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Voluntary Disclosure – Time Is Of the Essence

30 May 2012

The Federal Court of Appeal (FCA) has upheld Federal Court's (FC) decision not to allow Mr. Livaditis tax relief under the Canada Revenue Authority's (CRA) Voluntary Disclosure Program (VDP). The FCA affirms that whilst Livaditis was mistreated by the CRA, taxpayers contemplating voluntary disclosure should be doing so voluntarily, and in a time efficient manner. Taxand Canada explores the case in more detail.

The facts in the Livaditis case are straightforward: Mr Livaditis was the president of LaCaille Fifth Avenue Inc, which was developing a condominium building called Five West. In 2003, Livaditis and four family members acquired units in Five West prior to construction, and resold them in 2006 at a profit that was not reported to CRA.

On 28 October 2008, Livaditis received a call from a CRA official concerning records related to the first purchasers of units in Five West. Livaditis claims that this call was brief and concerned with all of the buyers of Five West. The CRA official claims that Livaditis was informed of the 'unnamed person requirement' to be served on LaCaille Fifth Avenue Inc. Three days later, Livaditis disclosed to the CRA under the VDP that he had failed to report capital gains on the unit in 2006. The CRA rejected the disclosure from Livaditis on the basis that it was not voluntary and Livaditis appealed to the FC.

The FC was tasked with deciding whether the CRA's decision to refuse Livaditis relief under the VDP was unreasonable. The FC's response to the case was the following:

  • The CRA wrongly placed significant weight on its own official's version of the phone call and discounted Livaditis' version of events.
  • The CRA's move to investigate LaCaille Fifth Avenue Inc. pre-dated Livaditis' disclosures, and CRA's policy cites that a disclosure is not voluntary where an enforcement action has been commenced against a related party. On the basis that the CRA's investigations would have uncovered the same information as Livaditis' disclosure, the FC upheld the CRA's decision.

Taxand Canada discusses these issues in more detail

Taxand's Take

By holding that a disclosure is not voluntary where an enforcement action has begun on a related party, we risk scenarios where genuine voluntary disclosure is discounted because of some unknown pending enforcement action against someone else. This case highlights exactly why taxpayers with undisclosed tax obligations need to move quickly - before the CRA commences any kind of enforcement action that may preclude obtaining protection under VDP. Time is of the essence!

Your Taxand contact for further queries is:
Stevan Novoselac
T. +1 416 862 3630

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