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CRA Voluntary Disclosure Program (VDP)

Canadian resident taxpayers and, in particular circumstances, non-residents, have to file tax returns for each tax year and have to pay amounts due to the Canada Revenue Agency. These tax filing and payment obligations are sometimes, intentionally or inadvertently, overlooked or inaccurately met. Mistakes happen when filing taxes but, unless they are corrected properly, you or your business may be on the hook for additional interest and penalties and may even risk a criminal record. It is easy to get caught. Did you know the CRA has information from Canadian banks, businesses, traders, etc that show how much they paid you and what for? Countries are increasingly agreeing to share international information automatically, meaning that even international accounts and transactions are more easily discoverable.

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Ask yourself:

  •   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 CRA’s Voluntary Disclosure Program may be your best route forward.  The Voluntary Disclosure Program is the Canadian taxpayers’ method of correcting past tax mistakes. This gives you a second chance. Don’t wait and hope the CRA won’t catch the errors. 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 the Voluntary Disclosure Program, you’re protected from penalties and get relief from prosecution.

There is no absolute 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 5, 10, 15, 20 or more years.  Although the CRA can go back to 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 Voluntary Disclosure 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 5 to 10 years, giving you the full benefit of the Voluntary Disclosure Program’s Tax Amnesty.  A successful voluntary disclosure will often require you to only pay the taxes you had to pay anyways.  This is a very generous way to come clean and have a fresh start.  Time, however, is not on your side.  You have to make sure that your disclosure beats the CRA to the audit punch.  Once you’re under audit, or a request is made of you to file returns not previously filed, you’re out of luck.  

A great deal of careful work goes into making a successful Voluntary Disclosure application. To be eligible:

  •   The disclosure has to be voluntary;
  •   The disclosure has to be complete; 
  •   The taxpayer has to be at risk of penalties; and
  •   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 have dealing with, and these dealings are taxable but not reported by you, you might not be seen as coming clean voluntarily.  Another difficult question is whether your disclosure is complete.  Sometimes you don’t need to report revenue or transactions on your tax returns, other times, you do.  Some monies received are taxable and others are not.  You have to disclose all events that have to 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 some cases. Whether or not you meet the risk-of-penalty hurtle can also be challenging.  However, if your circumstances leave you open to any of the many potential penalties, you 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.  

Want to know more about CRA Voluntary Disclosure, Click here.

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 program the CRA has to grant you the relief advertised.  Making sure you meet the criteria, therefore, is of great importance.  A tax professional will know what circumstance 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, contact a Chartered Professional Accountant (CPA) who is an expert in tax disputes with CRA.

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FAQS

What is the voluntary disclosure program?

The Voluntary Disclosure Program is a tax amnesty offered by CRA. The CRA’s Voluntary Disclosure Program promotes compliance by urging you to come forward voluntarily and fix omissions in your previous dealings with the CRA. Taxpayers who submit a valid voluntary disclosure pay the principle taxes or charges, without the penalties or criminal prosecution that they would otherwise face. In some cases, the CRA may also waive interest charges.

How can you help me correct my tax issues?

I can review your filed tax returns and advise if there are mistakes. If there are mistakes, I can recommend the approach.

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 do I submit a voluntary disclosure?

Form RC199 should be completed.  The form can be submitted by the taxpayer, or by an authorized representative. The paperwork must be submitted accurately and completely.

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 things. The agency can go back further than 3 years if they believe that fraud has occurred and that a taxpayer has misrepresented themselves through carelessness or willful neglect.

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“Need someone who can talk CRA and walk tax law stuff? I did. After an expensive year of trying to resolve a CRA issue on my own – I was very happy to have Sam Faris in the ring with me. I am confident that no lawyer or CA could have prepared a stronger case report to support my appeal. Sam approached my case professionally and skillfully from all angles possible and personally made sure I understood exactly what was going on; every step of the way.”

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pro-tip

Pro Tip

ACCESSING THE SMALL BUSINESS DEDUCTION IN YOUR BUSINESS

The Small Business Deduction gives businesses a tax deduction on the first $500,000 of income. This saves an eligible corporation around up to $50,000 in income taxes. There are a number of conditions that have to be met to be eligible for this deduction.