Voluntary Disclosure - coming clean with the Canada Revenue Agency
The Voluntary Disclosure Program (VDP) gives taxpayers a second chance to correct a tax return previously filed or to file a return that should have been filed. If you file a VDP application and it is accepted by the Canada Revenue Agency (CRA) you will have to pay the taxes owing, plus interest in part or full. However, you would be eligible for relief from prosecution and, in some cases, from penalties that you would otherwise be required to pay. The program is designed to encourage taxpayers to come forward and become fully compliant without fear of punitive penalties or prosecution.
A taxpayer is generally entitled to obtain the benefits of the VDP only once. A second application from the same taxpayer will only be considered by the CRA if the circumstances surrounding the second application are both beyond the taxpayer’s control and related to a different matter than the first application.
The CRA has significantly tightened the VDP for applications received after February 28, 2018 and amended the rules to introduce two “tracks” of disclosures:
- Limited Program; when there is intentional conduct to be non-compliant or for corporations and related entities with gross revenue exceeding $250 million in at least two of their last five taxations years (Big dog rule - this is designed to keep corporations from using this program for planning purposes and then disclosing at a later date)
- General Program; when the limited program does not apply.
A VDP application must meet the following five conditions to be valid and to qualify for relief. The applications must:
- Be voluntary, which means you make it before you are aware of the CRA taking any compliance action against you;
- Be complete, which means that you have included all relevant information and documentation (which includes all returns, forms and schedules needed to correct the error or omission);
- Involve the application of a penalty;
- Include information that is at least one year past due; and
- Include payment of the estimated tax owing
The CRA is not required to grant relief in respect of all applications made to the VDP. Each request will be reviewed and decided on its own merits. The CRA has provided examples where relief may be considered:
- Failed to fulfill their obligations under the Income Tax Act;
- Failed to report any taxable income they received;
- Claimed ineligible expenses on a tax return;
- Failed to remit source deductions of their employees;
- Failed to file information returns; or
- Failed to report foreign sourced income that is taxable in Canada
Taxpayers who are unsure if they want to proceed with an application are given the opportunity to participate in preliminary discussions about their situation on an anonymous basis to get insight into the VDP process, a better understanding of the risks involved in remaining non-compliant, and the relief available under the VDP. These discussions with a CRA official are for the benefit of the taxpayer; they are informal, non-binding, and may occur
before the identity of the taxpayer is revealed. These discussions do not constitute acceptance into the VDP and have no impact on CRA’s ability to audit, penalize, or refer a case for criminal prosecution.
The preceding article provides some insight into the new VDP program. All issues are determined on a case by case basis by the CRA. If you think you may be eligible for a submission under the VDP please consult a tax advisor for more information.