Does Tax Amnesty in Canada Really Exist?

When you file your taxes on time, accurately, every year, you likely don’t suffer from the stress that tax compliance issues can bring. However, if you are one of the many Canadians that fall behind filing or find expenses or donations disallowed resulting in large penalties and tax debt, that stress can become overwhelming. Even worse is the stress that can come with the knowledge that you have filed incorrectly, even if Canada Revenue Agency (CRA) hasn’t caught you yet - you worry every day that they will. The constant fear of a CRA notional assessment, re-assessment, audit or CRA enforcement action is frightening and sits in the back of your mind no matter how much you try to ignore it. If you have found yourself in this position, you might be thinking ‘does tax amnesty in Canada really exist,’ and if so, how can you access it?

Tax amnesty does exist in Canada. This does not mean however that if you fail to file returns year after year and then seek tax amnesty that you will necessarily qualify. Tax amnesty in Canada is covered by the Federal Government’s Voluntary Disclosure Program (VDP).

What is VDP? The Voluntary Disclosure Program exists to give taxpayers the chance to file late returns or correct any incorrect filings, incorrectly claimed expenses, unreported income, etc. voluntarily. By admitting the error and working to correct it, the government may grant some relief from interest and penalties.

There are 4 conditions that you MUST meet in order to qualify:

1.      The tax year in question must be at least 1 year old.

2.      The voluntary disclosure must involve a penalty. This means that if you know that you will not incur a penalty after late filing, there is no ground to file (since it is unnecessary).

3.      The disclosure must be voluntary. This means that you cannot have been contacted by CRA with respect to the tax year in question.

4.      The disclosure must be complete. You have to ensure that your application contains ALL of the information, tax slips, claims, etc.

If you know that you have made a mistake on a return in the past, or if you have failed to file and are constantly worrying about it, it might be time to consider making an application for tax amnesty before it is too late and CRA notionally assesses you.

Accessing the VDP has to be done correctly the first time – there are no second chances.  That is why it is always a smart choice to consult a tax professional and engage their services first. They can help steer you successfully through the VDP process, assess whether or not you qualify, and assist in filling out the application properly.   As we said above – there is no opportunity to redo the filing.  One strike and you are out!

For more information about tax amnesty through the Voluntary Disclosure Program, please contact Tax Solutions Canada today by calling 1-888-868-1400.

What is a Notional Assessment or a CRA Tax Assessment?

With the Canadian income tax deadline behind us, those who, for whatever reason, chose not to file this year (or any past year) may be thinking that it is too late and that there is no real urgency to file now. Many people don’t file their annual tax returns because they know that they will owe money that they do not have (so why tell on yourself?) or because they made income that they don’t want to report. Regardless of your situation, if you have failed to file your 2012 income tax return beware - Canada Revenue Agency (CRA) simply completes a notional assessment (CRA tax assessment) on those individuals who have not filed their returns. 

What is a notional assessment, commonly known as an involuntary CRA tax assessment? This is when you have not filed your tax returns and CRA arbitrarily completes a tax assessment on your behalf. This means that they will estimate (guess) your income and file your tax return for you. The CRA does not prepare the return in your best interests.  If you are notionally assessed as owing, your tax debt, along with interest and penalties, will be applied retroactively, and CRA will attempt, through all their various means, to collect the money from you.

If you are late filing your tax returns, how does CRA conduct an arbitrary or notional tax assessment? A prime example is your client being audited. Any payment to you will be found during the audit, and CRA may assess you as a result. If you work as a subcontractor, the contractor who pays you will file a tax slip indicating the income they paid you for the year (if you are not being paid in the name of a business). If a builder or homeowner pays you for a side job by cheque, and you don’t report that payment, the homeowner may claim it on their tax return. If CRA asks them for the receipt or invoice to support their expense the dots will then connect back to you.  CRA auditors are experts at looking for and connecting these dots.

Tax slips may have been filed by someone else or calls may have been made to the CRA Snitch Line, meaning the government often becomes aware of your unreported income and that leads to involuntary CRA tax assessments. It does not matter why you failed to report all of your income, whether because you were unaware that you were required to or because you were trying to buy time because you didn’t have the money to pay. The CRA Snitch Line is often used as a revenge or spite site for unreported income, a very common occurrence, especially with ex-spouses or ex-business partners. In both of these scenarios a CRA tax assessment could ensue, or worse, an audit or investigation could begin.

Once you have been notionally assessed, you need to (re-)file your returns voluntarily and right away. This may result in less debt owing. If you operate a business you may not be eligible to claim input tax credits for HST on tax years older than 4 years, so time is of the essence.  It is also a good idea to retain professional representation, especially if you feel that the CRA tax assessment is incorrect. It is never a good idea to try to negotiate with CRA directly, as they will attempt to obtain information from you which can be used against you in the future. 

If you have been sent a notional assessment it is important to act quickly rather than ignoring the involuntary CRA tax assessment. A tax professional that can negotiate on your behalf and help you navigate the entire process is a great way to keep yourself protected.

If you are dealing with a notional assessment (involuntary CRA tax assessment) and need help, please contact Tax Solutions Canada by calling 1-888-868-1400 or visit us online at www.taxsolutionscanada.com.