Voluntary Disclosure Program - CRA Wants You to Come Clean

Filing Taxes | Voluntary Disclosure Program - CRA Wants You to Come Clean

Tax filing and payment obligations to CRA are sometimes, intentionally or inadvertently, overlooked or inaccurately met. Considering that many taxpayers may have different and multiple tax filing deadlines, it is not uncommon for taxpayers to mistakenly miss filing deadlines.  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. The Canadian tax authorities recognize the likelihood of this situation and it is precisely for this reason that the CRA administers the Voluntary Disclosure Program (VDP). It is an opportunity for the taxpayers to mitigate their risk by coming forward with the non-compliance through Canada’s Voluntary Disclosures Program.

What is the CRA voluntary disclosure program? 

Voluntary disclosure is the name of the Canada Revenue Agency (CRA) Tax Amnesty Program that allows non-compliant Canadian taxpayers to correct back tax problems and come back into the tax system. It allows the taxpayers to self-report to the CRA unfiled tax returns or unreported income, unreported offshore assets, or other discrepancies in tax filings. Taxpayers must submit a voluntary disclosure application along with corrected or missing tax returns for the resolution of tax issues before potentially facing harsh tax penalties and prosecution for tax evasion. 

When is the Voluntary Disclosure Program Used?

This program can receive a wide range of tax situations. The below list a few of the most common scenarios:

  • A mistake was made on a previous year tax return
  • Fail to file their T1 or T2 Income Tax Return altogether. 
  • Fail to file information disclosures with your tax returns to the CRA each year if you own foreign property, have foreign income, or hold shares in a foreign corporation
  • GST/HST was not collected, remitted to the CRA, or charged to consumers
  • Ineligible GST/HST input tax credits, refunds, or rebates were claimed

What Types of Relief can the Voluntary Disclosure Program Provide?

  • Prosecution relief
  • Penalty relief
  • Partial interest relief

However, these reliefs are provided on a case-to-case basis. Not every taxpayer will be able to obtain all these reliefs.

The CRA grants a higher level of relief to those who unintentionally made an error than those who purposefully avoided their tax obligations.

What Are the Conditions for a Valid Voluntary Disclosure Application?

  1. Be Voluntary – Taxpayers who received notice from the CRA do not qualify for the Voluntary Disclosure Program. Only taxpayers who voluntarily come forward to make changes to their errors or want to include omitted errors are qualified for this program.
  2. Penalty Owing – The omitted or inaccurate information must result in a penalty or interest owing to qualify as a valid application for the Voluntary Disclosure Program.
  3. Include Payment – An estimated amount of tax owing must be attached to the Voluntary Disclosure Program application during submission.
  4. Full Transparency – Submission of evidence and thorough explanation of omission or error must be attached to the application.
  5. Past Reporting Period – The omitted information or error made must be at least past one reporting period.

Who is eligible for the Voluntary Disclosure Program?

Any taxpayer can make a disclosure under the VDP, to put their tax affairs in order. You can be an individual, business, trust, resident or non-resident, employer, or payer.  Canadian taxpayers who approached CRA before the Canada revenue agency commences any type of audit or enforcement action are eligible to apply for Voluntary disclosure or tax amnesty penalty relief. The other main requirement is that the tax omission is at least one year old and that tax penalties be owing.

How far back can you go to file under the Voluntary Disclosure Program?

The CRA voluntary disclosure program (VDP) only applies to the last 10 years of tax issues. This means that you’ll need to apply for Voluntary Disclosure 10 years or earlier from the tax year in question. For example, if your VDP application was submitted in May 2018, relief would only be available for the 2008 tax year and subsequent years.   

CRA has no ability under the Tax Act to provide interest or penalty relief for greater than a 10- year period. So, what happens if a Canadian taxpayer has more than 10 years of unfiled returns, or has unreported income or unreported offshore assets, for more than 10 years? A taxpayer with more than ten years of tax problems will only be provided with interest and penalty relief for the last 10 years. However, one of the important benefits of the CRA voluntary disclosure program (VDP) is relief from possible tax evasion prosecution. 

How does the voluntary disclosure program work?

When you begin the CRA Voluntary Disclosure process, you need to tell the agency information that it does not already have. That’s why it’s critical to not only complete your application correctly but also to ensure that you are using the program in the right way. The CRA Voluntary Disclosure Program (VDP) only applies in certain circumstances.

After you submit your disclosure, the CRA may contact you by letter to ask for more information. The information must be provided within the timeline requested or the CRA voluntary disclosure request may be denied. 

Once the CRA has reviewed your application, you will be informed in writing as to whether or not the agency has accepted your disclosure and what relief has been granted. If you disagree with this assessment, you may request a second review of your file. However, a second review will not be granted if you have not provided the CRA with the information requested on time.

Is There Any Time-Limit for Providing Information and Documentation for the Disclosure, So That the Application Is Not Rejected?

You'll have a 90-day time limit. It begins with the Effective Date of Disclosure (EDD). This is the day when the CRA has received the completed application submitted by your authorized Canadian tax accountant. You may ask for an extension in writing if you need it.

How do I file a voluntary disclosure?

To enroll in the voluntary disclosure program or VDP an eligible Canadian taxpayer must submit a voluntary disclosure program relief with all required information along with all necessary tax returns and must make payment of all estimated taxes owing. In some cases, payment arrangements can be negotiated with the Canada revenue agency.

You can submit the RC199 Voluntary Disclosure Form and T1135 Foreign Voluntary Disclosure Form electronically or by mail. The safest way to submit it is through an experienced Canadian tax accountant. A tax accountant will be able to assist you and ensure that all necessary information is included and that there are no mistakes and set the groundwork if a subsequent court appeal is required.

What happens after I file the VDP?

Whether to accept a VDP application is subject to CRA's Discretion.

Not all disclosures by taxpayers are accepted by the CRA under the Voluntary Disclosures Program.  The CRA officer is going to decide whether you have met all the requirements and whether your application is going to be accepted or not. It is highly recommended to consult with an experienced Canadian tax accountant to maximize your chance to be accepted.

Can you appeal against the decision of CRA if they reject my application?

You can file for an appeal. If the Canada Revenue Agency rejects your VDP application, your tax accountant can submit a second-level review request. If that is not accepted then a judicial review application in the Federal Court of Canada can be filed. This request must be done within thirty days from the date in which the Director of the Tax Services Office denied your request for a reconsideration of the original decision. 

You may add additional information and/or changes if these arose since the original application was made. However, if the new information was left out of the application and it was therefore denied due to a delay in providing complete information, your application will not be considered for review.

Do I need to hire an accountant or a lawyer for the VDP application?

It is technically possible to deal with the CRA on your own. However, it is advised to seek the assistance of an experienced accountant. The process may appear straightforward, but complications can pop up along the way. These depend on your individual financial situation and your reason(s) for not paying on time. Hiring a professional accountant adds an extra layer of comfort that your VDP application is complete.

Since one is exposing him or herself by providing potentially incriminating information to a governmental authority, hiring a tax accountant with expertise in statutory tax law is critical for all taxpayers interested in making a disclosure to the CRA’s Voluntary Disclosure Program. 

Although the VDP is a very beneficial resource, it is essential to disclose your tax issues with an expert tax accountant to ensure that your omitted income does qualify for the disclosure program or if there are any other relevant tax treaties and provisions that can lead to a more favorable conclusion. 

Why come Forward? What happens if I don’t file VDP in case of non-compliance?

The CRA can go back to the dawn of your financial life and reassess a taxpayer for any and all the years. Staying non-compliant can result in serious penalties including gross negligence penalties and even criminal prosecution.

Bottom Line

Professional accountants at Filing Taxes can ensure you have thoroughly and accurately complied with all the conditions that must be met to submit an authentic voluntary disclosure. Our offices in Toronto and Mississauga can provide all the steps to submit a successful VDP, including tax owing estimates, unfiled income tax returns, back taxes, unfiled HST, sales tax returns, any unreported income, and unreported foreign assets on the T1135 form.

You can trust our experienced team to work with you and the CRA to resolve your tax situation. Our years of experience and deep understanding of CRA processes make us the right choice if you are considering applying for the CRA Voluntary Disclosure Program as well as in dealing with nearly any tax situation. So, here’s your opportunity to get all your questions and concerns answered. All consultations are completely confidential whether you finally choose us or not. Feel free to reach out to Filing Taxes at 416-479-8532. Schedule an NTR engagement appointment with us and take the first step towards proper management of your finances.

Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.

Written By:
Salman Rundhawa
Salman Rundhawa is the founder of Filing Taxes. Salman provides valuable tax planning, accounting, and income tax preparation services in Toronto, Mississauga, Oakville, and Hamilton.

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