May 20, 2024

Rectifying Taxes With Canada’s Voluntary Disclosures Program

The Voluntary Disclosure Program (VDP) allows individuals and corporations to rectify errors or omissions in their tax information. It includes correcting inaccuracies, disclosing previously unreported information, or submitting overdue tax returns. 

If your application under the CRA voluntary disclosure program gets accepted, you must settle the outstanding taxes and any applicable interest. However, this process can grant you relief from legal prosecution and, in certain instances, reduce or eliminate penalties and a portion of the claim that would otherwise be mandatory.

Ensuring that the VDP’s benefits are equitable is crucial, as most Canadians fulfill their tax obligations promptly and accurately. The program should not be misused to reward individuals or corporations seeking to evade their fair share of tax responsibilities.

Fairness to All Taxpayers

To make things fair for Canadians, if someone deliberately avoids paying taxes, they won’t get the same benefits as those who make an honest mistake.

Starting March 1, 2018, the Voluntary Disclosure Program (VDP) introduced two policies to ensure fairness. Information Circular IC00-1R6 applies to income tax-related applications. On the other hand, GST/HST Memorandum 16-5 covers applications related to excise duties, excise tax, GST/HST, and specific charges.

If your application is accepted under IC00-1R6, you’ll receive relief based on specific tracks.

First track: General program

The General Program offers assistance to taxpayers who wish to rectify inadvertent mistakes. Under this program, taxpayers won’t face penalties or criminal prosecution for the disclosed information. The CRA will also grant partial interest relief for the years preceding the most recent three years of required filings. 

Second track: Limited Program

The Limited Program offers restricted relief for applications revealing non-compliance with indications of intentional behaviour by the taxpayer or a closely related party. 

Taxpayers won’t face criminal prosecution or gross negligence penalties for their disclosure, but other penalties and interest may still apply.

To file for relief via IC00-1R6, your applications must satisfy these five prerequisites:

  • Completeness: Your application must contain all relevant information and documentation, including all necessary returns, forms, and schedules to correct the error or omission.
  • Estimated Tax Payment: You must pay for the estimated tax amount owed.
  • One-Year Overdue Information: The information disclosed must be at least one year overdue.
  • Penalty Application: The application must relate to a penalty’s actual or potential application.
  • Voluntary Submission: You must submit your application before CRA’s enforcement action related to the disclosed information is taken against you or anyone connected to you.

Furthermore, if the CRA has previously received information indicating a taxpayer’s involvement in tax non-compliance, the CRA will reject your application to the VDP. An example of this would be leaking offshore financial details.

Some common examples of applications typically eligible for relief under IC00-1R6 include:

  • Failure to file an information return 
  • Failure to pay employee source deductions 
  • Incorrectly claimed expenses
  • Unreported or underreported income

Questions About the VDP Application

You can utilize the pre-disclosure discussion service if you’re uncertain about proceeding with a VDP application. This service allows you to engage in initial conversations about your situation anonymously. 

During these discussions, taxpayers like you can gain insights into the VDP process, a clearer understanding of non-compliance consequences, and the relief available through the VDP.

It’s important to note that pre-disclosure discussions with a CRA official are designed for your benefit. They are informal, non-binding, and can occur before your identity is disclosed. These discussions don’t automatically mean acceptance into the VDP and do not impact the CRA’s ability to conduct audits, impose penalties, or refer a case for criminal prosecution.

To initiate a conversation with a CRA official, don’t hesitate to get in touch with General Inquiries:

  • Businesses (Canada and the United States): 1-800-959-5525
  • Individuals (Canada and the United States): 1-800-959-8281
  • For other telephone numbers, refer to the Canada Revenue Agency.

Take the First Step Toward Tax Resolution

Discover details on qualification, available relief choices, and initiating the procedure. Don’t delay; tackle your tax worries and assume command of your financial future. The valuable insights shared in this article aim to help you make informed choices and ensure a more promising economic horizon. 

Embark on the initial steps toward tax compliance and security. Your financial well-being is of utmost importance—act now. 

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