What is the Voluntary Disclosures Program (VDP)?
The Voluntary Disclosures Program (VDP) gives you a second chance to change an incorrect tax return you previously filed, or to file a return that you failed to file. The Voluntary Disclosure Program allows you to apply to the CRA to ask for relief of prosecution, interest, and penalties relating to your omission.
Essentially, the program allows you to come forward on your own to inform the CRA that you may have omitted income in your previous return or you may have omitted that you own foreign property or assets, without being levied with severe penalties.
When is the Voluntary Disclosure Program Used?
If you own foreign property, have foreign income, or hold shares in a foreign corporation, you are required to file information disclosures with your tax returns to the CRA each year. For whatever reason, many individuals fail to file these disclosure forms each year. To correct these omissions, VDP is recommended.
Criteria to be Afforded Entry into the Program
To qualify for relief, the application must be voluntary and be complete. Under the new VDP rules effective March 1, 2018, the disclosure must also accompany payment of the estimated tax owing.
By “voluntary,” the CRA must not have contacted you regarding the improper filing or failure to disclose. The moment you receive a letter or call from the CRA regarding your failure to file correctly, you are disqualified from the program.
Why Does CRA Administer this Program?
The CRA introduced the program as a means for people to come forward without the CRA having to catch the nondisclosure through an audit or other mechanisms. By being honest about your taxes, the CRA did not have to spend resources locating and auditing you. In exchange, the CRA will agree to waive all or part of the imposed penalties.
Why You Need a Tax Lawyer
First, our tax lawyers specialize in the Voluntary Disclosure Program & will determine whether you are eligible for the program. If you are, our tax lawyers submit the application ensuring that it meets the requisite criteria for entry into the program. Once accepted into the program, we coordinate the filing of your past returns or information disclosures, as well as coordinate payment arrangements on the outstanding amounts owed, if any.
Since one is exposing him or herself to by providing potentially incriminating information to a governmental authority, hiring a tax lawyer with expertise in statutory tax law is critical for all taxpayers interested in making a disclosure to the CRA’s Voluntary Disclosure Program.
Don’t get caught for tax evasion. There are ways to come forward and correct past filings voluntarily, without being levied harsh penalties. Coming forward with a VDP will also remove the stress and anxiety you suffer from not knowing if the CRA is going to come after you. In this way, you take back control.
The Voluntary Tax Disclosure Program is a tax amnesty program that provides the taxpayer with the opportunity to avoid tax penalties, interest, and prosecution by voluntarily disclosing inaccurate or incomplete information, or disclose information not previously reported in their tax filings. Voluntary Disclosures can address unreported income, unfiled tax returns, GST/HST, source deductions, foreign assets, and information returns
The penalties for tax avoidance when discovered by the CRA can be severe. These include fines of up to $25,000 per charge and/or jail time for up to a year per charge. Other penalties can also be levied, depending on whether it is a first time offense and the length of time the tax remains outstanding.
To qualify for relief, the application must:
- be voluntary. If the CRA has asked for information or discovers information from a third party, then you no longer qualify for the VDP. If the CRA has sent you a letter in the mail regarding your returns or you at all have information that the CRA may be close to discovering your incorrect information, you are disqualified from entering the program.
- be complete. You must include information related to all years that you believe that taxes are owing. If the CRA discovers additional years where taxes are owing, you will no longer qualify for relief for the years that were disclosed.
- must involve a potential penalty or interest
- include information that is at least one year past due for income tax applications; and
- include payment of the estimated tax owing.
The general track applies where the CRA does not consider errors to be intentional or egregious. The CRA provides relief from prosecution, all penalties, and partial interest for the years preceding the three most recent years of returns.
The Limited Track is for those whose misconduct was deliberate, are repeatedly non-compliant, and for large corporations. In this case, taxpayers will not be prosecuted and will be relieved of “gross negligence” penalties, but other penalties will apply, as will full-rate interest.
Generally speaking, interest relief under the General Program is 50% of the interest that accrued during the previous 10 calendar years before the end of the reporting period in which the application is filed, with the exception of the most recent three.
Prior to March 1, 2018, the CRA would accept “no-name” disclosures, providing the disclosing taxpayer an opportunity to start the process and get to work on returns without sharing a name or SIN. However, this is no longer the case—taxpayers now need to come forward with their identity out in the open and tax returns in hand. This change has made it particularly important to move quickly in preparing returns, as taxpayers are no longer protected during this process.
Along with the disclosure rules, which require the applicant to disclose his/her identity before being accepted into the program, eligibility will only be considered if the taxpayer pays all estimated taxes that are outstanding up front, or negotiate an agreeable payment schedule with the CRA.
When a taxpayer provides information that lets the CRA verify that they are making a valid disclosure, the CRA provides an “Effective Date of Disclosure”, or EDD. In rare circumstances, they will also provide up to 90 days to provide some information or documents—but this is an exception rather than the rule, and taxpayer should be sure to provide everything at the outset.
To enrol in the voluntary disclosure program or VDP, an eligible Canadian taxpayer must submit a voluntary disclosure program relief application, Form RC199, the “Voluntary Disclosure Program (VDP) Taxpayer Agreement,” with all required information along with all necessary tax returns and must make payment of all estimated taxes owing.
Tax lawyers assisting clients making disclosure also include an accompanying letter, which if done correctly can improve their odds of ending up in the general program.
If the Canada revenue agency rejects your VDP application, your tax lawyer can submit a second level review request. If that is not accepted then a judicial review application in the Federal Court of Canada can be filed. This request must be done within thirty days from the date in which the Director of the Tax Services Office denied your request for a reconsideration of the original decision. The contents of an application can be found on the Federal Court’s website: http://cas-ncr-nter03.cas-satj.gc.ca/portal/page/portal/fc_cf_en/Forms
The Federal Court can also be contacted directly at the following telephone and website address: 613-992-4238 or www.cas-satj.gc.ca
We would caution you against trying to do so prior to speaking to a lawyer, as this can be a technical area of the law that is not intuitive for laypeople.
Taxpayers can request the Director of the Tax Services Office (TSO) to reconsider the decision. You may add additional information and/or changes if these arose since the original application was made. However, if the new information was left out of the application and it was therefore denied due to a delay in providing complete information, your application will not be considered for review.
The Voluntary Disclosure Program agent will inform the taxpayer in writing that their application was rejected. An assessment or reassessment may occur due to the disclosed information and interest charges and penalties may be issued. Where applicable, an investigation and possible criminal charges may be started.
The contact information, including mailing address, telephone number, toll-free number and fax numbers, for The Canada Revenue Agency’s Tax Services Office (TSO) in all of the provinces and territories of Canada responsible for its Voluntary Disclosure Program can be found at the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/ic00-1/ic00-1r6-voluntary-disclosures-program.html - toc27
In most cases, taxpayers can only participate once in the Voluntary Disclosure Program since the Canada Revenue Agency expects that taxpayers will stay compliant after having already reaped the benefits of the VDP. However, it is up to the discretion of the CRA to accept a second application if the applicant can demonstrate strong enough reasons for their non-compliance that were beyond his or her control. In this case, the second application would have to be a named or identified disclosure, and he or she would have to explicitly state that he or she had already participated or applied to the Voluntary Disclosure Program, otherwise the application may be denied.
One can make a disclosure to the CRA’s Voluntary Disclosure Program by way of a third-party representative, like a tax lawyer or chartered accountant, where appropriate authorization is given (via a specific CRA form) to the tax professional to act on your behalf. This will extend to voluntary disclosures. Since one is exposing him or herself to by providing potentially incriminating information to a governmental authority, hiring a tax lawyer with expertise in statutory tax law is critical for all taxpayers interested in making a disclosure to the CRA’s Voluntary Disclosure Program. If you are a small business owner or are self-employed and would like to find out if you qualify for the Voluntary Disclosure Program, call Kalfa Law for a free consultation with a tax lawyer.
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