If you are concerned about unfiled income taxes that you or your corporation may owe to the Canada Revenue Agency (“CRA”) then you may be aware that the Voluntary Disclosures Program (“VDP”) was created to give taxpayers the ability to “come clean” about their unreported income tax amounts in exchange for the elimination of income tax penalties and partial back income tax interest relief. However many taxpayers are concerned that the tax amnesty program is an elaborate “honey pot” that the Canadian income tax department uses to locate and prosecute those who owe back taxes.
Any stories you may have heard about the VDP being an elaborate entrapment scheme are not accurate. However, there are circumstances where a taxpayer has attempted to make a disclosure and has been denied based on any number of factors set out in the program rules, and that our experienced income tax lawyers are aware of, including prior contact by the CRA with respect to the unreported amounts.
No-Names Voluntary Disclosure by Canadian Tax Lawyer
If you are concerned about the risks inherent in a voluntary disclosure, the income tax amnesty program also has a method whereby the Canadian taxpayer can submit information on a “no-name” basis. The disclosure is made anonymously by our Canadian income tax lawyers specializing in voluntary disclosures. The advantage of this is if the CRA determines that it cannot accept the voluntary disclosure, then there is no risk of being discovered; the CRA has no knowledge of the taxpayer’s identity and therefore cannot move to enforce based on the attempted voluntary disclosure alone.
Rules for Canadian Income Tax Voluntary Disclosure
CRA can deny a voluntary disclosure based on four factors:
1. The CRA determines that your voluntary disclosure is not "voluntary";
The Canadian tax department will normally determine that your disclosure is not voluntary if they have made some attempt to contact you in the past with regards to the subject matter that you wish to disclose. For example, if you received a requirement to file for a particular taxation year, then generally CRA will not accept a voluntary disclosure for that year.
2. The CRA determines that your voluntary disclosure is not "complete";
Canada's income tax department reserves the power to deny your disclosure if it does not contain all of the requisite proof required to actually substantiate your submissions. For example if you file a voluntary disclosure but keep certain information secret that may have an influence on how the disclosed amounts should be taxed, the CRA will deny the disclosure if they have knowledge of your withholding of information.
3. The voluntary disclosure must involve a penalty;
A voluntary disclosure will only be allowed if the amounts that you are seeking to disclose lead to a penalty, if discovered by Canadian tax authorities prior to a voluntary disclosure. Penalty can mean anything from a late filing penalty to a gross negligence penalty, so the threshold is quite low for this requirement.
4. The voluntary disclosure must contain information that is one year past due or if not one year past due, the voluntary disclosure was not made to avoid late filing penalties.
The requirement that the information to be disclosed is one year past due prevents taxpayers from avoiding late filing penalties by abusing the tax amnesty program. For example, you cannot fail to file your return on the due date of a particular year and then the following day file a voluntary disclosure to avoid the late-filing penalty. On the other hand, the Canadian tax department will accept disclosures for information that is less than one year past due providing that it is accompanied by information that is one year past due. For example, a taxpayer can submit a voluntary disclosure for several past taxation years including any year that is less than one year past due in one single submission.
Income Tax Lawyer No-Name Voluntary Disclosure
Most taxpayers proceed by way of a regular disclosure when they apply to the VDP. Our income tax lawyer files the voluntary disclosure with general information. All returns are prepared and then reviewed and submitted by our specialized voluntary disclosure tax lawyer. Once reviewed for completeness, the CRA will, in accordance with the tax amnesty program relieve interest and penalties for a period of 10 years. There may be some risks to this in some cases, and under certain circumstances, including the following, it would be wise to proceed using the no-name method.
No-Names Voluntary Disclosure Where the Income Amounts go back Further than 10 Years
The first and perhaps most common reason that our experienced tax lawyers will recommend that you file your disclosure on a no-names basis is in some cases taxpayers will have unreported income going back more than ten years into the past. In these cases, it is often prudent to file on a no-names basis while at the same time requesting that the income tax department limit the disclosure, and by extension the years to be reopened, to a ten year period.
When the disclosure is submitted to the tax amnesty program on a no-names basis, the income tax department will usually make a determination that they will accept the 10 year limitation period. Absent any misrepresentations on the part of the taxpayer, the CRA will normally keep this promise once the identity is revealed. The added bonus to this method is that the tax amnesty program only permits the tax department to relieve interest and eliminate penalties for a 10 year period. By obtaining an indication to accept disclosure for 10 years, we can ensure you the best possible outcome under the tax amnesty program. This type of strategy requires careful planning, so the advice of our experienced Canadian tax lawyers is a must.
No-Names Voluntary Disclosure BY Tax Lawyer Where The Amount of the Disclosure is Very Large
While all Canadian taxpayers will most likely believe that the amount they will be disclosing is large, some disclosures are undoubtedly larger than others. For example, if you made a mistake when filing your income taxes in one or more previous years, you may find that an amended return would lead to a slight increase in taxes owing. Debt of this kind on the smaller side does not normally require a disclosure on a no-name basis. It’s simply a matter of filing returns and adjusting the amount owing.
On the other hand, if a taxpayer has been hiding money overseas, depending on the amount, the risks involved in disclosing to the income tax department can be much more severe. Take for example a taxpayer who moved to Canada and left a significant sum in a bank account overseas. Since arriving in Canada, the bank account has been accumulating interest or perhaps even dividends and large capital appreciation in the case of an investment account. Were the taxpayer to make a disclosure and the CRA denies it based on the breach of one of the four factors above, depending on the amount of money involved, it could lead to substantial penalties and crippling interest charges – on top of which criminal charges become a very distinct possibility.
For clients in this situation – namely a large amount outstanding – our Canadian income tax lawyers typically recommend that the disclosure be submitted on a no-name basis. This helps us to protect the client should the CRA make a determination that they will not accept the disclosure under the circumstances.
No-Names Voluntary Disclosure Where CRA Made Contact With Canadian Taxpayer
One of the basic requirements for the acceptance under the tax amnesty program is that the CRA will not accept it as “voluntary” if they have been in contact with you in the recent past and the contact is directly related to the unreported amounts you are currently disclosing.
For example, if the tax department has asked you to file your 2012 tax return you cannot subsequently file a voluntary disclosure for the return, i.e. your disclosure is not voluntary. This enforcement action, the request to file the 2012 return, invalidates the future voluntary disclosure. (Please note, if the enforcement action has occurred a significant time in the past it may be possible to file a voluntary disclosure due to the lengthy time period involved. Our Canadian tax lawyers can advise of the appropriate circumstances in such a case.)
Under certain circumstances there is a grey area in that it is not always clear to the taxpayer or even the Canadian income tax department if they have initiated an enforcement action with respect to an unreported amount. For example, if the CRA is in the process of auditing a corporation that you work for, or even own, but you wish to make a personal disclosure. Taxpayers may be confused at this stage as to whether or not this would disqualify them from the tax amnesty program. In some instances, for example, the nexus between the audit of the corporation and your personal tax matter may not be sufficient for CRA to deny a disclosure. A taxpayer in such a situation should seek advice from our specialized income tax lawyers to determine if a voluntary disclosure is a possibility.
This is another example of when a no-name voluntary disclosure is the preferred method. Contact from income tax authorities can take place for any number of reasons, as the CRA is a vast administrative body and mistakes happen quite frequently.
Another, simpler example could be when a taxpayer changes residences. CRA sends a letter to the taxpayer’s old address asking for returns to be filed. However, because the taxpayer no longer resides there, they would not have received the notice sent by CRA. In situations such as this it is not a simple matter to determine if a disclosure qualifies for the benefits of the tax amnesty program.
In these types of situations a no-names voluntary disclosure is a good way to avoid putting the taxpayer at risk of disclosing amounts that they would otherwise not be able to disclose; the other added benefit is that our experienced tax lawyers can always make an argument as a part of your disclosure that contact was never properly made with you and that the disclosure should be accepted on these grounds.
Another situation where it is usually advisable to submit a no names voluntary disclosure is when the CRA has been in contact with the taxpayer for an unrelated matter. In order to protect the client in these situations, our income tax lawyers will normally advise that the safer route is through the no-name voluntary disclosure.
Take for instance a taxpayer that is a small business. The CRA audits the business income. However, the business owner also knows that there is a significant amount of GST/HST that remains outstanding. Normal procedure for the CRA does not include an audit of the GST/HST accounts when doing a simple income tax audit. Under these circumstances, the taxpayer may be able to make a successful disclosure for the GST/HST amounts. As part of the VDP the CRA states that it may consider disclosures in these circumstances to be voluntary – however the CRA is prone to making mistakes in these situations, and as an administration that has little to no oversight, it is wise to hedge one’s bets.
In this scenario, it is usually prudent to proceed under through a no-name voluntary disclosure. Our experienced income tax lawyers can make representations to the CRA on your behalf while protecting your identity. Should CRA seek to deny you the benefit of the VDP, your identity will be protected and you will be able to assert your rights if the denial was made arbitrarily.
No-Names Voluntary Disclosure When Case is Complex and Requires Additional Time
In situations where the disclosure is complex, for example a taxpayer with multiple sources of income from overseas, it can be difficult to assemble and create an accurate picture within the timeframe of the normal VDP process. The VDP gives taxpayers 90 days within which to file their amended returns or the disclosure will be denied.
However, given the success that the VDP program has been experiencing in the last few years, CRA has developed a significant backlog. Presumably, in order to help the VDP Officers cope with that backlog, the CRA has changed its administrative procedure for the no-name voluntary disclosures: while normally a taxpayer is required to have all available information and returns in within 90 days of the tax amnesty application being filed, for no-name voluntary disclosures the CRA is now allowing 90 days from the date that a VDP officer initiates contact. This can provide an additional and crucial amount of time if your matter is complex.
It is important to note that this advantage will not necessarily always remain – should the CRA get caught up it is entirely possible that they will return to the normal procedure of 90 days for the taxpayer to submit their adjusted returns.
Canadian Tax Lawyer Assistance
As you can see, there are a number of advantages to doing a voluntary disclosure on a no-name basis. If you are losing sleep over income that you have not reported but are wary of getting involved in the VDP, you can rest easy when you have our experienced tax lawyers working for you.
If you are interested in filing a Voluntary Disclosure and want the peace of mind that comes with having a skilled representative on your side give one our specialized income tax lawyers a call – we can negotiate and represent you at all steps in the process and ensure that your confidential information remains so until the CRA agrees to accept your disclosure.
"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."