Audits and assessments undertaken by the Canada Revenue Agency (CRA) that uncover errors or omissions by a taxpayer can lead to significant penalties. These penalties can range from a percentage of unpaid taxes to fixed monthly penalties, up to $2,500 per incident, in the case of late-filed information forms. In severe cases, criminal charges and jail time could result.
Since 1985, the CRA has provided an opportunity for taxpayers to correct errors or omissions in prior tax filings through the Voluntary Disclosures Program (VDP). Applications accepted under the VDP generally provided relief from penalties resulting from errors or omissions. In some circumstances, relief from interest charges was also granted.
Effective March 1, 2018, changes to the VDP have reduced the relief available for many applicants. Under the new VDP, applications fall under one of two programs:
- General Program – Applications are eligible for full penalty relief and partial interest relief. Taxpayers will not be subject to criminal prosecution or gross negligence penalties.
- Limited Program – Applications are eligible for reduced penalty relief and no interest relief. Taxpayers will not be referred for criminal prosecution with respect to the disclosure and will not be charged gross negligence penalties.
The CRA will consider several factors when assigning an application to a program, including:
- efforts made to avoid detection (such as the use of offshore vehicles);
- the dollar amounts involved;
- the number of years of non-compliance;
- the sophistication of the taxpayer; and
- whether an application was made before or after the receipt of CRA correspondence.
Applications are assigned to the General Program or the Limited Program on a case-by-case basis by the CRA based on the particular circumstances of each application. Previously, all VDP disclosures were processed under what is now the General Program.
In order for an application to be eligible for the VDP, the disclosure must meet the following criteria:
- Voluntary – The taxpayer has no knowledge of impending enforcement action (including requests for information) by the CRA relating to the information being disclosed.
- Complete – Disclosure must be made for all taxation periods where there were inaccurate, incomplete or unreported amounts.
- Penalty – The disclosed information must be subject to some sort of penalty had the disclosure been made outside of the VDP.
- One year past due – The application must include information that was due for filing more than one year previously.
- Payment - Payment of the estimated tax owing must be included with the application. This requirement was added as part of the recent VDP changes.
Absent special circumstances, a taxpayer may apply under the VDP only once. Additional VDP applications could be denied by the CRA.
Should you find yourself wishing to make an application under the VDP, contact your nearest Collins Barrow office for more information and guidance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.