The CRA Voluntary Disclosures Program
The Canada Revenue Agency’s (“CRA“) Voluntary Disclosures Program (“VDP“) is a program administered by the CRA that allows Canadian taxpayers to voluntarily come forward and declare previously undeclared income or to correct past filed tax returns without the fear of penalty or prosecution. Through the VDP, a taxpayer can come forward to the CRA and provide them with details on mistakes that have been made on previous returns or give them information they may have left out in the past.
Eligibility for the Voluntary Disclosure Program
Taxpayers can only use the VDP in specific situations. Taxpayers can use the VDP in the circumstances such as:
- When they have not reported GST/HST
- When they have failed to report taxable income
- When they have not disclosed excise taxes
- When they have claimed ineligible or overstated expenses
- When they have not remitted employees’ source deductions
- When they have not filed information returns
- When they have not reported foreign-sourced income
Taxpayers cannot use the VDP in matters involving rollover provisions, elections, advance pricing arrangements, bankruptcy tax returns or post-assessment requests. Furthermore, the VDP only applies to a taxpayer’s last ten years of tax matters. This means that you will need to apply for the VDP within ten years from the tax year in question. For instance, if you intend to use the VDP in 2021, relief is only available for 2011 and subsequent years. The CRA cannot provide relief outside these ten years. Consequently, this ten-year period is considered to be the Limitation Period for the discretion for relief of penalties and interest.
Qualifications under the Voluntary Disclosures Program
To qualify for the VDP, five conditions must be met:
- The information must be at least one year overdue;
- The amount in question must be subject to a penalty;
- The disclosure must be voluntary (meaning that the disclosure must be done before the taxpayer becoming aware of any compliance or enforcement action by the CRA)
- The disclosure must be complete (this means the taxpayer cannot submit a partial correction and must correct all errors and provide all missing information)
- The taxpayer must include payment of the estimated tax owing.
If your disclosure meets these conditions and the CRA accepts the disclosure, you will be required to pay the amount of taxes owing plus interest in part or in full. However, the CRA will not refer you for criminal prosecution. In some cases, you will also be able to receive relief from penalties, depending on the track your case falls into.
Two System VDP
The CRA has divided the VDP into two: the VDP General Program and the VDP Limited Program. The CRA has divided the VDP into a two-system program as a way of differentiating taxpayers seeking to correct unintentional errors from taxpayers seeking to correct intentional errors. As a result, the type of relief you are eligible to receive will depend on whether the CRA processes your disclosure under the General or Limited Program.
The CRA has designed the VDP General Program for taxpayers who have made unintentional errors and wish to correct them. If the CRA places you into this program, the CRA will provide partial interest relief. You will also not be charged penalties associated with the corrected issue. The CRA will also not refer you for criminal prosecution regarding the information you disclose.
The CRA has designed the VDP Limited Program for circumstances where it believes that the taxpayer has made an intentional error to avoid their tax obligations. If the CRA places you into this program, the CRA will not refer you for prosecution. The CRA will also not charge you gross negligence penalties. Nevertheless, the CRA may still charge you other penalties and will charge you interest on the amount owing. The CRA decides on a case-by-case basis whether to process a VDP application under the General or Limited Program.
Professional Legal Help With Your VDP Application
If you are considering applying for the CRA’s VDP, it is essential to understand that you will no longer be eligible for the VDP once the CRA begins to ask questions about your tax situation. If you no longer qualify for the VDP, you will face penalties, interest and and may also potentially be referred for criminal prosecution. For these reasons, it is vital to handle your tax matter as soon as possible and hire professionals to assist you. Our lawyers can help you understand the VDP process and help you decide whether the VDP is the right strategy for you. Our lawyers can also complete your VDP Application and represent you against the CRA during the disclosure process.
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By Kaveh Rezaei – Attorney at KR Law Firm
**Disclaimer
This article contains information of a general nature only and does not constitute legal advice. All legal matters have their own specific and unique facts and will differ from each other. If you have a specific legal question, it may be appropriate to seek the services of a lawyer.
