Each year I help over 500 clients file their Canadian and US tax returns as well as plan for both their Canadian and US investment accounts. I also regularly help new US clients plan for their move to Canada.
The Canada Revenue Agency’s Voluntary Disclosure Program offers a unique opportunity for a “do over” for individuals who want to correct past mistakes or omissions on their tax returns. The following article summarizes the Voluntary Disclosure Program, including information on who is eligible and certain program limitations. It is however always a good idea to contact a tax professional for advice before contacting CRA. Call me at 250-661-9417 to discuss your voluntary disclosure.
What is the Voluntary Disclosure Program?
The CRA Voluntary Disclosure Program, or VDP, is a program in which taxpayers can voluntarily disclose inaccurate information, correct omissions and/or provide additional information about their taxes not previously reported. Made possible by a number of Canadian legislative provisions, the CRA Voluntary Disclosure Program is an effort to encourage taxpayers to voluntarily come forward and correct previous mistakes and omissions with regard to their taxes, without being subjected to penalties or prosecution.
What the VDP Is Not
While this probably goes without saying, the CRA Voluntary Disclosure Program is not intended as a means for taxpayers to avoid their legal tax obligations.
Relief Provided Under the CRA Voluntary Disclosure Program and Program Limitations
If, based on the conditions of the VDP, which we will address in more detail below, the Canada Revenue Agency accepts a voluntary disclosure, taxpayers will not be required to pay any penalties, nor can they be prosecuted for coming forward. In addition, the Minister has discretionary power under the VDP to grant partial relief from interest accrued with respect to the disclosure being offered.
There are some limitations to the VDP, however. For income taxes, for example, any disclosure made on or after January 1, 2005 will only qualify for relief if the tax year in question is 10 years or less prior to the disclosure. For example, a voluntary disclosure submission made in July of 2009 would only be valid for the period spanning 1999-2009. Other limitations may also apply to excise taxes.
Important to note is that the Minister is in no way required to grant relief under the Voluntary Disclosure Program. Each submission will be judged on its own merit, and if denied or merely partially granted, a written explanation for the decision will be provided to the taxpayer.
What Types of Disclosures Will Be Considered? And Which Won’t?
Not all types of disclosures will be considered for relief under the Voluntary Disclosure Program, but those which will be considered include:
- Failure to report any taxable income
- Claimed ineligible expenses
- Failure to remit source deductions
- Failure to report foreign-sourced income which is taxable in Canada
- Failure to file informational returns
There are other circumstances which will of course be considered for relief, however the circumstances below will NOT be considered:
- Returns with no taxes owed or refund eligible
- Elected taxes
- Advanced pricing arrangements (for non-residents)
- Bankruptcy returns
How Do I Make a Disclosure Under the VDP?
All disclosures under the Voluntary Disclosure Program must be made in writing and mailed to the TSO in the jurisdiction in which you reside. If for any reason you cannot submit all of the information and documentation at once, the CRA may allow you additional time to send in the necessary information. Typically, this grace period is no more than 90 days.
If you feel you may qualify for participation under the Voluntary Disclosure Program, there are two methods for submitting your disclosures to the CRA. The review process is identical and equal consideration will be given regardless of the method you choose to use. These are:
- The Named Disclosure Method. A disclosure that includes the taxpayer’s full name on the initial disclosure form.
- The “No Named” Disclosure Method. The “No Named” disclosure method is for individuals who are unsure if they want to proceed with their submission. This method gives individuals the opportunity to enter into preliminary discussions anonymously and decide if they want to continue. However, in order to be considered for relief, “no-named” applicants must eventually identify themselves.
In order for a disclosure to be valid, it must meet four conditions. These conditions are explained in great detail on the CRA website, but to summarize, these conditions are:
- All disclosures must be voluntary. For example, if the taxpayer had knowledge of an impending audit or investigation and was merely disclosing in an attempt to avoid being “found out,” the disclosure would be invalid.
- All disclosures must be complete. Those submitting disclosures must provide full and accurate facts, along with all the necessary documentation.
- Potential for Penalty. A disclosure is only valid if the information or omission being disclosed could otherwise be subjected to a penalty.
- At Least One Year Past Due. Disclosure information which is less than one year past due will not be considered.
Taxpayers wishing to submit a disclosure must do so in writing using form RC199, Taxpayer Agreement. This form is available on the Canada Revenue Agency website at www.cra-arc.gc.ca. Failure to use form RC199, or applications which are incomplete, will significantly delay the review process. If you need help in filing your voluntary disclosure with CRA please contact me at 250-661-9417 or by email at firstname.lastname@example.org