Taxpayers can make disclosures to correct inaccurate or incomplete information, or to simply divulge information that has not been previously reported to the Canada Revenue Agency (the “CRA”).
The Voluntary Disclosure Program (“VDP”) promotes compliance by encouraging taxpayers to voluntarily come forward and correct previous omissions in their dealings with the CRA. Taxpayers who make a valid disclosure will have to pay the principle taxes or charges, without penalty or prosecution that the taxpayer would otherwise be subject to. Often times the CRA will waive the applicable interest charges.
Conditions of a Valid Disclosure
- Voluntary:a disclosure will not qualify if the CRA determines:
- the taxpayer is aware of, or had knowledge of an audit, investigation or other enforcement action set to be conducted by the CRA or any other authority, and
- the enforcement action is likely to have uncovered the information being disclosed;
- Complete:the taxpayer must provide full and accurate facts and documentation for all taxation years or reporting periods where there was previously inaccurate, incomplete or unreported information relating to any and all tax accounts with which the taxpayer is associated;
- Penalty:a disclosure must involve the application, or potential application of a penalty. The penalty type may be related to: late filing, a failure to remit, an instalment, or be discretionary in nature (such as an omission penalty or a gross negligence penalty); and
- One year past due:the disclosure must include information that is:
- at least one year past due, or
- less than one year past due where the disclosure is to correct a previously filed return.
Circumstances Under Which VDP Relief May be Granted
Relief from penalty and prosecution may be considered if a taxpayer:
- failed to fulfill their obligations under the applicable tax act,
- failed to report any taxable income they received,
- claimed ineligible expenses on a tax return,
- failed to remit trust funds (source deductions or GST/HST),
- failed to file information returns, or
- failed to report foreign sourced income that is taxable in Canada.