of change, uncovering opportunities and developing strategies that achieve more than anyone expected. A creative thinker, Peter studies problems from all different angles to find what others have missed. He’s also convinced that he likes winning more than most people.
Different people describe Peter in different ways. At the CRA and the federal Department of Justice, the word relentless comes up quite a lot. Admittedly, so does the word a**hole – but it’s often said with a certain grudging respect, if not affection. Peter’s clients call him a saint. Well, some of them, anyway. His colleagues describe him as empowering and harddriving, but fair. Peter’s friends call him loyal. His wife describes him as a lot to deal with, but worth it. Peter encourages his young daughter and son to call him “The Big Homie,” though with limited success. His mother describes him with the single word mischievous – before going on to complain that he should call more.
Yoni Moussadji is a tax lawyer who represents individuals and corporations in disputes with the Canada Revenue Agency (CRA). Appearing regularly before the Tax Court of Canada, the Federal Court and the Federal Court of Appeal, he takes pride in negotiating favourable settlements that save his clients time and money while limiting their exposure.
Enrolling at Osgoode Hall Law School, Yoni actually started out intending to focus on criminal law and become a Crown Prosecutor. But then a fellow student urged him to take a tax law course, explaining it was important to know at least a bit about tax, as it tended to come up everywhere. So Yoni signed up for the course, and in no time he was hooked. The following semester he took as many tax courses as possible.
True to his nature, as a lawyer Yoni is never content to rely on the analysis of others. He constantly pushes the boundaries in his quest for original ideas. He also drums a lot on the edge of his desk – something he does better than most people. But never in court.
CTI Podcast S01E02
[00:00] [background music]
Peter Aprile: [00:15] Thanks for joining us again on "The Canadian Tax Insights Podcast." This is part two of our podcast on the CRA's changes to the Voluntary Disclosures Program. In part one, Yoni and I gave an overview of Voluntary Disclosures Program, and we introduced the VDP changes that are set to take effect on March 1st, 2018.
[00:33] In part two, we'll dig a little deeper. We'll discuss the uncertainty that the changes to the Voluntary Disclosure Program will bring, the specific new types of VDP disputes that we expect to see, and we'll talk to Mac Killoran, a CPA, to learn how he thinks changes to the Voluntary Disclosure Program will impact his and other accounting practices. Enjoy the show.
Natalie Worsfold: [00:52] The Canadian Tax Insights Podcast is brought to you by Counter Tax Lawyers, a new type of tax controversy and litigation law firm. To learn more about Counter, go to countertax.ca. This podcast is also supported by LexisNexis Canada and the Lexis Practice Advisor Canada.
[01:14] The Lexis Practice Advisor Canada is an online database that gives Canadian lawyers practice notes, tools, and templates that you need to guide your legal practice. To learn more about Lexis Practice Advisor Canada, you can visit lexisnexis.ca. Stay tuned to the end of the episode to learn how listening to the podcast can help Canadian lawyers and accountants fulfill their CPD requirements.
Yoni Moussadji: [01:35] The combination of a voluntary disclosure decision being a discretionary decision, and the uncertainty related to whether a disclosure will be under the general program or the limited program, is going to lead, we believe, to an increase in VDP controversy.
[01:56] And, specifically, we anticipate that we're going to start to see taxpayers applying for judicial review of voluntary disclosures that are accepted under the limited program where the taxpayer's position is that the disclosure should actually be accepted under the general program. So in other words, we're going to see accepted disclosures becoming the subject of judicial review applications.
Peter: [02:17] Which has happened in the past, but not like this, obviously, and it was a rare occurrence in the past, but I think it's easy to see circumstances in which the CRA is going to defer to characterizing something as a limited program "accepting" the disclosure, and then, the taxpayer having to have the fight in the federal court about whether it should be under the general program.
[02:39] And all that, at the same time, if it's characterized as under the limited program, all that with the taxpayer having to pay the tax and the interest estimate as assessed.
Yoni: [02:48] The financial consequences are significant enough to cause taxpayers to dispute accepted voluntary disclosures.
Peter: [02:54] What's interesting about all these is that the disputes we see now, many of the issues that we have with disclosures that are rejected are the fact that we don't get sufficient reasons that explain why the voluntary disclosure was rejected or the underlying basis in which the Voluntary Disclosure officer chose to reject the voluntary disclosure.
[03:15] Just show me the logic or analysis that the VDP officer used to support his or her conclusion. And the fact of the matter is that we get nothing near frankly complete reasons now to support the decision without even casting judgment on whether the decision itself is right or wrong.
[03:30] In many cases, we don't even get sufficient reasons. And I think that under this analysis, the reasons that taxpayers should expect or that we are going to expect are going to be detailed reasons that explain to us why or on what basis was something characterized as under the limited program.
[03:48] Why was the taxpayer considered sophisticated? Why did the Voluntary Disclosure officer believe that there was an intent to essentially evade taxes or why this rose to the level of gross negligence? And so, the decision letters that are released by the CRA after March 1st, 2018 are going to have to have that added level of detail.
[04:10] And if not, there's certainly going to be more voluntary disclosure disputes just for the fact that under this program, under the limited program, I guess there's just going to need to be better reasons than there ever have were in the past because of the subjective elements that form part of the changes to the Voluntary Disclosure Program.
Yoni: [04:28] Yeah. It's impossible for a federal court judge to determine the reasonableness of a decision if the decision maker doesn't provide very specific reasons and the basis to support those reasons and which evidence he or she relied on and why.
Peter: [04:44] Yeah, but I'll even take that one step back which is we are going to be completely unable to advise our clients whether to dispute a decision, a CRA decision to put something in the limited program unless the reasons that underlie the decision are fully disclosed in that letter in a way that we haven't seen before, frankly.
Yoni: [05:02] Well, if the reasons aren't there, then my first inclination would be to dispute it. And then, through the federal court process, the litigation process, we get more information. And then, that gives us access to the reasons.
Peter: [05:16] Which is what we've done in the past. And it looks like what we're going to have to do, hopefully, we won't, but looks like what we're going to have to do again is just essentially initiate an application just to get better reasons which seems like a silly way to do things.
[05:30] But hopefully there's some guidance for Voluntary Disclosure officer, in terms of the level of detail that they need to release. And, again, hopefully when we get the new internal VDP guidelines there'll be something to that in those guidelines directing Voluntary Disclosure officers.
[05:45] But all that being said, it's going to be several years until we see the challenges, and the decisions that result from those challenges to start to be published to give tax practitioners, taxpayers, and the CRA guidance in terms of how these things should be handled, or what the new standard really is.
[06:03] And so, it's only then that we're going to get a better understanding, I think, of what the federal court thinks of these changes, the level of detail that's going to be required, and what constitutes a reasonable decision, taking into account all of these subjective elements that form part of the new Voluntary Disclosure changes.
[06:23] So that's our perspective on what we see from these changes to the Voluntary Disclosure Program, but again, our practice is different than, let's say an accountant's practice. So, now I think it's a good time for us to bring in Mac, who we talked about at the beginning of the podcast.
[06:35] Mac is a CPA and tax partner at Fruitman Kates, and let's hear how he thinks that these changes to the Voluntary Disclosure Program are going to impact his practice.
[06:44] [background music]
Peter: [06:45] Mac, why don't you give us a little bit of your background?
Mac Killoran: [06:49] I'm a tax accountant. I've been practicing as an accountant since 2004, primarily tax focused since 2006. Always midmarket. Never went to large shops, and all owner managed, except for the odd public company return. We primarily deal with high net worth, and integration of all compliance filing from start to finish to optimize families' tax positions.
Peter: [07:26] So you have pretty significant experience with the CRA, and with Voluntary Disclosure, so we thought you'd be a great person to talk to about the changes that the CRA has announced, and are implementing in March 2018. So just getting right to it, do you think your clients would be less willing to report noncompliance based on the changes to the Voluntary Disclosure Program?
Mac: [07:50] Depending on the facts, I think for sure, depending on what the nondisclosure is, but due to the uncertainty of the changes, for sure. I think people will hopefully not take the risk, but I think they will continue to take the risk not to disclose, other than if it's an off shore item, and they have to move the money back somehow.
Peter: [08:11] Do you think there's going to be a real impact? You foresee clients coming into you, or other accountants without focusing on you, clients coming into your office, learning about the Voluntary Disclosure Program?
[08:21] Obviously we all have a professional responsibility to outline the risks, and uncertainty of disclosure, as well as not disclosing, and put that in front of our clients to make the best decision that they can make, but what you see is you see some people stepping away, where under the old regime they might not have?
Mac: [08:37] Yes. Especially until we see what happens with these rules, and we get some history, or past experience on how they're going to be processing these, and what CRAs opinion of certain new changes will be, whether they'll grant relief or not.
Peter: [08:52] That's going to be interesting too because I think that you're going to get...I agree with that. I think you're going to get a wait and see from some people. I don't think anybody's going to want to be the guinea pig, and I think that because of some of the uncertainty, and without having any litigation, or jurisprudence behind it, it's going to be difficult for somebody to be the first step forward.
Mac: [09:09] It took 10 years for jurisprudence to come in.
Yoni: [09:13] Based on the new VDP guidelines, there's several reasons why someone may not proceed with a voluntary disclosure that before would have.
[09:22] And so, the five main points that we've identified are, number one, you can no longer do a no name disclosure. Number two, you have to pay the tax at the time you initiate the disclosure, or at least an estimate of the tax. Number three, there's uncertainty regarding whether you would fall into the limited, or the general program.
[09:40] There's no relief for companies with more than $250 million in gross revenue in at least two of the last five years, and you can't object. If CRA accepts the disclosure under the limited program, the taxpayer waives the right to objection related to the specific matter being disclosed, unless the dispute itself relates to a characterization issue, or a calculation error. How would you rank those five categories?
Mac: [10:07] I find for the most part a lot of our clients like the no‑name aspect of it, that they can get certainty under the no‑names and based on the facts and that propels them to actually go forward. So I would say that's going to be the hardest one forward because there's no certainty whether or not, and you're disclosing your name.
[10:27] The second one, I'd say the uncertainty regarding the limited versus general program. For a lot of our clients, they're on the fence there and dollar value...
Peter: [10:38] At least it's arguable either way, right? I think almost any of these, you could argue either way.
Mac: [10:43] When you read the guidelines, how do you determine if you're sophisticated or not?
Peter: [10:47] Yeah.
Yoni: [10:48] And CRA is the one making that determination.
Mac: [10:50] Exactly, so CRA's determination may be different than your determination and it...
Mac: [10:55] ultimately...
Peter: [10:56] I assure you it will be.
Mac: [10:58] disproving CRA seems to be very difficult these days. You guys know best, ultimately I'm finding that you almost have to go to Tax Court to disprove them and that comes with a huge cost. So, a lot of clients will be very wary of that. I'd rank that as number two.
[11:16] And then for our clientele basis, the third one would be the two or five years of $250 million of revenue or more. We have a lot of real estate clients and a lot of developers, so very easily for them to go over that $250 million revenue number, especially when they close on properties.
[11:37] Number four, I'd say no objection ability to the position put forward under limited circumstances because there's no certainty there. You're locked in otherwise.
[11:46] And number five, for our clients, most of them, they pay it when we file anyhow, or our estimate because they don't want to stop interest accruing. So I don't see the prepayment being that big of an issue.
Peter: [11:58] Yeah, and although having that huge kind of not hurts, our experience is, once clients have committed to going down the voluntary disclosure route, I'm trying to think of anybody, frankly, that has not paid the amount assessed under the Voluntary Disclosure Program. I can't think of one right now.
Mac: [12:17] Yeah, I can't think of one client that hasn't written a check when we're filing the file.
Peter: [12:20] Now, I agree with you, stat elimination of the no‑name is significant. We would work and I'm sure you would as well with the agency to try to find what the parameters are. And like you were implying earlier, it's not that any of us were getting rock‑solid comfort from the agency, but we're getting something, right?
[12:38] I used to describe to clients. You paint the agency in a corner a little bit to do what you can to ensure that the position that you're being put forward is going to be accepted and the voluntary disclosure as a general proposition was going to be accepted.
[12:51] But, you think your experience is similar to ours in which clients really like that comfort, even though it'll always come with a caveat that it wasn't binding on the agency.
Mac: [13:00] Clients liked it and oftentimes, it also gave us a longer period because you can get 90 days under no‑name and then once you give the name in 90 days, you get another 90 days.
Peter: [13:11] Right.
Mac: [13:12] So you had comfort over the period to acyually prepare the documents and get through all the facts and all the documents without any issues, so I like that, though the agency is somewhat more lenient on extensions these days or additional time in the last year.
Peter: [13:25] Under the VDP, you have been finding that previously?
Mac: [13:32] For a while, about a year ago, I found on any sort of audit, anything, they just want to close their files. They didn't want them open. They're always getting pushback from headquarters of your files are open too long and they just want them closed.
[13:46] Now, I find then if you get any of their audit letters back, even there's a length of a survey. And one of the first questions is whether or not they've granted an extension and how many extensions and what you felt about it.
[13:59] So, I feel like there's been a change of course or tact at CRA on extensions and how long they're holding files.
Peter: [14:06] Yeah, we were definitely feeling that from a voluntary disclosure perspective and you're right. The no‑name provide that opportunity to get our ducks in a row a little bit more, work with the agency, frankly, especially more complicated voluntary disclosures.
Mac: [14:18] Very large disclosures, somewhere you have around 12 or 15 foreign affiliates and you have multiple financial statements and looking at the statements and looking at how they're reported in foreign jurisdictions versus here and...
Peter: [14:30] And hopefully a Voluntary Disclosure officer that has a capacity to deal with that, right? Because sometimes it's a teaching exercise as well. So that's some of the reasons why clients maybe wouldn't file a VDP under the new regime, so let's talk about some of the reasons why they might.
[14:46] So Yoni and I were talking earlier today about increase in data leaks. We've all been seeing this through the news and we've all been reading, I'm sure, about the automatic information sharing agreements that are coming online. CRA no doubt has more access to worldwide financial information.
Mac: [15:01] We’re seeing the letters.
Peter: [15:02] Yeah. They just keep coming from different banks.
Mac: [15:06] Where was the transfer? This dollar transfer from this jurisdiction here, make sure it's reported. After filing the return, saying, "Where was the report?" A warning and then after, confirm where it was reported.
Peter: [15:20] It's amazing. And then you were telling me about the CRA commissioner had a quote in "The Globe" as well, right?
Yoni: [15:26] Yeah, the CRA assistant commissioner, Ted Galavan, was interviewed in The Globe and "Mail" in an article last Friday. And I guess his quote is, "We're increasingly confident in finding taxpayers on our own and not being as reliant on the Voluntary Disclosure Program to find them."
[15:42] And then he goes on to say, "In two or three years, we'll be looking to close or further restrict the program," so the Voluntary Disclosure Program, "because we are supremely confident that we are able to identify these taxpayers."
Mac: [15:55] I'd definitely say that's there. They're running analytics, even their postal code searches. I'm aware of one other person that's actually providing them with analytics to run to find different things and fact reporting of bank transfers is fully online.
Peter: [16:15] Yeah, so that's the question. We all know this is the reality. We see this in a very real way in our practices. We actually even had an examination for discovery in which the taxpayer was audited on the basis that he wasn't flagged by their algorithm.
[16:32] And so, they were testing somebody outside the algorithm to determine the accuracy of the algorithm itself and found him. So it's really interesting how they're using data and combining that with the access to the information that they're going to have or that they are starting to have and will continue to expand.
[16:48] It's obviously going to have significant impact, so the question becomes then, for all the reasons that are pushing taxpayers that will push taxpayers away from disclosing because of those factors that we were talking about earlier, all the uncertainty and all that other good stuff, is this just the overarching hammer?
[17:04] Is the fact that CRA is gaining more and more information with other jurisdictions, are taxpayers going to be in a position where they're just forced through and to roll the dice on the Voluntary Disclosure Program in any case?
Mac: [17:18] Good question. You're damned if you don't, for sure, and potentially damned if you do. [laughs] So they're going to catch up with you these days and all it takes is one transfer back. I don't understand how taxpayers think that it's not like back in the '70s when you're traveling with suitcases full of cash down the Caribbean.
Peter: [17:43] The good old days.
Mac: [17:45] Yeah.
Mac: [17:47] Maybe with cryptocurrencies, they can find a way around it, but I don't know. CRA has access to all the data and even with their PayPal reports now that they're getting online as well, eventually cryptocurrency will go right there as well, even though they think of it as commodity versus a currency.
Peter: [18:11] So I'm anticipating the conversations. We've had some of these conversations with clients as the automatic information showing agreement has come online, and now, more and more clients of both the new regime under the voluntary disclosure.
[18:28] Have you been having conversations with clients about the new regime yet? And have you had any initial reaction from them?
Mac: [18:34] I can tell you today we filed three no‑name disclosure letters. Planning to file them today before they announce the extension, just to get them in the system under the old one. We've been working with those three clients for better part of six months to get them to the point where they want to file.
Peter: [18:53] We're seeing that too, we're seeing an uptick. There was a couple no‑names that went in that might have...I think they would have gone in anyway frankly, I don't think that was the question, but this is certainly given an additional impetus for people that were on the fence I guess.
Mac: [19:08] I would say the three that we filed were all ones that may be kicked out of the general ones, they’re all foreign reporting, they all should be sophisticated taxpayers. Or there’s concerns they may be considered sophisticated based on the complexity of their structures. There has been a bit of a rush this year, but also over the last five‑seven years a lot of the off‑shore stuff has been disclosed.
[19:34] People have gotten nervous about it. First, HSBC over in Europe, then the Panama Papers, and now the Paradise Papers, I think it's hard to think that anything's secret electronically now.
Yoni: [19:47] I’m going to ask you about the Voluntary Disclosures that you just filed today. So the new guidelines, even though they don't start until March 1st, my reading of it is, you don't have the 90 days now, because you got to complete everything by March 1st.
[20:06] Meaning release the name, and file everything and have a complete package before March 1st, even though you initiated it now and normally would have the 90 days. Is that how you read that as well?
Mac: [20:16] I'm a little unsure on that. I'm actually waiting for the response letters to see what they say, I'm curious. I'd hoped to file one of them earlier, but we're just struggling to get financial statements of foreign subs that don't require them in the foreign jurisdictions.
[20:34] Until we have it all I was trying to wait to file, but I'll share the letters with you, see if they say 90 days or whether they say...
Yoni: [20:43] February 28th.
Mac: [20:44] Yeah, February 28th deadline. I'm hoping that a minimum they'll just make us give the taxpayers name, and then give us 90 days from March 1st.
Peter: [20:53] It seems like a softer roll‑out though. I'm not going to be surprised if the ones that were filed previously extend beyond the March 1st deadline. I didn't really see a reason why the government needed to extend, or to not initiate the new regime, or not launch the new regime until March.
Mac: [21:11] Like why they stepped away from Jan 1 to March?
Peter: [21:13] Yeah. It's nice that they did, and completely appreciated, but there was no real reason for it to happen.
Mac: [21:21] There was a year warning prior to this.
Peter: [21:23] Right. It's not like the other tax proposals that are running through where we had a bit of a different situation. We've known about this coming for a long time, and I'll say CRA did a good job of pushing it out there and making us all aware of it, that change was coming.
[21:39] Voluntary Disclosure Program, I've always viewed it as...Or the way that I feel like our clients have always treated under it was a little bit softer. It was a little bit more accepting, it was this idea that clients were coming forward, and I think CRA has in the past taken a less aggressive position.
[21:54] There is a part of me that thinks that extending from January to March before the launch was that same mentality. Now, after the new regime comes in I think gloves might be off. And I'm really concerned about characterizations that we were talking about earlier, and that softer VDP approach is a thing of the past.
[22:13] You have a great network of accountants, know a lot of people in the industry, what are you hearing from them in terms of what's coming?
Mac: [22:20] To be honest this is kind of falling by the wayside with all the other Canadian tax proposals, and July 18th, and most recently December 13th. This is background noise.
Yoni: [22:34] Yeah, because everything else is so significant.
Mac: [22:36] The underlying passive income, and tax on split income, and pipeline regime, and the 101 of tax planning for the last 50 years is more of a concern in the greater tax community, than the Voluntary Disclosure program.
Peter: [22:51] Yeah, fair enough.
Mac: [22:52] I also think that if you're going to do your Voluntary Disclosure, it's been all over the media for the last five or seven years. If you haven't done it yet, you're probably not going to do it. [laughs] Unless it's an estate that finds out about it after the fact.
Peter: [23:08] And that's going to be interesting too. We didn't get into that at all, but when we talked about sophistication of the taxpayer and stuff like that, that's what I was thinking of. We have situations like that where the estate learns for the first time, and so how is that going to be treated on a new regime?
[23:20] And is it going to be maybe treated differently than it was before? How do you think they'll treat that?
Mac: [23:28] In my experience of estates, even with fairness requests, due to delays, due to finding out the information, they've been pretty lenient. I hope they continue to be, because ultimately how is an executor or a trustee supposed to know about this stuff?
Peter: [23:44] Right. No, absolutely.
Mac: [23:45] If they're coming clean about it after the fact, why penalize them?
Peter: [23:53] Our experience was, CRA was cognizant that it was an estate obviously, and it felt like the approach that the CRA might have adopted if it was the primary taxpayer, would have been a little harsher than it is in the context of an estate. And I just wonder, under the new regime, does that change?
[24:09] Do they say, we're going to continue to focus on the level of sophistication of the taxpayer that set up this structure, and we're going to be less inclined to give the estate a break essentially?
Mac: [24:19] That wouldn't seem fair though then to the executors of the estate that ultimately bear the risk after the fact, right?
Peter: [24:26] Right. Well, fair.
Mac: [24:27] But CRA doesn't seem to care about fairness.
Yoni: [24:32] Are you concerned that the new regime takes away the ability to submit documents and filings after the VDP has been initiated? So for example, because practitioners need to submit everything all at once when you initiate the application.
Mac: [24:47] Yeah. I'm worried that a lot of clients and a lot of owner‑managers dragged their feet.
Yoni: [24:54] [laughs]
Mac: [24:55] And the 90 days was nice, getting an extension, I think we've had a file that took us almost a year and kept getting extensions on, because of the owner‑managed issue there. But I think that people are just going to stall and it won't get done.
Yoni: [25:15] You think they won't initiate in the first place? Like they'll wait so long, it will just drag out?
Mac: [25:21] What they like before was they could file a no‑name's letter and be protected. Right?
Yoni: [25:26] Right.
Mac: [25:26] Now I'd say, we send them the information list of how long it is, and how may bank statements, and how many this and that, and legal agreements that they have to dig up. A lot of them might just get lazy.
Yoni: [25:42] Without that hard deadline of, hey, you've got 90 days to do it. Now it's just, OK, we need to get this done before we can start. It's going to just fall by the wayside as Peter said.
Mac: [25:52] Yeah, their businesses often come first.
Peter: [25:55] Yeah, I hate to say as they should, but as they should. I'm just thinking of what our initial letters to clients warning them about...That's going to change the way of communication.
Mac: [26:03] It has to change.
Yoni: [26:04] We're going to have to practice defensively in that regard, like clearly telling clients, look if there is any enforcement action while you're getting this stuff together, and before we submit the complete package, that could lead to significant exposure.
[26:19] When we were talking about the limited program and the possibility that the CRA is going to try to make the determination that the disclosure ought to fall under the limited program as opposed to the general program, one of the things that Yoni and I were talking about is, does this create additional exposure for you and your clients?
[26:37] For all of us and our clients? And so, when the initial proposals were put out for the new regime they talked about disclosing the professionals’ names, who were part of, they say, the VDP. It wasn't really specific in terms of what that meant. I think it's reasonable to interpret it as practitioners that have involvement in the non‑compliance.
[26:57] Now I think that language has kind of backtracked a bit and they say they should disclose the names of those professionals. Are you concerned that under the new regime, if CRA gets accountants names, that the CRA will target those accountants and any clients of those accountants?
Peter: [27:15] Yoni had a great line. He said, "It's almost like the Voluntary Disclosure program is becoming more of a weapon for CRA than anything else."
Mac: [27:21] It's a concern I would say, but I think there is other analytics they should be running first. They have a laundry list of things that...
Peter: [27:33] That the CRA should be?
Mac: [27:34] That if I was them I'd be running before I went to accountants. Then you'd looked under the re‑file numbers of clients, and revenue size, and target a handful of them to see what's going on?
Peter: [27:47] They can just serve you with a requirement‑for‑information is what we were thinking.
Mac: [27:51] Yeah, but for all your clients?
Peter: [27:52] On a specific issue? Yeah, they could. They've done it in the past, and what we see from the courts, and you've seen this as well, it's like...
Mac: [28:01] I thought it was BP recently, the case they backtracked towards the, "We don't have to disclose our working papers."
Peter: [28:08] Yeah, but that was a circumstance in which the information that was requested from the auditor was not the subject of the audit? So basically, it was an auditor looking for underlying information that didn't deal directly with what he was auditing. Which is different than the circumstance in...Was it I.G. Gillis?
Yoni: [28:26] I.G. Gillis, yes.
Peter: [28:26] It was different than the circumstance in I.G. Gillis in which...
Yoni: [28:29] They were auditing a specific transaction.
Peter: [28:31] Right, and because they were auditing the specific transaction ‑‑ and because of some issues with privilege which we won't get into now ‑‑ the CRA was able to gain the underlying information, and so I think it's arguable. I think it's a strong argument though.
[28:48] I think it's arguable that if the CRA can specifically identify what its concern is to a specific accountant and say, "We want you to release all information for all clients on this specific issue, and we're serving a requirement‑for‑information." I think that CRA is going to have a strong argument to gain access to that information.
Mac: [29:07] As do I, I think they targeted easier though. They can analytically search by E‑file code.
Peter: [29:14] Right, and just track everybody down that way.
Mac: [29:17] And give you less of taxpayers' names. Otherwise, I think it's just a fishing expedition, and then therefore, let's go to the privilege, do you start to advise clients they not engage us directly for year ends and that they work through a law firm to be engaged?
Peter: [29:34] I was like, is this where this is going?
[29:36] [background music]
Mac: [29:36] I know CPA Canada is lobbying hard for tax advisers to have privileges...
Peter: [29:41] I can't see that happening in Canada.
Mac: [29:44] I can't either. I don't think it will happen.
Yoni: [29:47] CPA Canada, go fight the good fight. Absolutely.
Mac: [29:50] It would be nice if they give one that, but...
Peter: [29:54] That's going to be tough. That's what we were concerned about, and we were concerned about then, does that then lead to greater exposure to third‑party penalties and things like that? Because what were you saying that CRA seems really confident about all this.
Yoni: [30:17] The Globe and Mail article with the assistant commissioner mentioned that they may not need the Voluntary Disclosure Program in two to three years and will close it down. It's just this air of confidence that they're going to catch everyone, and they're attacking practitioners. In that same article there was a comment about practitioner penalties.
[30:34] They assessed $44 million in practitioner penalties last year, and they expect that to increase in future years. And possibly using this Voluntary Disclosure Program as a tool to...The requirement that a taxpayer's voluntary disclosure indicate the practitioner that advised the taxpayer in the non‑compliance.
[30:53] Using that to go after not necessarily client lists, but imposing third party penalties.
Mac: [30:58] I can tell you it scares me, because often, we don't want to put it in writing the rest of our lives, because we don't have privilege.
[31:08] But at the same time, now we have to protect our best interests, and by not telling them better ‑‑ or documenting it ‑‑ we're potentially liable. Or we're potentially culpable for these disclosures, though ultimately, we can't force a client to file.
Peter: [31:26] We can't map our risk profiles, no matter how much you want all your clients to report all non‑compliance, or not. Whatever your risk tolerance is. We can't map that onto our clients.
[31:36] It's almost like the CRA's attempting to wave around the threat of third‑party penalties, which it's been doing since third‑party penalties were passed, in order to try to put pressure on accountants and lawyers to bring their clients forward. Even clients that might not be willing, or be willing to accept the risks. That doesn't seem to make much sense.
[31:56] In any event, just a last point. We were talking about, what does this mean from a practical standpoint? Lawyers and accountants...It's been a part of our practice, but it's certainly not what we focus on every day. Just like you.
Yoni: [32:09] It's a tool in the toolbox.
Peter: [32:11] Yeah, it's a tool. That's exactly it. Your accounting practice isn't built around voluntary disclosures, as our law firm isn't either.
[32:18] But you know, there's an argument that there's going to be ‑‑ with the changes, and as the Voluntary Disclosure Program gets eliminated, if it does in two to three years –that this is going to make a significant impact on many accounting and law practices, because they're going to lose this revenue from this cottage industry that's become Voluntary Disclosure Programs. Do you see the same thing?
Mac: [32:38] Ultimately, I think there's not enough time as it is now, to do everything. So I'm not so sure.
Yoni: [32:44] So you're happy for it to go away?
Mac: [32:46] I'd rather be doing other things than voluntary disclosures, so I'm not too upset about everything that’s going on.
Peter: [32:52] But you see that, though. Right?
Mac: [32:54] I do, for sure. If it's not a slam dunk, why do it?
Peter: [32:58] Right. Got anything else?
Mac: [33:01] No, I'm good. Thank you for having me.
Peter: [33:04] So that's our overview of the changes to the Voluntary Disclosure Program, and we hope that this discussion provided you with a better understanding of what's coming, and how it's going to impact your practice, and your clients. We'll see you on the next episode of the Canadian Tax Insights Podcast.
Natalie: [33:27] Thanks for listening to the Canadian Tax Insights podcast. This podcast is brought to you by Counter Tax Lawyers, and LexisNexis Canada. To learn more about Counter, go to CounterTax.ca, and to learn more about LexisNexis Canada, and Lexis Practice Advisor Canada, visit LexisNexis.ca.
[33:42] If you're a Canadian accountant, you can own free, verifiable CPD credits by listening to the podcast, and completing our five‑minute online quiz. Just visit our website, at CounterTax.ca/blog. Find the episode, and you can complete the quiz online. We'll email you a certificate, so that your time and learning can be verified.
[34:18] If you're a Canadian lawyer, you can claim a CPD credit equal to the time you spent listening to, and learning with the Canadian Tax Insights podcast. If you have any concerns, please contact your law society.
[34:28] If you're interested in other legal podcasts, check out Counter's "Building New Law" podcast, to listen to Peter and Natalie Worsfold interview lawyers, legal technologists, and other professionals working to change the practice and business of law. Visit BuildingNewLaw.ca for more details, or download Building New Law episodes, using your favorite podcast app.
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