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.
