CRA’s Voluntary Disclosure Program

Sometimes taxpayers make mistakes with their annual tax filings. These mistakes come in many forms: an omission, an understatement, a misclassification of an income, an information return left unfiled, or perhaps the tax advisor may have inadvertently misinterpreted the Income Tax Act. The examples are endless.

A second chance

Taxpayers who find themselves in these types of stressful situations can stress no more; the CRA has a program that offers taxpayers a second chance.
This program is called the Voluntary Disclosure Program (“VDP”). This program aims to promote voluntary compliance with the Canadian Income Tax Act by encouraging taxpayers to come forward and correct previous inaccuracies and omissions. Generally, when a taxpayer comes forward under the VDP, only the taxes and interest owing are assessed; the penalties are not.

How to Qualify for the VDP

In order for the taxpayer to qualify under the VDP, the taxpayer must meet the following four conditions:

1. The disclosure is made voluntarily. Generally this means that the taxpayer wholly initiated the disclosure and the CRA has not begun any enforcement action prior to the initiation. Enforcement action by the CRA would include any audit or investigation efforts made by the CRA. This would also include any requests, demands, and calls for information. Basically, if the taxpayer is aware of any enforcement action forthcoming (even through a CRA enforcement action against a third party related to the taxpayer), the VDP may not be accessible.
2. The disclosure is complete. The taxpayer must disclose fully for all the reporting years that contain the inaccuracies. The taxpayer cannot choose the line item or the year(s) to disclose.
3. The disclosure must involve the potential application of a penalty. If a penalty does not apply to the disclosure, then normal processing procedures should be followed as opposed to the VDP.
4. The disclosure must include information that is at least one year past due. The disclosure can include information that is less than one year past due date if this information is part of the submission that has met the one year past due date.

Income tax returns where no taxes are owing, or a refund is expected, are excluded from the VDP. These returns can be amended and handled through the CRA’s normal processing procedures. Note that there are other circumstances that would exclude a taxpayer from VDP eligibility that aren’t being discussed here as well.

“Named” vs “No-Name”

Voluntary disclosures can also be initiated with “Named” vs “No-Name”. As the labels suggests, “Named” is when the taxpayer provides the name on the initial submission and “No-Name” is when preliminary discussions occur with a CRA officer on a “no-name” basis.

Timeline

The disclosure is effective the date CRA receives a completed and signed RC199 Taxpayer Agreement, either by the taxpayer or the taxpayer’s representative. The taxpayer has 90 days from this effective date for the submission of addition relevant information that may be required to complete the disclosure.

Why Voluntary Disclose

The VDP is beneficial to taxpayers because it provides them with the opportunity to correct past tax inaccuracies without incurring any penalties. Regardless, care must be taken to ensure all the qualifications for the VDP are met in order to take advantage of this program.

Our Related CRA Income Tax Posts

• Canadian Income Tax Penalties: Repeated Failure to Report Income
• How to Avoid or Navigate Through a CRA Audit
• CRA – The Straw that Breaks the Camel’s Back
• Late Tax Returns & Getting Mortgage or Credit

Mew & Company, Chartered Accountants in Vancouver BC

To learn more about Canada Revenue Agency’s Voluntary Disclosure Program, or other programs that may be applicable to you, give Mew & Company, Vancouver professional chartered accountants a call at 604-688-9198.