Behind on your taxes? Feeling overwhelmed and uncertain of potential penalties that could apply once you finally do get caught up on your taxes? Did you know the Canada Revenue Agency (CRA) has a program which allows taxpayers who are behind on their taxes or who have incorrectly filed their tax returns to get caught up or correct previously filed errors without the risk of potential penalties or prosecution.
The Voluntary Disclosure Program (VDP) is a program designed to give taxpayers a second chance to voluntarily come forward with late tax returns, unreported income on previously filed returns, unreported information returns such as Form T1135 and so on. Voluntary disclosures are available to all taxpayers. This includes individuals, trusts, corporations, GST/HST registrants, etc.
The process of completing a voluntary disclosure submission consists of preparing the late filings or correcting the previously incorrect filings as well as completing form RC199, which is the Voluntary Disclosure Program Taxpayer Agreement.
Voluntary Disclosure Program
If you meet the conditions to enter the Voluntary Disclosure Program, which are outlined below, you have the opportunity to become compliant with CRA without the risk of costly penalties or prosecution. You will still be required to pay any outstanding taxes owing as well as any accrued interest. (Note: There are instances where the interest may be cancelled or reduced)
Certain conditions must be met in order to have a valid voluntary disclosure. A voluntary disclosure will only be valid if it meets all 4 of the following conditions:
1) It must be voluntary. This means that that you must act prior to the CRA requesting tax returns or taking other compliance action towards you;
2) The information/ tax return(s) must be at least 1 year overdue;
3) A penalty must apply to the filings and
4) The information submitted with the voluntary disclosure must be complete.
Many people still feel uncomfortable filing as they wonder what will happen if CRA determines that they do not qualify for the Voluntary Disclosure Program. At that point the individual would have given up their identity and brought attention to their delinquent or incorrect filings and now could be exposed to major penalties.
If this is a concern, there is an option to file an anonymous disclosure also called known as a ‘no-name’ disclosure. By preparing this type of disclosure, you are able to remain anonymous while finding out if it is likely that CRA will accept you into the program on not. From there, the CRA will review your disclosure and reply in writing regarding your submission. From the date of that letter, you will have 90 days to provide your identity. (The 90 day period is not from initial submission date but rather from the date that CRA informs you that your 90 days to submit your personal information has begun).
It’s important to note that you can generally only go through the Voluntary Disclosure Program once for the tax years in question and are expected to stay up to date on your filings for future years.
If you think you may qualify for the Voluntary Disclosure Program or would you like more information, please feel free to leave a comment, send us an email or give us a call.
The information contained in this article is for general use only and should not be viewed as professional advice. Accounting and tax rules and regulations regularly change and individuals should contact a competent professional to obtain accounting and tax advice based on their specific situation.