This article provides general information about voluntary disclosures (“VDs”) and the Canada Revenue Agency’s (the “CRA”) voluntary disclosure program (“VDP”).
The CRA has published an information circular (in this memo, the “Circular”) on VDs: please see IC00-1R4. Please also see the CRA website on VDs. The Circular and the website contain a lot of valuable information about the program. We recommend that you read these materials to familiarize yourself with how VDs work and what they can and cannot accomplish.
What follows is not meant to be a comprehensive review of VDs. Rather, it highlights certain important information of which you should be aware before making a disclosure.
What Is A Voluntary Disclosure?
To quote from the CRA website:
The Voluntary Disclosures Program (VDP) allows taxpayers to come forward and correct inaccurate or incomplete information or to disclose information they have not reported during previous dealings with the CRA. Taxpayers may avoid being penalized or prosecuted, if they make a valid disclosure.
Conditions For A Valid Disclosure
The CRA takes the position that a VD for a taxpayer is valid only if all of four conditions are met.
The VD must be voluntary
For example, the taxpayer can’t make a VD and also be aware of an enforcement action by the CRA or any other tax authority that relates in any way to the information being disclosed.
No one can guarantee that the CRA will consider any particular disclosure to be voluntary. The CRA might have in its possession information about you that, in its view, negates your ability to make a disclosure. We have no way of knowing what information the CRA has about you or your tax affairs in this regard.
The VD must be complete
The taxpayer must disclose all information relating to all errors or omissions. The taxpayer must disclose all errors or omissions in all prior returns. If the VD is incomplete in any way, then the CRA could take the position that the taxpayer is liable for penalties or prosecution in respect of all errors or omissions including those that have been disclosed as part of a VD.
We cannot guarantee that the CRA will consider your disclosure to be complete. You might believe that you have disclosed to us all errors or omissions that need to be dealt with through a disclosure, but the CRA might become aware of other errors or omissions of which you were unaware that, in its view, invalidate your disclosure. In this regard, we can only suggest that, if you have any doubts about the correctness of your tax reporting for prior years, you should review those concerns with us so that we can suggest a method for dealing with any potential problems.
You must disclose errors and omissions for all years. This means that if you are aware of omissions in, say, 1996, you should disclose them. The CRA will not provide assurance that a VD will be complete or that it will not impose penalties or prosecute merely because the errors or omissions relate to years in the distant past.
Please also keep in mind that the CRA takes the view that a taxpayer is generally entitled to make only one VD in his or her lifetime.
The VD must relate to an error or omission where a penalty might apply (for example, a penalty for gross negligence).
One Year Past Due
The information you are seeking to disclose must be at least one year past due. You cannot avoid a late-filing penalty for your tax return for a year, which is generally due by April 30 of the year following, by filing the return in July of the year following under the VD program. On the other hand, you can avoid late-filing penalties for such a return if it is part of a VD that covers other information that meets this condition. For example, if you have not filed returns since year X, you can make a voluntary disclosure in July, Year X+4, by filing returns for years X to X+3, and the CRA will not impose late-filing penalties for any of those years, including Year X+3.
VD Risks and Limits
A VD by its nature entails certain risks, and we cannot guarantee that a disclosure will result in the waiver of penalties or the avoidance of prosecution.
A voluntary disclosure generally does not result in the reduction or elimination of tax or interest (but see ¶ 12 of IC00-1R4).
The CRA will not waive late-filing penalties and other non-discretionary penalties in respect of periods that are more than 10 years before the year in which you make the disclosure. The CRA, however, will generally waive gross negligence penalties for such years if the disclosure otherwise meets the requirements of a valid VD.
We suggest that, if possible, you pay any liability related to the disclosure as soon as possible after making the disclosure so that you can avoid the accumulation of additional interest.
As part of the disclosure, you will be given 90 days from the effective date of disclosure to submit all required documentation including all returns that must be filed. The CRA is quite strict about this 90-day period. Extensions are rarely given and then only in very special circumstances. In general, the effective date of the disclosure is the day on which we communicate with the CRA for the first time about your disclosure, including any such communication that is on a no-names basis.
The CRA takes the position that legal fees incurred to prepare a voluntary disclosure application are not deductible under the Income Tax Act (Canada). If, however, the CRA proposes to revise income or tax payable in connection with the VD, then fees paid to make representations against the proposal would be deductible.
Making a Disclosure with Us
For more information on making a voluntary disclosure through Loukidelis Professional Corporation, please contact us.
We regret that we cannot provide free consultations on voluntary disclosures. Our practice is to charge for the time we spend with a client to provide the advice he or she needs. We don’t provide free consultations, which might give us an incentive to convince you to follow a disclosure process that you do not need. If our advice is that you do not need to proceed with a disclosure, and you decide not to proceed, then you will owe us for the consultation and nothing more. Our aim is provide impartial advice on your circumstances.