The Voluntary
Disclosure Program (also known as VDP, Voluntary Disclosure Application, or Tax
Amnesty) is a program that CRA administers to allow taxpayers to come clean
about tax information the taxpayer previously failed to properly report.
Properly applied for, this Voluntary Disclosure Program
will allow you to benefit in three ways:
1.
Avoid
penalties
2.
Reduce
your interest burden on the tax that should have been paid earlier and (most
importantly)
3.
Create a
defence against criminal so you can avoid the potential fines and imprisonment.
The VDP Program generally
applies where:
·
Tax returns that have not been
filed
·
Tax returns were filed but you
deducted for expenses that you had no right to claim (or could not support if
audited)
·
Tax returns that include
contributions/write-offs related to investments, charity donation schemes, etc.
that you were not entitled to
·
Income (anywhere in the world)
that you did not declare and more…
Whether you knew what
you were doing was wrong or if these inaccuracies were the result of bad
advice, poor bookkeeping or simply procrastination – a Voluntary Disclosure
application can work in your favour to make the correction the least painful it
could possibly be.
While in the above
instances a Voluntary Disclosure Program application can make good sense, you
must be confident that you qualify before approaching the government. If you do
not qualify and “wake the sleeping bear” you may find yourself opening yourself
up to severe collections action (or even prosecution) before you had got yourself
into a position to deal with that type of fall out. To qualify for VDP:
1. Tax disclosed must be at least one year old;
2. It must involve a penalty;
3. Your disclosure must be complete and
4. Your disclosure must be voluntary.
The last point sounds
very simple but is the most common reason we see VDP Applications being denied:
if CRA has been contacting you to file your returns, has requested information
about a past return or informed you of an upcoming audit or investigation –
disclosure is not considered voluntary and you do not qualify.
The next challenge in
filing a VDP Application is that you need to know what information you should
not provide. You have to be very aware of the potential consequences of opening
up other areas of question, audit or review that can come back to bite you. Do
not include unnecessary information such as your banking information or
personal financial information (not tax related) which is not relevant to the
VDP application but can be used against you later – particularly in collection
efforts by CRA. Sometimes this
information is provided inadvertently. For example, sending a copy of a bank
statement or sending payment directly from your account by cheque.
You also need to
decide if you will avail yourself of the right to come forward
anonymously. By correctly using this
“No-Name Policy” process we are able to get from CRA a formal decision on the
validity of your VDP Application without them knowing who you are. This is very useful where the consequences of
coming to CRA’s attention without access to the VDP benefits would be extremely
detrimental to you. Using this technique
you can lock-in your protection under the safety of anonymity.
The VDP process is an
official process that can take up to a year to complete. While the actual program is administered
centrally by CRA, assessments and other issues related to your Voluntary
Disclosure Application that need to be finalized by Revenue Canada can land at
different processing centres for different years, issues, types of taxes,
etc. These different tax service centers
then process at different speeds resulting in confusion within the CRA
assessment system. You can receive
significantly incorrect assessments until the entire matter is once again
brought back into the complete and organized package it started out as when you
made the VDP Application. Knowing how to
navigate the maze at CRA is an art form in itself.
Key Takeaways:
·
If you have undisclosed income or
some other tax liability as described in this blog and have not yet been
contacted by CRA – time is of the essence, get into the program before CRA gets
to you.
·
Ensure that you make complete
disclosure
·
Consider seeking professional
representation to avoid being rejected because you make common mistakes of
amateurs. At the very least ensure you
have downloaded all CRA guides and are crystal clear on the process
·
If your
application or disclosure is not completed properly it can be rejected.
Remember that after
you make your VDP application you will have a tax debt. If you cannot pay in
full, CRA will come after you and look for any information they have on record
relating to your employment, income sources, assets, bank accounts and anything
else that they can seize or garnish to force you to pay. Payment plans are possible but these too are
different to the standard business negotiations. Your professional can help here as well.
For more information
about how to make a Voluntary Disclosure application please visit www.taxsolutionscanada.ca or call 1-888-868-1400.
No comments:
Post a Comment