Does a Voluntary Disclosure Application Have to be Made by a Tax Lawyer?

You are probably getting confused by the different types of professionals blasting the radio airwaves with advertisements regarding why you should use them to make your Voluntary Disclosure Program (VDP) application.

Lawyers will say you have to use them because they can offer you increased protection, while some accountants say that VDP is an administrative process and you do not really need a lawyer and they are the ones to call… it can all be so confusing - and what is VDP anyway?

The VoluntaryDisclosure Program (VDP) is a program offered by CRA where you can come clean on undeclared income or get late returns filed without fear of penalties, interest or prosecution. Sound too good to be true? You have to qualify and comply with all the intricate steps of the program – but if you do then the result is absolutely worthwhile. This can save taxpayers significant sums of money and restore their credibility with CRA.

To qualify:

1. Disclosure must be voluntary – that means that if CRA has called you or sent you mail asking you to file late returns or requesting information from you, disclosure is not voluntary and you are not qualified for this program.
2. Disclosure must be complete – when you make a VDP application CRA expects you to come clean on everything. If you omit information they can reject your VDP application.
3. Disclosure must involve a penalty.
4. Disclosure involves a tax debt that is more than one year old.

Clearly the first 2 requirements are the most difficult to satisfy. A competent tax professional with experience making VDP applications will:

• Interview (in advance of asking you for a retainer) and ask you pre-qualifying questions.
• Validate – will ask you for paperwork to support your application once you have engaged them.
• Select whether you apply on a no-name basis for this program.
• Review – will review the VDP application with you before submitted to ensure that it is complete.

VDP is a sensitive process. Politically it looks like the CRA is trying to get everyone to come forward. They are – but with the usual tricks. If you make any mistakes (of which there are a significant number) you can disqualify yourself. That is scary – and the writer frequently sees situations where taxpayers are asking him what they can do because they did qualify - until their lawyer or accountant made a mistake and got them disqualified. Sadly, there is nothing that can be done to get the same level of relief once this avenue is closed to you.

A very common mistake we see is people getting themselves disqualified because the taxpayer (or their inexperienced professional) does not know what they are doing and calls CRA to gather documents. This call to CRA requesting documents tips CRA off that you will be making an application. Following this, they may request information from you and when that happens, disclosure is no longer voluntary and you will be dead in the water (also known as: disqualified).

Anyone can make a VDP application – a lawyer, an accountant, a tax firm, a tax advisory service or the taxpayer themselves. What is important is that the company has outstanding experience and an excellent reputation. You can learn this by Googling the company’s name: if it is a lawyer you can contact the Law Society to see if they have any outstanding complaints pending against them. If an accountant, you can do the same with their regulatory body.

Choosing the right representation can save you thousands and even 10s of thousands depending on the size of your tax problem - and save your reputation with CRA. 

If you have a tax problem and need help, or want more information about VDP, please contact Tax Solutions Canada today by calling 1.888.868.1400.

The 2 Most Common Ways to Lose Your Opportunity Under VDP

The Voluntary Disclosure Program is an official program offered by CRA where a taxpayer can come clean about undeclared income and past due returns with no penalties and much reduced interest. Failing to declare income or failing to file tax returns is a criminal offence. In addition to prosecution, fines and potential jail time you will most certainly be subject to significant financial penalties and interest under the Income Tax Act. 

For example, the 2012 penalties for late filing are 5% of the amount of the tax debt plus 1% per month for 12 months. If you also didn’t file your 2009, 2010 and/or 2011 returns on time the penalty increases to 10% of the amount of the tax debt and 2% per month for 20 months. CRA will also look for grounds to hit you with gross negligence penalties up to 50% of the tax debt that you owe.  All these penalties then incur interest just the same as the actual tax debt – compounding daily. 

This is why the Voluntary Disclosure Program is so advantageous. 

To qualify under the Voluntary Disclosure Program you must satisfy four criteria:

·        The tax debt must be at least one year old

·        The disclosure must involve a penalty

·        Disclosure must be voluntary

·        Disclosure must be complete

The 2 most common reasons that Voluntary Disclosure applications are rejected are because they were not voluntary or they were incomplete. This presents a double-edged sword to taxpayers because in order for disclosure to be complete you must come clean about all taxes you owe which may mean that you have to verify with CRA which years are outstanding or you may have to request tax slips.  

Contacting CRA before you have officially made an application for Voluntary Disclosure could flag your file and cause them to contact you which will then mean disclosure could be deemed as involuntary. There are very careful steps in the process and only a professional who practices in this area on a regular basis will have the knowledge of the steps and know exactly what documented proof they need at each stage.  This is one reason why most people will have a tax professional who specializes in preparing and processing applications for the Voluntary Disclosure Program to deal with their paperwork. 

Also, in the case of businesses, you may be making disclosure concerning business tax but because you did not address an issue concerning HST for example, CRA could deem that your application is incomplete. 

The Voluntary Disclosure Program is a very structured process that must be navigated carefully or you could lose the valuable opportunity to avoid penalties, interest and prosecution.  CRA want to get the non-compliant taxpayers back to the table.  But they don’t really want to forgo the interest and penalties so they make it relatively easy to fail to make a successful application under the program. 

It is important if you want to apply under the Voluntary Disclosure Program that you have gathered all documentation, have reviewed and considered all tax years and types of tax that could present an issue and proceed accordingly.

For more information about the Voluntary Disclosure Program, please contact Tax Solutions Canada by visiting www.taxsolutionscanada.com or call 1-888-868-1400.