August 21, 2020
If you made a mistake on an old tax return or did not file when you should have, the CRA Voluntary Disclosure Program (VDP) could be a good option for you to avoid interest and penalties.
What is CRA Voluntary Disclosure & When is it Useful??
If you have made errors on prior year tax returns or if you have not filed when you should have, you may be worried about how to handle this situation. While it is not a crime to owe taxes, Canadians are legally required to file their tax returns on time and to provide accurate information. If you fail to do so, you could possibly face serious financial and legal consequences. You could even potentially face tax evasion charges. The Canada Revenue Agency (CRA) takes these situations very seriously.
However, the CRA Voluntary Disclosure process is designed to be a “second chance” for those who have made errors or not filed returns. However, much like many CRA processes, it is important that the rules are followed carefully and that you take care when communicating with the CRA.
CRA Voluntary Disclosure allows you to amend or correct previous tax filings. Through CRA Voluntary Disclosure, you can come forward to the Canada Revenue Agency and provide the agency with details on mistakes that you have made on previous returns or give them information that may have been left out in the past.
On March 1, 2018 changes were made to the Voluntary Disclosures Program, and it is important to understand these changes before you apply. Working with experienced professionals can help you make sure you are doing the right thing.
A voluntary disclosure must include the following aspects:
- It must be, as the name suggests, voluntary. This means that you must initiate the process before you become aware of any compliance action that the CRA may be taking against you. If the CRA has already contacted you regarding your prior returns, you are unable to apply for voluntary disclosure.
- The information provided must at least one year past due for income tax applications and, for GST/HST applications, at least one reporting period past due. If your return is less than a year overdue, you can simply file it as normal, though you may have to pay a penalty for missing the deadline.
- The information provided must be complete. This means you must correct all errors and provide all information that is missing. You cannot submit a partial correction.
- There must be a penalty involved, meaning that the information provided will result in taxes or penalties likely being assessed. The voluntary disclosure program cannot be used to get yourself a refund.
- You must include payment of the estimated tax owing when you file.
If your disclosure satisfies these terms and is deemed appropriate by the CRA, you will still have to pay the taxes owing plus interest in part or in full. However, you will not be referred for criminal prosecution and, in some cases, from you could receive relief from penalties. However, how the CRA will treat your case will depend on the particular circumstances of the disclosure filing.
Working with experienced professionals is critical at this time. Our legal and ex-CRA professionals give you the best chance at having your disclosure application accepted. Please contact us today to find out how we can help.
Circumstances Where CRA Voluntary Disclosure May Help
When you are dealing with the CRA, it is important to understand the agency’s processes and the programs and procedures that can be followed. Each tax situation is unique and there is no solution that will solve every tax problem immediately. That is why it is important that you work with an experienced professional when attempting to communicate or negotiate with the CRA or resolve tax problems. CRA processes are often confusing and complex, and dealing with the agency itself can not only be frustrating, but it can also potentially lead to trouble if you’re not careful.
Changes to the CRA VDP program
As mentioned, starting in March 2018, the CRA Voluntary Disclosure Program was adjusted. Prior to this date, anyone who was accepted into the program could expect similar relief. However, once the program was changed, it was split into two tracks.
The CRA states that this change was made to differentiate those who want to correct unintentional errors from those who attempt to intentionally avoid their tax obligations.
With the new changes, the type of relief you could receive will greatly depend on the track into which your case is placed.
- The VDP General Program is designed for taxpayers who made unintentional errors and wish to correct them. If you are placed into this program, the CRA will provide partial interest relief for years preceding the three most recent years of returns, you will not be charged penalties associated with the issue that was corrected, and you will not be referred for criminal prosecution relating to the information you disclosed.
- The VDP Limited Program is in place for situations where the agency believes that there was an element of intentional conduct to avoid your tax obligations. In these situations, you will not be referred for prosecution and you will not be charged gross negligence penalties. However, you still may be charged other penalties associated with the situation and you will also be charged applicable interest.
Whether an application is processed under the General or Limited Program is determined on a case-by-case basis. Several factors will be taken into account, including but not limited to:
- the dollar amounts involved;
- the number of years of non-compliance; and
- the sophistication of the taxpayer/registrant.
The CRA Voluntary Disclosure process
When you begin the CRA Voluntary Disclosure process, you need to tell the agency information that it does not already have. That’s why it’s critical to not only complete your application correctly, but also to ensure that you are using the program in the right way. The CRA Voluntary Disclosure Program (VDP) only applies in certain circumstances.
The Voluntary Disclosures Program can include situations such as:
- Failing to report taxable income
- Claiming ineligible expenses
- Not reporting foreign-sourced income that is taxable in Canada
- Not reporting an amount of GST/HST
- Cases where an employer does not remit employees’ source deductions
- Situations where a person has not fulfilled their obligations under the applicable act
- Not filing information returns
- However, the VDP does not apply in cases such as bankruptcy returns, elections, advance pricing arrangements, rollover provisions, post-assessment requests and returns with no taxes owing or an expected refund.
After you submit your disclosure, the CRA may contact you by letter to ask for more information. The information must be provided within the timeline requested or the CRA voluntary disclosure request may be denied. We will ensure that this process is handled smoothly, professionally, and accurately.
Once the CRA has reviewed your application, you will be informed in writing as to whether or not the agency has accepted your disclosure and what relief has been granted. If you disagree with this assessment, you may request a second review of your file. However, a second review will not be granted if you have not provided the CRA with the information requested in a timely manner.
To determine if the Voluntary Disclosure Program could be beneficial for you, please do not hesitate to contact us. Our team can review your situation, help you understand if the VDP is the right option for you, and assist you at every step of the process.
RC199 Voluntary Disclosure Form
The CRA Voluntary Disclosure process begins by completing the RC199 Voluntary Disclosures Program (VDP) Application. As with any document, and especially any document that is going to the CRA, it is critical that this form be completed with care. You want to make sure that you are listing accurate and complete information that is relevant to your situation. While you need to ensure that you provide the CRA with the details the agency needs to accurately access your situation, you do not want to give unnecessary details. Not only could giving unnecessary information potentially complicate or confuse your situation, but you may also be giving he agency information that it could use against you later.
If you complete your application and it is accepted by the Canada Revenue Agency, you will have to pay the taxes owing. You may also have to pay interest, either in part or in full, depending on whether you are accepted into the general or the limited program.
In the Limited Program, you will be charged penalties (other than gross negligence penalties) as well as applicable interest. Under the General Program will not be charged penalties and will not be referred for criminal prosecution related to the information being disclosed. The CRA will provide partial interest relief for years preceding the three most recent years of returns required to be filed.
The advantage to being accepted into the VDP is that you are eligible for relief from prosecution. This can be a significant benefit since failing to file your taxes accurately and on time can be considered tax evasion. Tax evasion is a serious crime that can result in fines, fingerprinting, a criminal record, and even potential prison time.
If you are considering a CRA Voluntary Disclosure, working with an experienced professional is crucial. Communicating with the CRA is always a situation that should be taken seriously, and this is especially true in situations that involve providing the agency with new information. It is critical that you give this information properly, clearly, and that you understand the potential impact of your actions when you do so.
One of the most important aspects of the program to consider is differentiation between the General and Limited Programs. A potential issue with there being two different VDP tracks is that taxpayers do not know which stream they will be placed in prior to submitting their application. This makes it difficult to prepare and it can potentially complicate your situation. You might think differently about how to approach the situation if you knew that you would be placed in the limited program as opposed to the general program, but you won’t know how your application will be considered until after it is filed.
This is why having professionals on your side is so important. The team at Farber Tax Solutions understands the CRA Voluntary Disclosure Program and we can help you understand what filing could mean for you andd prepare your application so you have the best likelihood of a positive outcome. Before submitting any VDP application, we will review your tax situation and help you understand how the CRA may interpret the information that you are considering listing. This step can give you valuable insight into the CRA’s line of thinking and help you prepare for the next steps. Contact us today to find out how we can help.
T1135 Foreign Voluntary Disclosure Form
Taxpayers are required to disclose if they own any foreign property valued more than $100,000 in Canadian currency. This disclosure is done by completing the T1135 Foreign Income Verification Statement. Failing to complete this form can have very significant consequences.
The $100,000 threshold is based on the cost amount, not the fair market value of the property. Also, the term “property” does not just refer to real estate. It also includes bank accounts, debt securities and shares in foreign corporations, and other tangible and intangible properties located outside Canada.
However, it does not include property used in the course of carrying on an active business, funds inside RRSPs, personal-use properties, foreign investments held in Canadian registered mutual funds, or shares of foreign affiliates.
If you own applicable foreign property, you must complete form T1135 on or before the due date of your income tax return. If you do not complete and file this form and you should have, or if you do not do so accurately, you could face substantial penalties. For instance, the penalty for failing to file a return is $25 per day for up to 100 days. You can also face penalties for making false statements or omissions, for not filing knowingly or under circumstances of gross negligence, or for other situations. As you can see, these penalties can be very significant.
The CRA Voluntary Disclosure Program could be an option for taxpayers who should have completed the T1135 form. As mentioned, if you apply for the VDP and are accepted, you will not face any prosecution regarding the issue. Depending on your circumstance and the type of program stream you are admitted to, and you could also have penalties reduced or eliminated.
Complying with CRA regulations is important. If you were supposed to complete the foreign income disclosure form and did not, applying for the CRA Voluntary Disclosure Program could be a good option.
The team at Farber Tax Solutions can help you understand the situation you are faced with, assist you in completing the VDP application, communicate with the CRA on your behalf, and answer any questions the agency may have. Our team is made up of experienced legal and ex-CRA professionals who understand how to resolve tax situations. We have extensive experience in dealing with the Canada Revenue Agency and know what it takes to fix tax problems. No matter what you may be dealing with, our team is here to help.
We have years of experience in dealing with the CRA and extensive knowledge of CRA policies and practices. Our team can work with you to prepare your CRA Voluntary Disclosure application, explain how doing so can affect your tax situation, communicate and negotiate with the CRA on your behalf, and much more.
Our team can successfully explain your situation to the CRA and negotiate on your behalf, giving you the best chance of success. We have extensive experience in communicating with the CRA and a deep understanding of CRA processes and policies. For more information on how we can help, please contact our team today.
Avoid potential interest, penalties and even tax evasion charges with a VDP? Talk to a Ex-CRA tax dispute professional for free.
You Must Apply for Voluntary Disclosure 10 Years from the Applicable Period
It’s important to note that the CRA Voluntary Disclosure Program only applies to the last ten years of tax disputes. This means that you’ll need to apply for Voluntary Disclosure 10 years or earlier from the tax year in question. For example, if your VDP application was submitted in May 2018, relief would only be available for the 2008 tax year and subsequent years.
In short, the request for relief must be made within 10 years from the period in which the taxpayer is looking for relief. This ten-year period is considered the Limitation Period on Discretion for Relief of Penalties and Interest.
The CRA has no ability to provide relief outside of this ten-year period. If you are in a position where you have unfiled or incomplete returns that are more than ten years old, this situation is best discussed with a Canadian tax lawyer. This is important since you could potentially still be prosecuted for tax evasion on returns that are more than ten years overdue. That is because the CRA is able to go back very far and reassess or audit old tax returns if it believes that fraud or a willful attempt to evade taxes took place.
The team at Farber has the experience and skill needed to resolve your tax disputes. Our team is made up of legal and ex-CRA professionals who are able to effectively communicate and negotiate with the CRA. We also work in affiliation with Farber Tax Law. The tax lawyers at Farber Tax Law practice exclusively in the areas of tax litigation and dispute resolution and can help resolve situations were a taxpayer has unfiled or incomplete tax returns that are more than ten years old.
When dealing with the CRA, it is crucial to have trusted professionals on your side. CRA processes can be very complex and dealing with the agency can be very complicated. Unfortunately, if you make a mistake with the CRA, the consequences can be very severe.
If you have not properly filed tax returns for previous years, please contact us to help resolve your situation. The CRA is a very powerful agency and it will find out about your tax situation at some point. Once the CRA starts asking questions, you are no longer in a position to apply for the CRA Voluntary Disclosure Program. If you no longer qualify for this program, that not only means that you could end up being responsible for paying significant penalties, but you may also potentially be referred for criminal prosecution. That’s why it’s important to handle your tax disputes as soon as possible while also taking care to ensure that everything is handled correctly.
Since you can only receive relief on returns that are ten years old or newer, you can see why applying for relief quickly matters. The team at Farber Tax Solutions understands this. We also know that while responding to the CRA quickly is important, it’s also critical that you provide the right response. Taking action without properly thinking things through can lead to potentially serious consequences. When you have our team on your side, you can be assured that we will always look at every situation from all angles and proceed with the plan that makes the most sense for your situation.
Contact us today to find out how we can help. You can trust our experienced team to work with you and the CRA to resolve your tax situation. Our years of experience and deep understanding of CRA processes make us the right choice if you are considering applying for the CRA Voluntary Disclosure Program as well as in dealing with nearly any tax situation.