CRA Voluntary Disclosure Program
For Canadian taxpayers who filed their taxes inaccurately or did not file at all during past years, the CRA has a program called VDP or Voluntary Disclosure Program to enable taxpayers to correct their tax returns filed in past years or to file for tax years where they have not filed at all.
From March 1, 2018, the CRA introduced a new Voluntary Disclosure Program. Instead of having one program for all voluntary tax disclosures, the new VDP will have a two tracks program for voluntary tax disclosures. The two tracks are a Limited Relief stream and a General stream. The Limited Relief stream is reserved for intentional tax non-compliance as well as for corporations with gross revenue exceeding $250 million dollars. The General Program is reserved for everyone else.
Compared to the previous program, and the new general program, there will be significantly diminished tax relief for Canadian taxpayers under the Limited VDP stream. There will only be relief from criminal tax evasion charges and gross negligence penalties. There will be no interest relief and no other penalty relief other than gross negligence penalty relief.
Under the old program and the new general voluntary disclosure program, taxpayers who accept voluntary disclosure tax relief can still file Notices of Objection and appeal to the Tax Court of Canada. Whereas taxpayers who benefit from tax relief under the Limited Program have to waive their rights to appeal. This includes the right to appeal within the CRA’s Appeals Division by way of a Notice of Objection, as well any appeal rights to the Tax Court of Canada. The scope of the waiver includes tax matters disclosed in the VDP or any related assessments, but it does not include calculation errors, issues of characterization, or issues other than those tax issues disclosed under the VDP.
Therefore, taxpayers will always prefer to be accepted under the General stream rather than the Limited stream. The CRA will consider four factors in deciding if the taxpayer can only be accepted under the Limited VD Program:
- any efforts made to avoid detection
- the dollar amounts involved
- the number of years of non-compliance
- the sophistication of the taxpayer
The General Program is available to Canadian taxpayers who do not fall within the Limited Program. It will be similar to the old VDP in that interest relief will be available for tax owing from the past four to ten years disclosed. However, interest relief under the new program will be half of total interest owed whereas interest relief under the old program was not fixed but was typically 4% of the percentage of interest assessed.
In addition to the two tracks program, the new Voluntary Disclosure system also replaces the No-Name disclosure with Pre-disclosure discussions. Taxpayers can no longer receive binding acceptance into the VDP through anonymous discussions. Any pre-disclosure will be done through CRA’s general enquiry line. There will be little benefit for taxpayers to participate in the Pre-Disclosure Discussion because CRA’s general enquiry line is not equipped to deal with VD discussions effectively.
CRA Voluntary Disclosure Program Scope
Eligibility for the Voluntary Disclosure Program includes disclosures for import duties, GST/HST, excise taxes, income taxes, and source deductions.
CRA Voluntary Disclosure Program Eligibility Criteria
Starting March 1, 2018, the new Voluntary Disclosure Program sets out five conditions of eligibility for a voluntary disclosure to be accepted:
- Voluntary: the CRA must have no knowledge about the taxpayer’s tax issue being disclosed.
- Complete: the taxpayer must reveal tax information for all tax years in which the tax filings were inaccurate or missing.
- Tax Owing: the taxpayer must owe tax to the CRA due to inaccurate or missing tax filings. VDP does not apply to situations where the taxpayer is owed tax refunds.
- One Year Past Due: the taxpayer can only disclose information for tax years that is at least one year past the filing due date unless part of a broader disclosure for older years.
- Tax Owing Paid Up Front: a new requirement is that the taxpayer must come up with their estimate of tax owing and pay that tax liability up front.
However, VDP agents have discretion in deciding whether the taxpayer is accepted into the VDP at all. Our top Canadian tax lawyers have the experience and expertise to provide our clients with detailed submissions to the VDP to ensure that all the tests are met to the satisfaction of the CRA..
Tax Tips – New Voluntary Disclosure Program
Our top Toronto tax lawyers will advise you on what to expect from your interactions with the CRA Voluntary Disclosure Program. Please feel free to contact us and book an initial consultation appointment and one of our experienced Canadian tax lawyers will advise you whether you qualify to be a part of the Voluntary Disclosure Program at all and into which program you will likely be accepted.
Our top Canadian tax law firm serves employees, independent contractors, and businesses. Initial e-mail or phone response is free. All consultations are completely confidential whether you finally choose to retain us or not.
FAQ's
What does voluntary disclosure mean?
Voluntary disclosure” refers to a program that the CRA amended on March 1st, 2018. This program offers people who failed to file their taxes or filed them incorrectly at some point over the last ten years to file them correctly now. If they do so, they will be entitled to one of two forms of tax relief: Limited Relief and General. “Limited Relief” is reserved for those who engaged in intentional non-compliance. All others fall under the “General” form. "
How can I correct my taxes with the CRA Voluntary Disclosure Program?
You must apply to the VDP program and have your request approved by the CRA. The CRA will determine your eligibility for this program and also whether you fall under the “General Relief” or “Limited Relief” category. In order to apply, you must fill out Form RC199, Voluntary Disclosures Program (VDP) Application.
What are the benefits of CRA Voluntary Disclosure Program?
If the CRA determines that you qualify for General Relief under the VDP, you will receive several benefits. The first benefit is interest relief for half of the interest owed for the past four to ten years disclosed. You will also avoid penalty charges for failing to file or filing incorrectly. Additionally, the CRA agrees not to pursue criminal prosecution for anything related to the information you disclose.
What happens if my Voluntary Disclosure Program is incomplete?
All businesses coming through the Voluntary Disclosure Program must complete the online application and have a signed agreement in place. The department will expeditiously work with you to bring your account up-to-date and assist you in becoming compliant. Otherwise, your application will not qualify.
Why should I make a voluntary disclosure?
It’s easy to make a mistake on a tax return or an error in your bookkeeping records which led to an incorrect profit figure. If this is the case, you would need to file for voluntary disclosure.
What are the requirements of the Offshore Voluntary Disclosure Program?
If you happen to be eligible for offshore voluntary disclosure, you will need to submit filled-out necessary forms to the CRA such as The Foreign Income Verification Statement (Form T1135) which is used to identify foreign investment property. You will also have to attach copies of relevant documentation you have in your possession.
Disclaimer:
"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."