Due to the nature of the Canadian tax system, which relies heavily on the taxpayers’ understanding of the various rules and provisions, it is common to see taxpayers realize their previous filings with CRA were inaccurate or incomplete. This can be due to several reasons, some of which include the death of the taxpayer who maintained the records, a lack of understanding or misunderstanding of the provisions in the act, or not being aware of certain filing obligations that could apply due to changes in the taxpayers’ situations (such as marital status, residency, etc).
Having incomplete or inaccurate filings done in the past exposes taxpayers to many consequences including penalties and in some cases prosecution. Fortunately, the CRA provides some relief under a program known as the Voluntary Disclosures Program.
The Voluntary Disclosure Program (VDP) allows taxpayers to come clean with their tax filing obligations and report accurate and complete tax information to correct previously filed information. If the CRA deems the disclosure to be valid, taxpayers are able to avoid penalties or the risk of being prosecuted.
Disclosure conditions
To make a valid disclosure, the disclosure has to meet all four conditions below:
- The disclosure has to be voluntary, i.e. the disclosure can’t be triggered due to CRA requesting information or performing an audit on the information to be disclosed under the VDP
- The disclosure must be complete, i.e. all tax information has to be filed.
- The incorrect, or incomplete, information involves a potential penalty under a section of the Income Tax Act or the Excise Tax Act.
- The information disclosed is more than a year overdue.
The VDP provides relief when it comes to penalties and prosecution, however, the taxes due as well as interest accrued on the tax balance payable to the CRA must be paid.
Tax filings
A voluntary disclosure must be filed in writing and could be done using a prescribed form RC199, Taxpayer Agreement – Voluntary Disclosures Program with all supporting documentations attached. Alternatively, a letter can be addressed to CRA explaining the nature of the disclosure with the supporting documents attached to it.
In some cases, the disclosure may be filed on an anonymous basis to confirm its validity under the VDP with CRA prior to filing all of the information.
Right to Redress
After the submission is made, the CRA will provide a VDP decision to the taxpayer. If the taxpayers disagree with the decision by CRA, taxpayers may request a second review by contacting the Tax Service Office Director. If a second review does not resolve the disagreement, taxpayers may pursue further recourse through the judicial review process.
If you suspect any of your previous filings were incomplete or inaccurate, your local chartered professional accountant can assist you with the steps involved under the program including an understanding of the potential penalties, tax and interest exposure.
