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The CRA Voluntary Disclosure Program: Everything There Is To Know 2020

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    The CRA Voluntary Disclosure Program: Everything There Is To Know in 2020

    What is the CRA Voluntary Disclosure Program? What must  I know about it & take into consideration?

    The tax regime in Canada is predicated on a system that expects taxpayers to be fully honest in their tax filings. However, we know that all too often individuals and businesses do misrepresent information on their tax return in order to avoid their full tax obligation. Other times, inaccurate tax filings are due to error. Fortunately, the CRA Voluntary Disclosure Program allows individuals and businesses to correct any misinformation on their tax returns voluntarily and without facing any penalty.

    What If You Haven't Filed Taxes For Years Infograph-01

    Penalties for Non-Disclosure

    The Government of Canada is committed to cracking down on tax evasion and aggressive tax avoidance measures to ensure that the tax system is fair for all Canadians. 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.CRA Voluntary Disclosure Program

    Late Filing Penalties

    For a first time offense, a late filing penalty is 5 percent plus 1 percent per month for each month the balance remains unpaid. Other late filings can be charged with a 10-percent penalty and a 2 percent per month charge for up to 20 months.

    Gross negligence penalties can be up to 50% of the estimated tax that is owed. Interest is generally compounded at 6% daily.

    What is the Voluntary Disclosures Program (VDP)?

    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 income tax filings. Eligibility for the Voluntary Disclosure Program includes unreported income, unfiled tax returns, disclosures for excise taxes, income tax filings, source deductions, duties under various statutes and GST/HST filings.

    Examples of what a taxpayer may not have reported are:

    • Under-reported income
    • Expenses claimed that were not eligible
    • Failure to disclose foreign assets
    • Failure to disclose foreign income
    • Unfiled tax returns

    What Conditions Must Be Met for the Voluntary Disclosures Program?

    Taxpayers (including individuals, employers, corporations, partnerships, or trusts) can make an application to the Voluntary Disclosures Program (VDP). However, certain conditions must be met to qualify for the program.

    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 reporting period past due; and
    • include payment of the estimated tax owing.

    Three Tracks: GST/HST, General, & Limited 

    Track One: GST/HST Wash Transactions

    Category 1 specifically provides relief for applications involving GST/HST wash transactions that are eligible for a reduction of penalty and interest. Wash transactions occurs when a taxable supply (other than a supply taxable at 0%) is made and the supplier has not remitted an amount of net tax by virtue of not having correctly charged and collected the tax from the recipient who is a GST/HST registrant, who would have been entitled to claim a full input tax credit (ITC) if the tax had been applied correctly.

    General or Limited? Which Program Will You Be Processed In? 

    Where the taxes payable do not involve GST/HST wash transactions, an applicant who applies for the Voluntary Disclosure Program is processed either in a general or limited program. Which track the applicant enters depends on a number of factors, the most salient being whether the applicant acted out of intentional misconduct or whether it was an error.

    Other factors that determine which track an applicant is processed include:

    • the dollar amount involved;
    • the number of years of non-compliance;
    • the sophistication of the taxpayer/applicant; and
    • whether efforts were made to avoid detection through the use of offshore vehicles and other means

    CRA Voluntary Disclosures Program

    The differences between the limited and general tracks relate to the extent of relief in the penalties and interest that may be forthcoming. However, as mentioned earlier, there can be no relief provided in the amount of taxes that must be paid as far as the principal tax owed.

    General Program

    For those whose misconduct was the result of an error, he/she may enjoy relief from all penalties, referral for prosecution, and partial interest for interest that accrued during the previoius 10 calendar years before the end of the reporting period in which the application was filed. preceding the three most recent years of returns. Generally speaking, interest relief 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. 

    Limited Program

    The Limited Program provides limited relief—that is, while the applicant will not be referred for criminal prosecution and will not be charged gross negligence fees—he/she will still be charged other penalties and interest as applicable. Under the Limited Program, participants will also have to sign a waiver of their right to object and appeal in relation to the specific issue disclosed.

    Generally, applications by corporations with gross revenue in excess of $250 million in at least two of their last five taxation years, and any related entities, will be considered under the Limited Program.

    The differences in the consequences associated with the Limited and General Tracks:

     General ProgramLimited Program
    Criminal ProsecutionNoNo
    Tax ReliefNoNo
    PenaltiesNoNo gross negligence penalties, but other penalties will apply
    Interest ReliefFor the years preceding the three most recent years of returns. Full interest is still applicable for the three most recent years of returns.No

    Penalty Relief Under the Voluntary Disclosure Program

    The Voluntary Disclosure Program allows an individual to come forward and correct their previously incorrect filed return by replacing it with correct information, without facing the penalties or interest that would otherwise apply.

    The amount of penalty relief depends on which program you will be processed in. For the GST/HST wash transactions and the General Program, there is 100% penalty relief. For the Limited program, there is no gross negigence peanlty but other penlaties will apply. Penalty relief will only apply to penalties the apply within 10 years before the reporting period in which the VDP application was filed. 

    Track One: GST/HST Wash Transactions: 100% Penalty Relief

    Track Two: General Program: 100% Penalty Relief

    Track Three: Limited Program: No gross negligence penalties, but other penalites will apply. 

    Interest Relief Under the Voluntary Disclosure Program

    The amount of interest relief depends on which program you will be processed in. For GST/HST wash transactions, there is 100% interest relief. For the general program, there is 50% interest relief. For the limited program, there is no interest relief whatsover. Interest relief is limited to the interest that accrued during the previous 10 calendar years before the end of the reporting period in which the application is filed.

    Track One: GST/HST Wash Transactions: 100% Interest Relief

    Track Two: General Program: 50% Interest Relief

    Track Three: Limited Program: No Interest Relief

    Prosecution Relief

    In addition to penalty and interest relief as explained above, if a VDP application is accepted by the CRA, the registrant will not be referred for criminal prosecution with respect to the disclosure.

    Why You Need a Tax Lawyer

    It is imperative that those who apply to the Voluntary Disclosure Program are accepted into the program since penalties and accrued interest will be levied otherwise. For this reason, it is important to obtain the services of a tax lawyer to prepare your voluntary disclosure application to ensure both your acceptance into the program and to mitigate any consequences for non-disclosure.

    A voluntary disclosure is a legal procedure so it’s best carried out under solicitor client privilege through a Canadian tax lawyer. Our expert Canadian tax lawyers can provide detailed preparation and submissions to the VDP. We go through each criterion to ensure that all the tests are met to the satisfaction of the CRA VDP to maximize our clients’ chances of being accepted into the General Program.

    In brief:

    What is the CRA Voluntary Disclosure Program?
    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
    What are the penalties for non-disclosure?
    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.
    What conditions must be met to be eligible for the Voluntary Disclosures Program?
    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.
    What is the difference between the general and limited tracks of the Voluntary Disclosure Programs?
    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.
    What can I expect in terms of interest relief if I am accepted into the Voluntary Disclosure Program?
    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.
    Can I apply for the VDP without disclosing my name?
    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.
    What changes to the VDP were instituted as of March 1, 2018?
    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.
    Is there any time-limit for providing information and documentation for the disclosure so that the application is not rejected?
    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.
    How do I apply for the Voluntary Disclosure Program
    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.
    What happens if the CRA rejects my application for the VDP?
    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.
    Can I appeal a decision made by a VDP officer?
    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.
    What happens if the Canada Revenue Agency denies my disclosure?
    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.
    Where can I find the contact information for the Canada Revenue Agency’s Tax Services Office (TSO) in the provinces of Canada responsible for its Voluntary Disclosure Program?
    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
    Can a taxpayer make more than one disclosure to the Voluntary Disclosure Program?
    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.
    Do I need a tax lawyer to file an application to the Voluntary Disclosure Program?
    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.

    -Shira Kalfa, BA, JD, Partner and Founder

    © Kalfa Law 2019

    The above provides information of a general nature only. This does not constitute legal advice. All transactions or circumstances vary, and specified legal advice is required to meet your particular needs. If you have a legal question you should consult with a lawyer.

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