When a Canadian taxpayer misses reporting certain income or has made an error in their tax returns they can rectify that error with the help of Canada Revenue Agency’s (CRA) Voluntary Disclosure Program (VDP). It is important to note that when using the VDP to fix a mistake full disclosure needs to be made. Since the VDP is like a free ‘Get out of Jail’ card which can only be used once for a particular issue. If a voluntary disclosure is made with incomplete information it could have severe consequences.
The following is a brief overview of the CRA’s ‘Voluntary Disclosure Program’ and what happens in case of non-compliance.
CRA’s Voluntary Disclosure Program (VDP)
Canada’s voluntary disclosure program provides taxpayers with an opportunity to correct their tax errors with minimal tax consequences that could otherwise be subject to severe penalties and interest. Any taxpayer, whether individual, corporation, or other tax entity can use the VDP to disclose and rectify their tax situation.
A taxpayer can use voluntary disclosure for several tax situations. Some of these include: unreported investment income, failure to file foreign asset verification disclosures, unreported foreign income, or unfiled tax returns where the CRA has not already requested that you file.
Taxpayers should be cautious while relying on the VDP. Valid documents should support all facts and figures state, or claims made. Since once the CRA rejects a VDP application, the information is already in the CRA’s hands. This makes a second opportunity to make a voluntary disclosure very rare.
VDP Penalties, Interest & Timing
Taxpayers should note that applying for CRA’s voluntary disclosure program does not mean there will be no penalties. The taxpayer would still be responsible to pay any taxes owing along with interest and, potentially, late filing penalties. However, CRA often waives off penalties, such as: failure to remit or gross negligence penalties, in the case of a voluntary disclosure but are usually applicable if the CRA issues a re-assessment or audit notice.
Taxpayers should be aware that the CRA will not accept a voluntary disclosure until it is at least one year overdue. This is done to prevent taxpayers from using the VDP to escape late-filing penalties. In addition, the law prohibits taxpayers from using a second voluntary disclosure at a later date for the same type of issue. When the CRA accepts the application, it will issue an assessment specifying the penalties and interest. If in case this assessment is unfavourable the taxpayer may file an objection or pursue other options.
It has been our experience that the CRA accepts the majority of the voluntary disclosure applications. Some taxpayers have also been granted relief from penalties and interest. If you are considering the VDP you should immediately consult your tax professional to determine if this applies to your tax situation.
AG Tax LLP Can Help
If you have any tax-related queries, need assistance with tax planning or filing your tax returns please contact us. Our team comprises of highly experienced tax professionals with extensive knowledge of U.S. and Canadian tax laws as well as cross-border compliance.
Furthermore, as a full service accounting firm, AG Tax assures complete assistance with even your most complex tax needs.
We can assist with:
- Canadian Personal and corporate tax returns
- Cross Border Taxation and Business Planning
- U.S. Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:
- 416-238-5920 (Greater Toronto Area, ON)
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