In Canada, we have a self-assessment taxation system. This means that taxpayers are expected to voluntarily complete returns to report their activity. Every year, the CRA carries out reviews of taxpayer returns. This ensures that taxpayers are complying with the laws, and by extension helps create confidence in our taxation system.
What’s the Voluntary Disclosure Program?
What happens if you discover a mistake in your filings? This is where the Voluntary Disclosure Program (VDP) comes into play. This program allows taxpayers to come forward to provide additional information that wasn’t previously reported.
Examples of possible disclosures include:
1. Failure to report taxable income received;
2. Claimed ineligible expenses on a tax return;
3. Failure to remit source deductions on behalf of employees;
4. Failure to report HST;
5. Failure to file returns; and
6. Failure to report foreign-sourced income that is taxable in Canada.
What’s the benefit?
Upon a taxpayer’s successful submission under the VDP, they will still have to pay any taxes that are owed, as well as related interest. However, the CRA will waive any penalties and/or prosecution to which the taxpayer would otherwise be subject. These amounts can be significant.
What’s a successful submission?
A voluntary disclosure must satisfy four criteria. These are:
1. The disclosure must be voluntary (the taxpayer must notify the CRA before the CRA notifies the taxpayer);
2. The disclosure must be complete and accurate (all previously unreported information and facts must be disclosed);
3. The disclosure requires a penalty to exist (usually a late filing penalty); and
4. The disclosure must include information that is one year past due.
Not sure whether you want to make a disclosure?
No problem. Taxpayers are allowed to make a disclosure on a no-name basis. The benefits of this are that it prevents the taxpayer from having to reveal their identity and allows them to speak with the CRA on a generic basis. Taxpayers can receive confirmation from the CRA that there’s nothing in the information disclosed that would immediately disqualify them for a valid disclosure. It’s important to note that a final determination cannot be made until the taxpayer’s identity is revealed and all of the criteria for a successful submission are satisfied.
Why would something be missed?
Canada’s taxation system is relatively complex. We most often see taxpayers inappropriately file information completed by themselves or their previous accountant.
If you discover an oversight in your situation, don’t hesitate to contact us to determine whether the VDP can help you.
Caveat: The information in this publication is current as of the time it was written. This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact Deuzeman & Associates to discuss these matters in the context of your particular circumstances. Deuzeman & Associates does not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.