Voluntary Disclosure Program

Voluntary Disclosure Program 2018-05-24T16:33:03+00:00

What Is Voluntary Disclosure Program (VDP)?

The Voluntary Disclosures Program gives you a second chance to change a tax return you previously filed or to file a return that you should have filed. You can apply to the Canada Revenue Agency (CRA) to ask for relief of prosecution and penalties. Let’s say you did not report all your income or claimed too many expenses and now want to come clean and fix your tax return. The VDP only works if your come upfront and disclose to the CRA about your situation before the CRA finds out. If the CRA already knows about your situation or is already preparing an Audit of your corporation, then most likely your VDP request will not be accepted as the CRA would uncover the situation anyway.

Taxpayer Use Of VDP

Some of the examples where a taxpayer could use the VDP and contact us for assistance, is if you did not:

  • fulfill your tax obligations
  • report taxable income you received
  • claim the right expenses on your tax return
  • remit your employees’ payroll deductions
  • report an amount of GST/HST, which may include undisclosed liabilities or improperly claimed refunds or rebates, unpaid tax or net tax from a previous reporting period
  • file information returns
  • report foreign income that is taxable in Canada

Before you apply for relief with the CRA, make sure your correction meets all of the following conditions:

  • a penalty would apply
  • it is voluntary, which means you make it before you are aware of the CRA taking any compliance action against you
  • the information is at least one year overdue
  • it includes all the relevant information

If you meet these conditions, the CRA will look over your correction and decide whether they will provide a relief from penalties.

Why should I fix my tax returns and disclose to CRA?

There are many reasons why you should come upfront and disclose your situation to the CRA:

  • There is a maximum penalty of 250% of unreported income if you do not disclose all your income to CRA
  • You would still have to pay your income tax, but now with heavy penalties and interest and a red flag to your account with CRA forever. CRA is very strict when a taxpayer does not disclose all his income or claim excessive business expenses which were never incurred. But when a taxpayer uses VDP, the taxpayer has all the rights VDP comes with and the taxpayer is as clean as any other taxpayer.
  • We can negotiate your tax debt with the CRA and make arrangements so you can continue paying your other bills. Get peace of mind after you call us, as the taxpayers who’ve received continuous threats from CRA collection officers to pay the debt would know. Contact us today so we can help you in the best possible manner and negotiate with Canada Revenue Agency on your behalf
  • We charge you a reasonable fee compared to other tax firms providing a similar level of expertise and knowledge in VDP

How Would The CRA Find Out?

It’s pretty common if you do not file your income taxes before the due date and you are not in compliance with the Income Tax Act, there are very high chances that you will receive a notice from CRA to file your tax returns and if you ignore it, then you will mostly likely have to face an Auditor and will have to pay unnecessary penalties and interest. You would end up losing the privilege and benefits of Voluntary Disclosure Program if you received that first notice.

Every business is required to issue information slips such as T4, T4A and T5018 for payments to employees, self-employed individuals or subcontractors they hire to work for them so they can claim them on their business taxes. Every information slip is inserted with the name and designated number of the person who it relates to. When CRA starts matching program during summers, they can easily track how much was paid to you in the year.

It is possible you could be selected for a random audit based on CRA policies and procedures. Let’s say the CRA is reviewing corporations claiming professional fees paid over $5,000. So, if your corporation has claimed professional fees over $5,000, then your corporation could be selected for a random audit and the CRA may look at you more closely by comparing figures reported on your corporate returns to other corporations in your industry.

Another company you are doing business with gets audited and they have claimed expense of $40,000 paid to you on their corporate return. Therefore, an equal amount should be reported as income on your tax return. If the CRA verifies that expense claimed on one side is being reported as income on the other side, and if it’s not the case, then there is a 100% chance of you being audited next.

The CRA takes abuse of Canada’s tax laws very seriously. When an individual or business does not fully comply with tax legislation, an unfair burden is placed on law-abiding taxpayers and businesses, and the integrity of Canada’s tax base is jeopardized.

This is mostly used by ex-spouses, ex-employees, or your competitors. It takes a simple phone call or an email or a fax to CRA to upset your life and disclose about your foreign income properties or about your undisclosed sources of income.

The new Offshore Tax Informant Program (OTIP) allows the CRA to make financial awards to individuals who provide information related to major international tax non-compliance that leads to the collection of taxes owing.

Most businesses in Canada now have a website promoting their business. The CRA always looks for leads and if you have a website promoting your business, but not reporting the income of that website on your tax return, the CRA will find you. There is already a column on your statement of business activities form where you have to disclose the address of your website or any online platform that you are using for online sales.

When a large sum is deposited into your bank account from overseas, banks have a legal obligation to inform the CRA of the deposit. The CRA in many cases contact the taxpayers to find out the nature of the deposit. The deposit could be a lending hand from your family or could be a loan from overseas or it could be your own savings before you migrated to Canada. But if you cannot support the deposit and explain CRA, the CRA will treat it as your income and penalties up to 250% could be charged on those funds if not properly explained.

Every real estate (Sale and Purchase) transaction in Canada is recorded in the land registrar office. The CRA has access to all the information regarding properties sold and bought in Canada. So, if you sell a property in Canada (even your principal residence) and do not report the sale in your tax return, there is a 95% chance CRA will contact you and will be charged with huge penalties and interest for not reporting the sale. You can claim a Principal Residence Exemption (PRE) when you sell your principal residence, but reporting is a must.

For example, many people through the advice of their friends or sometimes their real estate agents buy a condo, claim the HST rebate which is a huge savings, keep it for 6-8 months and then eventually sell it without reporting it on your tax return thinking they don’t have to pay tax on it. Down the road it could be 2 or 3 years, they would get a letter from CRA asking for documents and eventually end up including what they think should be a capital gain in to their tax returns as business income. Again, penalties and interest apply.

The CRA has set up a special department for dealing with real estate sales transactions. So, before you sell your condo or your house, please contact us so we can guide you how it could impact you. We have helped many taxpayers under the same circumstances and prepared the necessary documents to provide the CRA with relevant information.

The world is changing and with that our economy is changing too. We are dependent on other countries for business, and trade is the only tool to grow in this ever-changing economy. Many countries know and understand that tax evasion is the biggest enemy hurting their economy and ultimately their books. Canada has tax treaties with the majority of the nations in the world and has information-sharing agreements where they continuously share and collect information and help each other to combat the tax evasion.

For example;

In March 2010, the U.S. enacted the Foreign Account Tax Compliance Act (FATCA). FATCA would require non-U.S. financial institutions to report to the U.S. Internal Revenue Service (IRS) accounts held by U.S. persons.

Under the intergovernmental agreement, relevant information on accounts held by U.S. residents and U.S. citizens (including U.S. citizens who are residents or citizens of Canada) are reported to the Canada Revenue Agency (CRA). The CRA exchanges the information with the IRS through the provisions and safeguards of the Canada-U.S. tax treaty.

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