Undisclosed Income and Voluntary Disclosure
If you have filed tax returns in the past and know that you had some extra income that you didn’t disclose, it pays to come clean before the CRA (Canada Revenue Agency) becomes aware.
There are many ways that the CRA can find out about your undisclosed income. These include:
- When auditing other parties from whom you may have received income or used as a supplier
- Through financial institutions who file tax slips concerning RRSPs and other investments
- When your customers file returns late and include T4As indicating that you earned income through them (this happens often in the construction industry)
- Investigations of your bank account, your clients, etc…
When the CRA learns of your undeclared income they will re-assess or even audit you. When this happens many years after the tax issue occurred, penalties and interest can cause the size of your debt to the CRA to grow at an alarming rate.
The CRA decides what percentage of penalty to charge you based on your track record. Each time you are behind filing or re-assessed, the CRA increases the amount of penalty you will have to pay. The only way to avoid these penalties is if you qualify to make a voluntary disclosure.
Voluntary disclosure is permitted through the CRA Voluntary Disclosure Program and if you qualify you may disclose the income and avoid penalties, interest and prosecution.
Voluntary disclosure is no longer an option once the CRA has notified you that they suspect you have undeclared income. Voluntary disclosure must be voluntary, so if the CRA has already re-assessed you or sent you notice of an audit or a request for information on a past tax year, beware. Your course of action will change if the CRA is contacting you about the tax year(s) in question.
It is crucial to work with an organization that has experience representing clients through the Voluntary Disclosure Program. The Voluntary Disclosure Program is an official process and must be navigated correctly. These steps include:
- Determining if you qualify
- Applying to see if the CRA will accept the application
- Making the formal application
- Satisfying the conditions of the approval (if one is granted)
- Knowing what to do if the application is rejected
If mistakes are made when an application for the Voluntary Disclosure Program is filed, you could be subject to severe consequences. Our professionals have extensive experience negotiating with the CRA and are fully familiar with all of their programs, including the Voluntary Disclosure Program. If you have undeclared income, we are your best line of defense. Contact us today for a complimentary consultation.