As the popular saying goes, nothing in this life is certain expect for death and taxes. The traits of honesty, integrity and good faith are characteristics embedded in us as good Canadian citizens – but although many of us diligently pay our taxes when due, there may be times that we forget. This article will help you understand the duty of paying taxes in Canada and the Voluntary Disclosures Program (“VDP”).
What is the Voluntary Disclosures Program?
The VDP, is a program designed by the CRA to allow taxpayers who unintentionally failed to fulfil their tax obligations to voluntarily correct a tax return previously filed or, file a return they should have filed. Filing a VDP application grants you relief from prosecution and in some cases penalties that would otherwise be owed, though the taxes outstanding, plus interest in part or full, must still be paid.
To ensure fairness for Canadians, taxpayers who intentionally avoided their obligation of tax filing do not receive same relief as those who want to correct a tax return previously filed or unintentionally did not file. The CRA analyzes each claim case by case to decide a “track” best suitable for each individual/business. In addition, if the CRA has already received information regarding tax non-compliance, then they have a choice to deny participation in the program.
A valid VDP application must meet five conditions:
• Voluntary – The application must be voluntary.
• Complete – The application must be complete, which means all relevant information must be provided.
• Penalty – The disclosure must involve the application or potential application of a penalty
• One year past due – Application must include information that is at least 1 year past the due date for filing.
• Payment – The taxpayer must include payment of the estimated tax owing. If the taxpayer does not have the ability to make the payment, they may request to be considered for a payment arrangement.
The Two Tracks for Disclosures:
The VDP can fall under two different tracks, The General Program and The Limited Program. The determination of which track an application is processed under is made by the CRA using the following factors:
• The dollar amounts involved;
• The sophistication of the taxpayer;
• The number of years of non-compliance;
• How quickly the taxpayer acted to correct their misdemeanour; and
• If the application/disclosure is made after the CRA has approached the taxpayer.
The General Program: The general program is proposed to those who want to correct unintentional errors. By coming forward to correct these errors the CRA may provide relief by: not charging penalties, not referring an individual for criminal prosecution, and providing a reduced interest rate on the amount owed. The interest rate reduction applies to the tax years preceding the three most recent years a return was to be filed, where the CRA will generally reduce the interest rate to 50% of the applicable rate.
The Limited Program: On the other hand, the limited program is for those who had an element of intent to avoid their tax obligations. In this case, the consequences are more severe. Though referral for criminal prosecution would be bypassed, certain penalties will be charged and no interest relief will be provided.
How to make a Voluntary Disclosure:
To submit an application for the VDP, one must submit a completed and signed Form RC199, Taxpayer agreement, with all applicable CRA returns, forms and schedules.
This article is a general discussion of certain tax and accounting matters and should not be relied upon as tax or accounting advice. If you require tax or accounting advice, we would be pleased to discuss the issues in this article with you.
