CRA VOLUNTARY DISCLOSURE PROGRAM (VDP) in Canada

Voluntary Disclosure Programs in Canada

The Voluntary Disclosure Program in Canada was designed to allow Canadians to present any financial withholdings or oversights that were not present on previous tax returns.

It’s important to be mindful that not all Canadians are eligible for the VDP. To be accepted under the general or limited program, the disclosure must be voluntary, which would mean the CRA does not have any prior knowledge about taxes owed. Your disclosure must be complete, ensuring all incomplete or inaccurate filings are accounted for, and the information must be overdue by a minimum of one year.

To determine if you’re eligible to fill out a voluntary disclosure form, ask yourself if you have done any other the following:

• Didn’t declare income when you were paid in cash?
• Deducted personal expenses from your income?
• Made a mistake when calculating your taxes?
• Led astray by an unscrupulous tax preparer?
• Overlooked amounts that should have been reported?
• Simply got the law wrong or misunderstood it?
• Worried your hard-earned money will be taken away from you and your family?

If you answered yes to the above questions, or if you have failed to file your returns, the Voluntary Disclosure Program may be your best solution. The Voluntary Disclosure Program is the Canadian taxpayers’ method of correcting past tax mistakes. This program gives you a second chance.

If your Voluntary Disclosure application is accepted by the CRA, you will still have to pay any taxes owed in addition to any interest either in part or in full. However, by using Canada’s Voluntary Disclosure Program, you’re protected from penalties and get relief from prosecution.

There is no limitation period for income taxes. In some cases, then the CRA can assess or reassess the taxpayer affected at any time – meaning the CRA can go back five, 10, 15, or 20+ years. Although the CRA can go back as far as it wants to, the Voluntary Disclosure Program in Canada can only provide penalty (and interest) relief going back 10 years from when you come clean. That said, a CRA voluntary disclosure form will protect you against criminal prosecution no matter how long ago the misrepresentation was made.

A professional accountant may also be able to limit the CRA’s inquiries to the last five to 10 years, giving you the full benefit of the Voluntary Disclosure Program’s Tax Amnesty. A successful disclosure will often require you to only pay the taxes you had to pay.

However, you have to ensure that your disclosure beats the CRA to the audit punch. Once you’re under a tax audit by the CRA, or a request is made of you to file returns not previously filed, you’re unable to take advantage of the program. When pursing a VDP, Faris CPA is well equipped to assist you, removing the need for a tax lawyer.

Schedule Assessment

Eligibility for a Voluntary Disclosure Program in Canada

For an individual to be eligible for a Voluntary Disclosure, the disclosure has to meet the following qualifications:

• The disclosure has to be voluntary;
• The disclosure has to be complete;
• The taxpayer has to be at risk of penalties;
• The disclosure has to include information that is at least a year past due or a correction of previously filed information.

These criteria are far from clear-cut. Whether or not a disclosure is voluntary can be a difficult question. For example, if you know that the CRA is investigating a company you are dealing with, and these dealings are taxable but not reported by you, you might not be seen as coming clean voluntarily.

Another important question is whether your disclosure is complete. Sometimes you don’t need to report revenue or transactions on your tax returns, while other times you’re required to. Some funds received are taxable and others are not. You have to disclose all events that must be reported and that have tax consequences. The income tax act imposes a large number of penalties in particular circumstances.

The act also provides exceptions to these penalties in certain cases. Whether or not you meet the risk-of-penalty hurtle can also be challenging. However, if your circumstances leave you open to any potential penalties, you will successfully pass this hurdle. The final criterion of having the information be at least one year past due or a correction of previously filed information is easily analyzed.

Filing a Voluntary Disclosure Application

There are two ways of filing a CRA Voluntary Disclosure Application. The first is by revealing your identity and the other is anonymous. Your tax professional will help you determine which route is best for you. The CRA, however, is under no obligation to commit to a binding outcome. There are also two programs under the VPD – the general and the limited program.

The limited program, if successfully applied to, means that the taxpayer is not subject to criminal prosecution and is exempted from the more serious penalties which would otherwise apply in situations involving gross negligence on the part of the taxpayer. Interest on outstanding tax balances, however, must be paid and penalties will be levied. Those taxpayers whose conduct is not in line with the limited program will be considered under the VDP’s general program.

The CRA considers numerous factors when deciding whether or not the limited or general program applies. These elements include the sophistication of the taxpayer, the dollar amounts involved, the number of years of non-compliance, and whether efforts were made to avoid detection through the use of offshore vehicles or other means.

Under the general program, no criminal prosecutions will take place and no penalties will be charged. The CRA will give partial interest relief, most specifically, for the years related to three most recent periods of non-compliance. This relief is usually equal to about 50% of the interest owed.

The CRA wants you to come clean and correct mistakes and they are willing to provide an incentive to do so. Although the decision to give relief is discretionary, where you clearly meet the published criteria for the Voluntary Disclosure Program, they have to grant you the relief advertised.

 A CPA will know what circumstances may disqualify a disclosure as not being “voluntary”, what items must be reported (and how to ensure that the disclosure is “complete”), and whether your circumstances leave you open to the possibility of a penalty. Without the need to hire a tax lawyer, you will be able to save on unnecessary legal fees. Avoid the sleepless nights and uncertainty, and contact a Chartered Professional Accountant (CPA) who is an expert in tax disputes with CRA.