Dec

30

Voluntary Disclosure Program: Canadian Income Tax Info (Part 1)

Michael CarabashPlease note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you need legal advice with respect to resolving tax disputes, you should seek professional assistance (e.g. make a post on Dynamic Legal Forms). We have Canadian tax lawyers and attorneys skilled and experienced in tax law. Feel free to make a post on Dynamic Legal Forms (it’s 100% free and anonymous) .

Many Canadians may be in a tight spot with the Canada Revenue Agency ["CRA"]: they haven’t filed their taxes, have hidden income, have claimed ineligible expenses, have made misrepresentations on past tax returns, or have otherwise evaded paying taxes. They’re worried about the CRA discovering and prosecuting them with interest and penalties (including criminal sanctions!). What can they do?

Well, the CRA has a Voluntary Disclosure Program ["VDP"] which allows, in certain circumstances, taxpayers to voluntary admit their tax delinquencies in exchange for an amnesty (which involves a negotiation to settle their tax disputes). This VDP is available for income taxes and goods and services tax. Sounds too good to be true? Well, there are a number of tips and traps that you should be aware of – and I’ll try to shed some light on them in this blog.

What’s the Process
The VDP process begins with the taxpayer completing a CRA form and attaching it to a disclosure submission and any supporting documentation. These documents must be be writing and mailed or faxed to the local tax services office (i.e. where the taxpayer resides).

In order for the disclosure to be valid for the VDP, it must be voluntary, complete, involve a penalty, and include information that is more than one year overdue. Each of these elements will be examined in greater detail below and in the next blog…

If the disclosure is accepted by the CRA, the taxpayer will have to pay taxes owing plus interest, but will not be subject to penalty or prosecution for amounts accepted as a valid disclosure.

If a taxpayer disagrees with the CRA’s decision, a taxpayer can request a review (either by contacting the Director of the tax services office or through a judicial review).

Voluntary
The CRA says that, for you to come forward voluntarily, you must not be under investigation. So if you were subject to or had knowledge of an audit, investigation, or enforcement action, then you won’t be entitled to the VDP. What’s an enforcement action? Well, the CRA says it includes:

  • requests, demands, or requirements issued by the CRA, relating to unfiled returns, unremitted taxes/installments, deductions required at source or non-registrants;
  • requests, demands or requirements which have been issued with reference to other tax accounts of the taxpayer, partners of the taxpayer or corporations associated with or related to the taxpayer;
  • direct contact by a CRA employee for any reason relating to non-compliance (e.g. unfiled returns, audit, collection issues); and/or
  • an audit, investigation or other enforcement action by another authority or administration, such as, but not limited to, a police force, securities commission or provincial authority.

Importantly, the CRA says: “The CRA request-to-file is an enforcement action relating to all unfiled returns for that taxpayer.” The CRA reiterates that view here: “although the aforementioned actions may only pertain to one specific year or reporting period, the procedure will be considered to be an enforcement action, for purposes of the VDP, for all taxation years or reporting periods”.

In the next blog, I’ll talk about the other requirements that are part of the VDP…

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