The Voluntary Disclosure Program is an official program offered by CRA where a taxpayer can come clean about undeclared income and past due returns with no penalties and much reduced interest. Failing to declare income or failing to file tax returns is a criminal offence. In addition to prosecution, fines and potential jail time you will most certainly be subject to significant financial penalties and interest under the Income Tax Act.
For example, the 2012 penalties for late filing are 5% of the amount of the tax debt plus 1% per month for 12 months. If you also didn’t file your 2009, 2010 and/or 2011 returns on time the penalty increases to 10% of the amount of the tax debt and 2% per month for 20 months. CRA will also look for grounds to hit you with gross negligence penalties up to 50% of the tax debt that you owe. All these penalties then incur interest just the same as the actual tax debt – compounding daily.
This is why the Voluntary Disclosure Program is so advantageous.
To qualify under the Voluntary Disclosure Program you must satisfy four criteria:
- The tax debt must be at least one year old
- The disclosure must involve a penalty
- Disclosure must be voluntary
- Disclosure must be complete
The 2 most common reasons that Voluntary Disclosure applications are rejected are because they were not voluntary or they were incomplete. This presents a double-edged sword to taxpayers because in order for disclosure to be complete you must come clean about all taxes you owe which may mean that you have to verify with CRA which years are outstanding or you may have to request tax slips.
Contacting CRA before you have officially made an application for Voluntary Disclosure could flag your file and cause them to contact you which will then mean disclosure could be deemed as involuntary. There are very careful steps in the process and only a professional who practices in this area on a regular basis will have the knowledge of the steps and know exactly what documented proof they need at each stage. This is one reason why most people will have a tax professional who specializes in preparing and processing applications for the Voluntary Disclosure Program to deal with their paperwork.
Also, in the case of businesses, you may be making disclosure concerning business tax but because you did not address an issue concerning HST for example, CRA could deem that your application is incomplete.
The Voluntary Disclosure Program is a very structured process that must be navigated carefully or you could lose the valuable opportunity to avoid penalties, interest and prosecution. CRA want to get the non-compliant taxpayers back to the table. But they don’t really want to forgo the interest and penalties so they make it relatively easy to fail to make a successful application under the program.
It is important if you want to apply under the Voluntary Disclosure Program that you have gathered all documentation, have reviewed and considered all tax years and types of tax that could present an issue and proceed accordingly.
For more information about the Voluntary Disclosure Program, please contact Tax Solutions Canada by visiting www.taxsolutionscanada.com or call 1-888-868-1400.