Are you a few years behind in filing your tax returns? You are not alone. Thousands of Canadians fail to file their tax returns each year and many of those of people are a few years behind. Falling behind on your income taxes can become a much more daunting task, increasing risks associated with potential penalties, if the CRA assesses you prior to you filing your returns.
For those individuals wanting to take the next step towards becoming tax compliant, the CRA offers a one-time voluntary disclosure program which allows taxpayers to file all delinquent tax returns, without the risk of financial or criminal penalties. In order to qualify, you must meet the following criteria:
1) The information/ tax return is at least one year overdue.
2) A penalty would be applicable.
3) The voluntary disclosure is complete (all tax returns/information returns for all delinquent returns are filed together).
4) The disclosure is made voluntarily (i.e. before the CRA takes any action against you, or requests the tax returns).
The fourth point is the most important because, once CRA contacts you or takes action against you, you are no longer eligible for the voluntary disclosure program. This means that you no longer have protection from costly late filing and other penalties.
Voluntary Disclosures are not only available to individual taxpayers, but are available to employers, corporations, partnerships, trusts and GST/HST registrants as well.
One common question that people ask when considering the Voluntary Disclosure program is what the risk is if the CRA rejects their voluntary disclosure. This is of special importance to those who are subject to potentially significant “failure to file” and other penalties.
It is always important to assess what factors or risks may contribute to a voluntary disclosure not being accepted by the CRA. If you meet the criteria, there are only a few circumstances that should contribute to a voluntary disclosure not being accepted. One option for those individuals is to file an anonymous “no-name disclosure”. In this situation, you do not initially disclose your identity . You would, however, have to provide your identity within 90 calendar days. This 90 day period begins not from the time of the original submission, but from the point at which the CRA sends you a letter indicating that the 90 day period has begun. Failure to provide your identity at this point will result in the CRA closing your voluntary disclosure file. A current issue is that, in some instances, taxpayers are not obtaining a decision from the CRA as to whether they will accept or refuse the voluntary disclosure within the 90 day period. This effectively is putting some taxpayers in a situation where they need to expose their identity prior to having confirmation from the CRA as to whether they will accept them into the voluntary disclosure program. Regardless of the situation, it is important to identify what penalties may exist and how much they could be, since these are also penalties that will exist if the CRA assesses you prior to the voluntary submission of delinquent tax returns. Although Voluntary Disclosure is a great option for those taxpayers who would otherwise be subject to penalties (one of the criteria above for a valid Voluntary disclosure, see above), there are also a large group of taxpayers who are delinquent in filing their tax returns but may not owe any tax, or may have refunds owing to them. If there are no other potential penalties on any other required tax filings, these people would not need to file under the voluntary disclosure umbrella, but could just back file any delinquent years’ tax returns.
For people who have refunds owing in prior years, but have not filed, it is important to know that tax returns older than 3 years can become statute barred, which may result in the CRA not issuing refunds that exist prior to the 3 previous tax years (see when taxpayer relief may apply). This is why is it important to become compliant, even when you do not owe any tax, as you may be leaving money on the table.
If you want to get caught up on your tax returns, but need help or have questions about the voluntary disclosure program, please send me an email at firstname.lastname@example.org or call 250-381-2400.
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.