CRA Voluntary Disclosure Program (VDP)
When it comes to filing taxes, mistakes can happen. However, if they’re not rectified, you or your business may be on the hook for additional interest and penalties and may even risk a criminal record.
Canadian resident taxpayers and, in many circumstances, non-residents, are required to file tax returns for each tax year and pay specified amounts to the Canada Revenue Agency. These tax filing and payment obligations are sometimes, intentionally or inadvertently, overlooked or inaccurately met.
The Voluntary Disclosure Program was created by the CRA to give Canadians the chance to rectify past financial mistakes and offers relief from significant financial and criminal penalties.
The reality is, the CRA has information from Canadian banks, businesses, traders, etc., that shows how much they paid you and what for. Countries are agreeing to share international information automatically, meaning that even international accounts and transactions are more easily discoverable.
With the CRA Voluntary Disclosure Program, you have the opportunity to submit previously withheld or overlooked amounts on already-filed taxes. This program offers Canadians the chance to start fresh and improve their financial standing with the CRA.
Get Your Tax Problem Solved With a VDP
Voluntary Disclosure Experts in Toronto
Faris CPA is proud to be a leading CPA in Toronto specializing in CRA Voluntary Disclosure Program assistance.
We work with individuals and businesses in Toronto to help balance their personal and professional finances, including guiding them through the process of voluntary disclosure and providing opportunities and incentives to correct past mistakes.
With over 10 years of industry experience and expertise, we understand each client’s financial situation is unique. Our accounting specialists will provide the tools and resources to help you start fresh next tax season.
Voluntary Disclosure Programs
The Voluntary Disclosure Program 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 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.
Eligibility for a Voluntary Disclosure Program
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 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 tax professional 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. Avoid the sleepless nights and uncertainty, and contact a Chartered Professional Accountant (CPA) who is an expert in tax disputes with CRA.
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What is the Voluntary Disclosure Program?
Voluntary disclosure is the name of the Canada Revenue Agency (CRA) Tax Amnesty Program. This program allows Canadian taxpayers to correct back tax problems, including unfiled tax returns or unreported income. Taxpayers can submit their voluntary disclosure application along with corrected or missing tax returns to avoid tax penalties or prosecution.
When should I make a voluntary disclosure?
At Faris CP, we recommend utilizing the Voluntary Disclosure Program from the CRA if you’re facing any of the related tax situations:
- The previous year’s tax return was not filed;
- Income earned was under-reported or not reported at all on a tax return that’s been filed;
- Any employee source deductions were not submitted, including pension plans or deductions from employment insurance;
- Taxable income in Canada from foreign sources was not reported on an already-filed tax return;
- GST/HST was not collected, charged, or reported for any eligible reporting period;
- Ineligible GST/HST input tax refunds, rebates or credits were claimed;
- Failed to report any foreign property and must now fill out form T1135 on their voluntary disclosure
Our accounting specialists will work with you to determine if you qualify for the CRA Voluntary Disclosure Program and help you fill out the appropriate forms for submission.
How can you help me correct my tax issues?
Faris CPA is proud to provide tax and accounting services, specializing in CRA voluntary disclosure assistance. We’ll review your filed tax returns and advise if there are mistakes. If we are able to identify any mistakes, our firm will determine if you’re eligible to fill out a voluntary disclosure form to submit to the CRA.
Is income tax voluntary in Canada?
The income tax system is based on voluntary compliance because the government knows tax laws are unconstitutional and cannot be enforced. There is no question that voluntary compliance is the cornerstone of Canada’s self-assessment taxation system.
How to apply for voluntary tax disclosure
If you’re interested in applying for the Voluntary Disclosure Program with the CRA, the first step is to consult with a licensed tax accountant to ensure you qualify. They will guide you through the necessary qualifications and help you fill out the appropriate disclosure form.
Form RC199 must be filled out and submitted by the taxpayer or an authorized representative. Your accountant will ensure the information included is accurate before submitting your CRA voluntary disclosure form.
How long does a VDP application take?
The process of applying for the CRA voluntary disclosure program varies depending on the full scope of your application, including the volume of documents being submitted. The full timeline for the CRA to resolve a VDP claim can be up to 350 days on average.
At Faris CPA, our accounting experts will work with you to determine the scale of information required to submit your application and guide you through the submission process. We ensure you understand the current processing timelines and will answer any questions related to voluntary disclosure through the CRA.
Can the CRA go back ten years?
In most cases, the CRA will go back three years to review information on your taxes to correct any discrepancies. The agency can go back further than three years if they believe that fraud has occurred and that a taxpayer has misrepresented themselves through carelessness or willful neglect.