Voluntary Disclosure if More than 10 years Outstanding – Calgary Tax Lawyer Analysis
The CRA voluntary disclosure program (VDP) only applies to the last 10 years of tax issues such as unfiled tax returns or unreported income or offshore assets not reported on a form T1135. The reason is that CRA administers voluntary disclosure program (VDP) and the ability to waive or cancel penalties and interest is provided under subsection 220(3.1) of the Canadian Income Tax Act (or the equivalent Section 281.1 of the Excise Tax Act (ETA) for GST/HST). These provisions, commonly called fairness or taxpayer relief applications, are only applicable to the most recent 10 years. CRA has no ability under the Tax Act to provide interest or penalty relief for greater than a 10- year period. So what happens if a Canadian taxpayer has more than 10 years of unfiled returns, or has unreported income or unreported offshore assets, for more than 10 years? It a problem often faced by Canadian tax lawyers.
A taxpayer with more than ten years of tax problems will only be provided with interest and penalty relief for the last 10 years. However one of the important benefits of the CRA voluntary disclosure program (VDP) is relief from possible tax evasion prosecution. The protection from tax evasion charges, or from charges for failure to file tax returns, is not dependent on the taxpayer relief provisions of subsection 220(3.1) of the Canadian Income Tax Act and is there still available and provided by CRA where a taxpayer has more than 10 years of back tax problems. This means that a taxpayer with more than 10 years of back tax issues can still go to a Calgary tax lawyer to benefit from the most important CRA voluntary disclosure program (VDP) feature, no tax prosecution, and will also obtain interest and penalty relief for the most recent 10 years.
Another common problem, especially with offshore bank accounts, is that accounting records for all years are often not available to the Canadian taxpayer. Offshore banks typically only keep records for 7 years. Even domestic Canadian banks have limited back year record keeping. When it comes to the taxpayers own financial records such as business ledgers, those are often missing, either due to moves, or destruction such as flooding, or plain carelessness. What happens when a taxpayer wants to make a voluntary disclosure for 15 years but only has 5 years of records? A Canadian tax lawyer can make a no-names voluntary disclosure and ask that the required returns that will be filed will be limited to 5 years. CRA policy on the issue of the number of years of returns that have to be filed has changed over the years. The current CRA policy is that if a CRA voluntary disclosure program (VDP) application is submitted CRA will not ask for information that the client cannot obtain. They will not commit to not asking for additional years, but will state, if is asked by an experienced Canadian tax lawyer, that they don’t expect Canadian taxpayers to submit returns based on information that is not available.
"These articles provide information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."