Israel Introduces New Options for the Voluntary Disclosure Application; Canadian Voluntary Disclosure Program Remains Unchanged

The Israeli Voluntary Disclosure Procedure Removes the Anonymous Track but Introduces a Fast-track Option for Unreported Cryptocurrency Assets.

The Israel Tax Authority's new voluntary disclosure procedure, delayed for over a year, will exclude the anonymous track previously available but introduce a fast "green" track for cryptocurrency holders to report profits up to hundreds of thousands of shekels without assessment official discussions. This new procedure aims to facilitate disclosures from crypto investors who have not previously reported their earnings. Assessment officials will have limited discretion to disclose digital asset profits up to NIS 5 million, requiring professional department approval for amounts above this. For other financial assets, the disclosure ceiling without higher-level approval will be NIS 10 million.

The voluntary disclosure procedure allows Israelis with unreported assets to declare them and pay taxes while avoiding criminal charges. A similar program in 2014-2016 generated over NIS 3.5 billion, and the new procedure was expected to bring in NIS 2-3 billion. However, publication delays arose over the removal of the anonymous track, which had significantly increased previous disclosures. Despite concerns that its removal may deter applicants, the Ministry of Justice insisted that citizens had already had two prior opportunities to disclose their assets anonymously.

While anonymous disclosures are no longer permitted, the new procedure retains a streamlined process for reporting small omissions. The fast-track green option, specifically for cryptocurrency holders, allows quick disclosure without hearings for amounts below a yet-to-be-determined threshold.

Previous voluntary disclosure programs featured a similar "short track," enabling individuals with undeclared capital under NIS 2 million and taxable income below NIS 500,000 to resolve tax issues efficiently. The upcoming procedure closely mirrors past programs, with the key difference being the removal of anonymity, aiming to enhance transparency while still encouraging compliance.

The Voluntary Disclosure Program in Canada

The Canada Revenue Agency's (CRA) Voluntary Disclosure Program (VDP) allows non-compliant taxpayers to correct past tax filings or disclose unreported income (such as crypto gains or assets) without facing prosecution. Updated on March 1, 2018, the program introduced a two-track system: the General Program for most cases and the Limited Program for taxpayers involved in intentional tax non-compliance or corporations with gross revenue over $250 million.

The Limited Program provides no interest relief and only protects against criminal prosecution, whereas the General Program offers partial interest relief and maintains appeal rights. Under the Limited Program, taxpayers must waive their right to appeal except for calculation errors or issues unrelated to their disclosure. Interest relief in the General Program is now limited to half of the interest owed for up to ten years.

Additionally, the previous no-name disclosure option has been replaced with pre-disclosure discussions via the CRA's general inquiry line, which lacks binding authority, making it largely ineffective. Overall, the updated VDP provides stricter conditions and reduced relief compared to previous versions, particularly for serious tax non-compliance cases.

Cryptocurrency holders and T1135 obligation

Canadian crypto holders should be aware of the T1135 return. The CRA requires individuals, corporations, partnerships, and trusts holding specified foreign property (SFP) exceeding $100,000 CAD at any time during the tax year to report it using Form T1135 – Foreign Income Verification Statement. Failure to file on time incurs penalties of $25 per day, up to $2,500, and the CRA may also impose gross negligence penalties of $500 per month, up to $12,000 for non-compliance.

Cryptocurrency holdings with a cost basis of $100,000 or more may need to be reported on Form T1135, depending on where they are situated, deposited, or held. In Technical Interpretation 2014-0561061E5, the CRA classified cryptocurrency as funds or intangible property, which means it may need to be reported on Form T1135. The key factor is where the cryptocurrency is held—if stored on a foreign exchange or custodian, it likely qualifies as SFP and must be disclosed. However, cryptocurrency held in a private wallet or on a Canadian exchange may not require reporting.

If a taxpayer failed to file the T1135, then the voluntary disclosure is the best solution.

Conditions of a Voluntary Disclosure Application

The CRA does not approve all applications for the Voluntary Disclosure Program (VDP) in Canada. As of March 1, 2018, eligibility criteria now require taxpayers to estimate and pay their tax liability upfront to participate. Alongside this new requirement, taxpayers must still meet the existing conditions for disclosure acceptance and benefit from immunity against criminal charges or penalties. These conditions include:

• Voluntary: The CRA must not already be aware of the taxpayer's outstanding tax obligations.
• Complete: Taxpayers must disclose all inaccurate tax filings for all relevant years.
• Tax Owing: The program applies only if the taxpayer owes taxes; it does not cover refund claims.
• One Year Past Due: Disclosures must be for tax years that are at least one year overdue.
• Payment: Taxpayers still need to pay off the tax owed.

Pro tax tips – CRA has the discretion to determine whether to accept a taxpayer's voluntary disclosure application

Acceptance into the VDP ultimately depends on the discretion of the assigned CRA officer, who determines whether all criteria are met. Expert Canadian tax lawyers can assist with preparing and submitting applications to ensure compliance with CRA requirements, maximizing the likelihood of approval under the general VDP.

FAQ:

What is the voluntary disclosure application in Canada?

The Voluntary Disclosure Program (VDP) is a policy from the Canada Revenue Agency (CRA) that allows non-compliant Canadian taxpayers to re-enter the tax system. Through this program, taxpayers can amend their previously filed tax returns or disclose information that was not previously provided to the CRA when they filed or submitted unfiled returns for prior years.

What are the penalties due to failure to file T1135?

Failure to submit the T1135 form may lead to a penalty of at least $100 or $25 per day for each day the form is late, up to a maximum of $2,500. If the CRA requests the return and the individual knowingly or due to gross negligence fails to submit the T1135 form, the penalty is $1,000 per month for each month the form is late, with a maximum of $24,000. Additional penalties may be imposed for forms that are late by more than 24 months.

Disclaimer: This article just provides broad information. It is only up to date as of the posting date. It has not been updated and may be out of date. It does not give legal advice and should not be relied on. Every tax scenario is unique to its circumstances and will differ from the instances described in the article. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.